Essent Group Stock

Essent Group Ltd. (Essent) provides private mortgage insurance, reinsurance, risk management products and title insurance and settlement services to mortgage lenders, borrowers, and investors to support homeownership.

Fannie Mae and Freddie Mac, which the company refers to collectively as the GSEs, are U.S. Federal government-sponsored enterprises which purchase residential mortgages from banks and other lenders and guaranty mortgage-backed securities that are offered to investors in the secondary mortgage market. The GSEs are restricted by their charters from purchasing or guaranteeing low down payment loans, defined as loans with less than a 20% down payment, that are not covered by certain credit protections. The company provides private capital to mitigate mortgage credit risk, allowing lenders to make additional mortgage financing available to prospective homeowners.

The company offers mortgage-related insurance and reinsurance and risk-management products through its wholly-owned Bermuda-based subsidiary, Essent Reinsurance Ltd. (Essent Re). As of December 31, 2023, Essent Re provided insurance or reinsurance relating to GSE risk share and other reinsurance transactions covering approximately $2.2 billion of risk. Essent Re also reinsures primary NIW that the company writes in the U.S. under a quota share reinsurance agreement.

As a result of its acquisition of Agents National Title Insurance Company, a title insurance underwriter, and Boston National Title, an independent title agency, effective July 1, 2023, the company also offers title insurance products through a network of title insurance agents and title and settlement services.

Products and Services

Mortgage Insurance

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’s policies are primary mortgage insurance.

Customers that purchase the company’s 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, 2023, substantially all of the company’s 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 current minimum standards for mortgage insurer master policies enacted by the GSEs and the Federal Housing Finance Agency, or FHFA, which the company refers to as the Rescission Relief Principles, its current master policy provides rescission relief for loans that remain current 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 are current 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 current 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 assesses 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 its contract underwriting agreements with customers and subject to contractual limitations on liability, the company 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.

Bermuda-Based Insurance and Reinsurance

The company offers mortgage-related insurance and reinsurance through Essent Re, a Class 3B insurance company licensed pursuant to Section 4 of the Bermuda Insurance Act 1978. Essent Re provides insurance and reinsurance relating to GSE risk share and other reinsurance transactions. Essent Re also reinsures Essent Guaranty's NIW under a quota share reinsurance agreement. Essent Re also provides underwriting consulting and risk management services to third-party reinsurers through its wholly-owned subsidiary, Essent Agency (Bermuda) Ltd.

Title Insurance and Settlement Services

As a result of its acquisition of Agents National Title Insurance Company, a title insurance underwriter, and Boston National Title, an independent title agency, effective July 1, 2023, the company offers title insurance products through a network of title insurance agents and title and settlement services.

Title insurance plays a key role in the U.S. economy by insuring the secure transfer of real estate and facilitating the growth of homeownership. Through its title insurance operations, the company provides its customers with title insurance and escrow and other title-related services that support their ability to effectively close real estate transactions.

Customers, Sales and Marketing

Mortgage Insurance

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 48.4% of its NIW on a flow basis during the year ended December 31, 2023. For the year ended December 31, 2023, one customer, United Wholesale Mortgage, exceeded 10% of its consolidated revenue.

The company seeks to maintain strong institutional relationships with all its 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 establish and maintain in-depth, quality customer relationships. The company emphasizes 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 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 it 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 its underwriting and risk management groups to provide a continual flow of information between the organizations.

The company also has regional account managers and dedicated support staff operating in defined geographic regions. The company’s 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.

Title and Settlement Services

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 seeks 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 brokers and attorneys who order title insurance policies for their clients. Large customers, such as national residential mortgage lenders and developers, are an important part of its business. The buying criteria of locally based title agents and clients differ from those of large, geographically diverse customers in that the former tend to emphasize personal relationships and ease of transaction execution, while the latter generally place more emphasis on consistent product delivery across diverse geographical regions and the ability of service providers to meet their information systems requirements for electronic product delivery.

Strategy

The company’s current 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)

History

Essent Group Ltd. was founded as a limited liability company under the laws of Bermuda in 2008. The company was incorporated in 2008.