Essent Group Ltd. (Essent) provides private mortgage insurance and reinsurance, and title insurance and settlement services to mortgage lenders, borrowers and investors to support homeownership.
Mortgage insurance facilitates the sale of low down payment (generally less than 20%) mortgage loans into the secondary mortgage market, primarily to two government-sponsored enterprises (‘GSEs’), Fannie Mae and Freddie Mac.
The company conducts its operations through one primary business segment: Mort...
Essent Group Ltd. (Essent) provides private mortgage insurance and reinsurance, and title insurance and settlement services to mortgage lenders, borrowers and investors to support homeownership.
Mortgage insurance facilitates the sale of low down payment (generally less than 20%) mortgage loans into the secondary mortgage market, primarily to two government-sponsored enterprises (‘GSEs’), Fannie Mae and Freddie Mac.
The company conducts its operations through one primary business segment: Mortgage Insurance.
The company’s Mortgage Insurance segment offers private mortgage insurance and reinsurance for mortgages secured by residential properties located in the United States. The company provides private mortgage insurance on residential first-lien mortgage loans (‘U.S. mortgage insurance’) through its U.S. mortgage insurance subsidiary, Essent Guaranty, Inc., which the company refers to as ‘Essent Guaranty’, and also offer other credit risk management solutions, including contract underwriting, to its customers. Through the company’s wholly owned, Bermuda-based subsidiary, Essent Reinsurance Ltd., which it refers to as ‘Essent Re’, it reinsures the U.S. mortgage risk in the GSE credit risk transfer market and provides underwriting consulting services to third-party reinsurers.
The company also offers title insurance prducts both directly and through a network of title insurance agents, as well as title and settlement services. This operating segment was established upon its acquisitions of Agents National Title Insurance Company (renamed Essent Title Insurance, Inc. effective January 1, 2025), a title insurance underwriter, and Boston National Title, a national title agency, on July 1, 2023. The company’s title insurance operations are included in ‘Corporate and Other’ within its segment-related disclosures.
Products and Services
In general, there are two principal types of private mortgage insurance, primary and pool.
Primary Mortgage Insurance
Primary mortgage insurance provides protection on individual loans at specified coverage percentages. Primary mortgage insurance is typically offered to customers on individual loans at the time of origination on a flow (i.e., loan-by-loan) basis, but can also be written in bulk transactions (in which each loan in a portfolio of loans is insured in a single transaction). A substantial majority of the company policies are primary mortgage insurance.
Customers that purchase the company primary mortgage insurance select a specific coverage level for each insured loan. To be eligible for purchase by a GSE, a low down payment loan must comply with the coverage percentages established by that GSE. For loans not sold to the GSEs, the customer determines its desired coverage percentage.
The company files its premium rates with the insurance departments of the 50 states and the District of Columbia as required. Premium rates cannot be changed after the issuance of coverage and premiums applicable to an individual loan are based on a broad spectrum of risk variables, including coverage percentages, loan-to-value, or LTV, loan and property attributes, and borrower risk characteristics.
As of December 31, 2024, substantially all of the company policies are monthly or single premium policies.
Pool Insurance
Pool insurance is typically used to provide additional credit enhancement for certain secondary market and other mortgage transactions. Pool insurance generally covers the excess of the loss on a defaulted mortgage loan that exceeds the claim payment under the primary coverage, if such loan has primary coverage, as well as the total loss on a defaulted mortgage loan that did not have primary coverage. Pool insurance may have a stated aggregate loss limit for a pool of loans and may also have a deductible under which no losses are paid by the insurer until losses on the pool of loans exceed the deductible. In another variation, generally referred to as modified pool insurance, policies are structured to include an exposure limit for each individual loan, as well as an aggregate loss limit or a deductible for the entire pool.
Master Policy
The company issues a master policy to each customer approved as a counterparty by its risk department before accepting their applications for mortgage insurance. The master policy, along with its related endorsements and certificates, sets forth the general terms and conditions of the company’s mortgage insurance coverage, including loan eligibility requirements, coverage terms, policy administration, premium payment obligations, exclusions or reductions in coverage, conditions precedent to payment of a claim, claim payment requirements, subrogation and other matters attendant to its coverage.
Mortgage insurance master policies generally protect mortgage insurers from the risk of material misrepresentations and fraud in the origination of an insured loan by establishing the right to rescind coverage in such event. Pursuant to the minimum standards for mortgage insurer master policies enacted by the GSEs and the Federal Housing Finance Agency (FHFA), the company’s master policy provides rescission relief for loans that remain up to 36 months after origination, have not experienced more than two late payments of 30 days or more, and have never been 60 days late, or after 60 payments, and otherwise permits the provision of rescission relief concurrent with independent validation of representations, including validation by use of duly approved automated tools. The company’s master policy also reserves rescission rights with respect to fraud committed by any party in connection with the origination or closing of a loan or application for mortgage insurance (provided, however, that the exclusion for fraud by borrowers may be sunset after the borrower has made 12 timely payments) and certain patterns of fraud or data inaccuracies and permits it to offer certain alternatives to rescission.
Contract Underwriting
The company provides contract underwriting services on a limited basis. As a part of these services, the company assess whether data provided by the customer relating to a mortgage application complies with the customer's loan underwriting guidelines. These services are provided for loans that require private mortgage insurance, as well as for loans that do not require private mortgage insurance. Under the terms of the company’s contract underwriting agreements with customers and subject to contractual limitations on liability, it agrees to indemnify the customer against losses incurred in the event that it makes an underwriting error which materially restricts or impairs the saleability of a loan, results in a material reduction in the value of a loan or results in the customer being required to repurchase a loan.
The U.S. Mortgage Insurance Portfolio
All of the company the U.S. mortgage insurance policies in force.
Portfolio by Geography
The company’s direct U.S. mortgage insurance in force portfolio is geographically diverse.
Defaults and Claims
Defaults
The default and claim cycle for a mortgage insurance policy begins with receipt of a default notice from the servicer. The company consider as loan to be in default when it is notified by the servicer that the borrower has missed at least two consecutive monthly payments. Defaults may occur for a variety of reasons, including death or illness, divorce or other family problems, unemployment, changes in economic conditions, declines in property values that cause the outstanding mortgage amount to exceed the value of a home or other events. The company has delegated certain authority to the GSEs and their servicers to exercise some of these alternatives.
The weighted average life of the company’s U.S. mortgage insurance portfolio was 33.3 months as of December 31, 2024. It is possible, however, that the company’s level of defaults may increase as its portfolio seasons.
As of December 31, 2024, 18,439 of the company’s insured loans, representing approximately 2.27% of its aggregate U.S. mortgage insurance policies in force, were in default status.
Claims
Defaulted mortgages that are not cured result in claims. The insured customer must acquire title to the property before submitting a claim. The time in which a customer may acquire title to a property through foreclosure varies, depending on the state in which the property is located. Historically, on average, mortgage insurers do not receive a request for claim payment until approximately 18 months following a default on a first-lien mortgage. This time lag has increased in recent years as the industry has experienced a slowdown in foreclosures (and, consequently, a slowdown in claims submitted to mortgage insurers) largely due to foreclosure moratoriums imposed by various government entities and lenders and increased scrutiny within the mortgage servicing industry on the foreclosure process.
Upon review and determination that a claim is valid, the company generally have the following three settlement options:
Percentage option—determined by multiplying the claim amount by the applicable coverage percentage, with the customer retaining title to the property. The claim amount is defined in the master policy as consisting of the unpaid loan principal, plus past due interest, subject to a defined maximum, and certain expenses associated with the default;
Third-party sale option—pay the amount of the claim required to make the customer whole, commonly referred to as the ‘actual loss amount’ (not to exceed the company’s maximum liability as outlined under the percentage option), following an approved sale; or
Acquisition option—pay the full claim amount and acquire title to the property.
Customers, Sales and Marketing
The company’s mortgage insurance customers consist of originators of residential mortgage loans, such as regulated depository institutions, mortgage banks, credit unions and other lenders. The company’s top ten customers generated 50.2% of its NIW on a flow basis during the year ended December 31, 2024. For the years ended December 31, 2024, revenue from one customer, United Wholesale Mortgage, exceeded 10% of the company’s consolidated revenue.
The company seeks to maintain strong institutional relationships with all of its U.S. mortgage insurance customers. The company provides them with ongoing risk, sales, training, service and product development support. The company maintains regular and ongoing dialogue with its customers to develop an in-depth understanding of their strategies and needs, to share market perspectives and industry best practices, and to offer tailored solutions and training where necessary on a local level.
The company’s sales and marketing efforts are designed to help it establishes and maintains in-depth, quality customer relationships. emphasize a collaborative approach with its customers that includes a number of educational offerings and joint product development and marketing initiatives:
Regular Portfolio and Risk Management Reviews: The company conducts periodic insured mortgage portfolio reviews with customers, including detailed loan performance metrics.
Joint Product Development and Marketing Initiatives: The company emphasizes the development of specialized products and programs that provide increased opportunities for customers and address targeted segments of the market. The company recognizes the value in developing new products collaboratively with its customers. The company also works closely with customers to understand their strategic priorities and business objectives while identifying opportunities that will enhance and complement the customers' marketing activities.
Customer Service, Support and Trainings: The company has an experienced and knowledgeable customer services team that strives to provide premier service to its customers. The company dedicates service representatives to its customers so they can establish relationships with their customer peers and become thoroughly familiar with unique customer systems, processes and service needs. The company has developed mortgage industry training courses that are offered to its customers as a value added service. The company has an experienced team that maintains the course materials so that they are relevant and who facilitate training sessions for its customers.
The company has an experienced team of national and regional account managers strategically deployed nationwide that markets its mortgage insurance products and support services.
The company assigns national account managers to each of the national lenders, providing a point of communication between the company’s and the customer's senior management team. These professionals are responsible for the development and execution of sales and marketing strategies aimed at growing customer volumes and ensuring each customer's needs are understood and helping them to pursue their strategies. The national account managers also coordinate the direct communication of customers with the company’s underwriting and risk management groups to provide a continual flow of information between the organizations.
The company also have regional account managers and dedicated support staff operating in defined geographic regions. The company regional account managers play a similar role to its national account managers with respect to customer relationship management, education and customer training, serving as its primary point of contact for small and mid-sized regional lenders operating in a given territory. Regional account managers also support its national account team by assisting with its efforts to directly market and service the branch locations of certain national lenders.
The company supports its national and regional sales force, and improve their effectiveness in acquiring new customers, by raising its brand awareness through advertising and marketing campaigns, website enhancements, electronic communication strategies and sponsorship of industry and educational events.
The company markets and distributes its title and settlement services to customers primarily to the residential sector of the real estate industry. The company actively seek to develop new business relationships with persons in the real estate community, such as real estate sales agents and brokers, financial institutions, independent escrow companies and title agents, real estate developers, mortgage originators and servicers, and attorneys who order title insurance policies for their clients.
Risk Management
The company has established risk management controls throughout its organization and have a risk management framework that it reduces the volatility of its financial results and capital position.
The company’s risk management framework encompasses the major risks it faces, including its mortgage and title insurance portfolios, investment risk, liquidity risk and regulatory compliance risk, among others. The majority of the company’s risk analysis is directed toward the risks embedded in it’s the U.S. mortgage insurance portfolio. As such, the company has established a risk management approach that analyzes the risk across the full life cycle of a mortgage, into what it terms the ‘loan life cycle.’
Loan Life Cycle Risk Management
The company generally break down the loan life cycle risk management process into three components:
Customer qualification—customer review and approval process;
Policy acquisition—loan underwriting, valuation and risk approval; and
Portfolio management—loan performance and lender monitoring with continuous oversight through the settlement of a claim.
The company leverage the experience of its management team to pre-screen lenders prior to formally engaging and performing a lender qualification review. Once engaged, the company’s counterparty risk management team conducts a lender qualification review with oversight from the management risk committee.
The portfolio management process involves two main functions, quality assurance (QA), reviews, and a comprehensive surveillance protocol, in order to provide customers timely feedback that fosters high quality loan production. Through the company’s QA process, it reviews a statistically significant sample of individual mortgages from its customers to ensure that the loans accepted through its underwriting process meet its pre-determined eligibility and underwriting criteria. The QA process allows it to identify trends in lender underwriting and origination practices, as well as to back-test underlying reasons for delinquencies, defaults and claims within its portfolio. The information gathered from the QA process is incorporated into the company’s policy acquisition function and is intended to prevent continued aggregation of underperforming risks. The company’s surveillance protocol maintains oversight over customer and vendor activities, industry dynamics, production trends and portfolio performance.
Modeling and Analytics
The company’s risk management professionals are supported by substantial data analysis and sophisticated risk models. The company is a dedicated modeling and analytics team which is responsible for delivering actionable models, tools, analysis and reporting to inform its credit underwriting and pricing decisions. The team analyzes mortgage, financial, economic and housing data to develop proprietary behavioral models that help the company assess credit, prepayment and loss severity trends and collateral valuation models to help inform business decisions. Performance and profitability are evaluated across customers and products to identify the emergence of potential weaknesses and adverse risks. Geographic housing market analysis also is utilized in establishing market restrictions for certain products and segments. The company utilizes an economic capital framework to evaluate risk-adjusted returns. The company also performs stress tests on its portfolio to analyze how its book of business may perform under adverse scenarios.
Reinsurance
The company proactively manages its risk exposure and capital in part through the use of third-party reinsurance arrangements. The company’s parties to several types of reinsurance arrangements:
fully collateralized excess of loss reinsurance coverage on U.S. mortgage insurance policies that the company has already issued with special purpose insurers funding such reinsurance obligations through the issuance of mortgage insurance-linked notes;
excess of loss reinsurance arrangements with third party reinsurers on U.S. mortgage insurance policies that the company has already issued; and
quota share reinsurance arrangements in which third party reinsurers agree to prospectively reinsure a pro rata portion of the risk on U.S. mortgage insurance policies that the company write.
Information Technology
The company operates highly automated businesses that rely on information technology. The company accepts mortgage and title insurance applications and requests for title closing services through electronic submission and issue electronic insurance approvals. In order to facilitate this process, the company establishes direct connections to the origination and servicing systems of its customers and servicers, which may require a significant upfront investment. The company also provides its customers secure access to its web-based mortgage insurance ordering and servicing systems to facilitate transactions.
The company continues to upgrade and enhance its systems and technology, including:
investing in new customer-facing technology that enables the company’s customers to transact business faster and easier, whether over an internet browser or through direct system-to-system interfacing with its customers' loan origination and servicing systems;
integrating the company’s platform with third-party technology providers used by its customers in their loan origination process and for ordering mortgage insurance and provide title closing services;
supporting a business rules engine that automatically enforces the company’s eligibility guidelines and pricing rules at the time the mortgage insurance application is submitted;
implementing advanced business process management software that focuses on improving the company’s underwriting productivity and that may also be used to improve its quality assurance and loss management functions;
deploying commercially available software combined with proprietary solutions to support title closing and settlement services; and
development of a title insurance production system.
Investment Portfolio
The company’s investment portfolio, including cash, comprises the largest single component of its balance sheet, representing 88.8% of its total assets on December 31, 2024. The company’s primary objectives with respect to its investment portfolio are to preserve capital, generate investment income and maintain sufficient liquidity to cover operating expenses and pay future insurance claims. The company’s investments are subject to market-wide risks and fluctuations in value, as well as risks inherent in particular securities. As of December 31, 2024, predominantly all of the company’s investment securities were rated investment-grade.
The company has adopted, and its board of directors has approved, an investment policy that defines specific limits for asset sectors, single issuer, credit rating, asset duration, industry and geographic concentration and eligible and ineligible investments. The company’s senior management is responsible for the execution of investment strategy and compliance with the adopted investment policy, and review of investment performance and strategy with the investment committee of the board of directors on a quarterly basis.
The company engages external asset managers to assist with the trading, investment research, investment due diligence and portfolio allocation within the guidelines that it has set. Substantially all of its investments available for sale were managed by external managers as of December 31, 2024. Assets not managed by external managers primarily include securities on deposit with state regulatory agencies in connection with the insurance licenses. As of December 31,2024, have not used any derivatives to hedge any investment or business risks that are assuming. The company measures investment performance against market benchmarks on both total return and return volatility dimensions.
As part of the company’s overall investment strategy, it also allocates a relatively small percentage of its portfolio to limited partnership investments in real estate, consumer credit and traditional venture capital and private equity investments to generate informational and financial returns.
Investment Portfolio
The company’s investment portfolio, including cash, comprises the largest single component of its balance sheet, representing 88.8% of its total assets at December 31, 2024. The company’s primary objectives with respect to its investment portfolio are to preserve capital, generate investment income and maintain sufficient liquidity to cover operating expenses and pay future insurance claims. The company’s investments are subject to market-wide risks and fluctuations in value, as well as risks inherent in particular securities. As of December 31, 2024, predominantly all of the company’s investment securities were rated investment-grade.
The company has adopted, and its board of directors has approved, an investment policy that defines specific limits for asset sectors, single issuer, credit rating, asset duration, industry and geographic concentration and eligible and ineligible investments. The company’s senior management is responsible for the execution of its investment strategy and compliance with the adopted investment policy, and review of investment performance and strategy with the investment committee of the board of directors on a quarterly basis.
The company engages external asset managers to assist with the trading, investment research, investment due diligence and portfolio allocation within the guidelines that it has set. Substantially all of the company’s investments available for sale were managed by external managers as of December 31, 2024. Assets not managed by external managers primarily include securities on deposit with state regulatory agencies in connection with the insurance licenses. To date, the company has not used any derivatives to hedge any investment or business risks that it is assuming. The company measures investment performance against market benchmarks on both total return and return volatility dimensions.
As part of the company’s overall investment strategy, it also allocates a relatively small percentage of its portfolio to limited partnership investments in real estate, consumer credit and traditional venture capital and private equity investments to generate informational and financial returns.
Strategy
The company’s strategy for the investment portfolio is focused primarily on the following: selecting fixed income securities; maintaining sufficient liquidity to meet expected and unexpected financial obligations; mitigating interest rate risk through management of asset durations; continuously monitoring investment quality; and limiting investments in assets that are highly correlated to the residential mortgage market.
Competition
The company and other private mortgage insurers compete directly with Federal and state governmental and quasi-governmental agencies that provide mortgage insurance, principally, the Federal Housing Administration (FHA) and, to a lesser degree, the Veterans Administration (VA).
Regulations
The company’s primary insurance subsidiary, Essent Guaranty, Inc., is approved by both Fannie Mae and Freddie Mac as a mortgage insurer.
The company’s U.S. insurance subsidiaries are required by the insurance regulatory authority of its state of domicile, and the insurance regulatory authority of each other jurisdiction in which they are licensed to transact business, to make various filings with those insurance regulatory authorities and with the National Association of Insurance Commissioners, or NAIC, including quarterly and annual financial statements prepared in accordance with statutory accounting principles. The company is licensed to write mortgage insurance in all 50 states and the District of Columbia. Certain of the company’s underwriters are licensed pursuant to the SAFE Act. As of December 31, 2023, Essent Guaranty, Inc, the company’s GSE- approved mortgage insurance company, was in compliance with the PMIERs (Private Mortgage Insurer Eligibility Requirements) framework (PMIERs 2.0).
The Dodd-Frank Act Wall Street Reform and Consumer Protection Act of 2010, which we refer to as the Dodd-Frank Act, amended certain provisions of TILA and RESPA that may have a significant impact on the company’s business prospects. The Consumer Financial Protection Bureau (CFPB), a Federal agency created by the Dodd-Frank Act, is charged with implementation and enforcement of these provisions. Certain of the company’s underwriters are licensed pursuant to the SAFE Act.
Although they occurred before the company’s establishment and we have not been involved, there has been class action litigation over these FCRA adverse action notices involving the mortgage insurance industry, including court-approved settlements.
History
Essent Group Ltd. was founded as a limited liability company under the laws of Bermuda in 2008. The company was incorporated in 2008.
