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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
 
(Mark One)
 
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the period ended March 31, 2022
 
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the transition period from              to             
 
Commission file number 001-36157 
ESSENT GROUP LTD.
(Exact name of registrant as specified in its charter)
Bermuda Not Applicable
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification Number)
Clarendon House
2 Church Street
Hamilton HM11, Bermuda
(Address of principal executive offices and zip code)
(441297-9901
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Shares, $0.015 par valueESNTNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232-405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)  Yes   No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No 
The number of the registrant’s common shares outstanding as of May 2, 2022 was 107,600,763.


Essent Group Ltd. and Subsidiaries
 
Form 10-Q
 
Index
 
   
   
 
   
 
   
 
   
 
   
 
   
   
   
   
   
   
   
   
   
 

i

Unless the context otherwise indicates or requires, the terms “we,” “our,” “us,” “Essent,” and the “Company,” as used in this Quarterly Report on Form 10-Q, refer to Essent Group Ltd. and its directly and indirectly owned subsidiaries, including our primary operating subsidiaries, Essent Guaranty, Inc. and Essent Reinsurance Ltd., as a combined entity, except where otherwise stated or where it is clear that the terms mean only Essent Group Ltd. exclusive of its subsidiaries.
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q, or Quarterly Report, includes forward-looking statements pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts or present facts or conditions, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, the introduction of new products and services, and the implementation of our marketing and branding strategies. In many cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or the negative of these terms or other comparable terminology.
 
The forward-looking statements contained in this Quarterly Report reflect our views as of the date of this Quarterly Report about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, those factors described below, in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report, and in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission. These factors include, without limitation, the following:
 
the duration, spread and severity of the outbreak of novel coronavirus disease 2019 ("COVID-19"), which is currently ongoing and still evolving; the actions taken to contain the virus or treat its impact, including government and GSE actions to mitigate the economic impact of the outbreak; the nature and extent of the forbearance and modification options available to borrowers affected by the outbreak on mortgages we insure; reserve and other accounting estimates relating to the impact of the COVID-19 outbreak; borrower behavior in response to the outbreak and its economic impact; how quickly and to what extent normal economic and operating conditions can resume, including whether any future outbreaks interrupt economic recovery; how quickly and to what extent affected borrowers can recover from the negative economic impact of the outbreak; and whether and to what extent the outbreak and related economic conditions will exacerbate other risks and uncertainties facing our business, financial condition and business strategy;

changes in or to Fannie Mae and Freddie Mac, which we refer to collectively as the GSEs, whether through Federal legislation, restructurings or a shift in business practices;

failure to continue to meet the mortgage insurer eligibility requirements of the GSEs;

competition for our customers or the loss of a significant customer;
 
lenders or investors seeking alternatives to private mortgage insurance;

increase in the number of loans insured through Federal government mortgage insurance programs, including those offered by the Federal Housing Administration;

decline in the volume of low down payment mortgage originations;

uncertainty of loss reserve estimates;

decrease in the length of time our insurance policies are in force;

deteriorating economic conditions (including inflation, rising interest rates and other adverse economic trends);

recently enacted U.S. Federal tax reform and its impact on us, our shareholders and our operations;

ii

the definition of “Qualified Mortgage” reducing the size of the mortgage origination market or creating incentives to use government mortgage insurance programs;

the definition of “Qualified Residential Mortgage” reducing the number of low down payment loans or lenders and investors seeking alternatives to private mortgage insurance;

the implementation of the Basel III Capital Accord, which may discourage the use of private mortgage insurance;

management of risk in our investment portfolio;

fluctuations in interest rates;

inadequacy of the premiums we charge to compensate for our losses incurred;

dependence on management team and qualified personnel;

disturbance to our information technology systems;

change in our customers’ capital requirements discouraging the use of mortgage insurance;

declines in the value of borrowers’ homes;

limited availability of capital or reinsurance;

unanticipated claims arise under and risks associated with our contract underwriting program;

industry practice that loss reserves are established only upon a loan default;

disruption in mortgage loan servicing, as a result of COVID-19 or otherwise;

risk of future legal proceedings;

customers’ technological demands;

our non-U.S. operations becoming subject to U.S. Federal income taxation;

becoming considered a passive foreign investment company for U.S. Federal income tax purposes; and

potential restrictions on the ability of our insurance subsidiaries to pay dividends.
 
Readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on these forward-looking statements. All of the forward-looking statements we have included in this Quarterly Report are based on information available to us on the date of this Quarterly Report. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as otherwise required by law.
 

iii

PART I — FINANCIAL INFORMATION
 
Item 1.   Financial Statements (Unaudited)
 
Essent Group Ltd. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)
 
 March 31,December 31,
(In thousands, except per share amounts)20222021
Assets  
Investments  
Fixed maturities available for sale, at fair value (amortized cost: 2022 — $4,319,027;
2021 — $4,584,521)
$4,145,542 $4,649,800 
Short-term investments available for sale, at fair value (amortized cost: 2022 —
$517,501; 2021 — $313,086)
517,363 313,087 
Total investments available for sale4,662,905 4,962,887 
Other invested assets212,521 170,472 
Total investments4,875,426 5,133,359 
Cash203,845 81,491 
Accrued investment income23,233 26,546 
Accounts receivable45,167 46,157 
Deferred policy acquisition costs11,148 12,178 
Property and equipment (at cost, less accumulated depreciation of $65,095 in 2022 and
$64,340 in 2021)
20,308 11,921 
Prepaid federal income tax360,810 360,810 
Other assets46,208 49,712 
Total assets$5,586,145 $5,722,174 
Liabilities and Stockholders’ Equity  
Liabilities  
Reserve for losses and LAE$293,072 $407,445 
Unearned premium reserve169,786 185,385 
Net deferred tax liability359,919 373,654 
Credit facility borrowings (at carrying value, less unamortized deferred costs of $4,927 in 2022 and $5,177 in 2021)
420,073 419,823 
Other accrued liabilities128,227 99,753 
Total liabilities1,371,077 1,486,060 
Commitments and contingencies (see Note 7)
Stockholders’ Equity  
Common shares, $0.015 par value:
  
Authorized - 233,333; issued and outstanding - 108,140 shares in 2022 and 109,377
shares in 2021
1,622 1,641 
Additional paid-in capital1,358,583 1,428,952 
Accumulated other comprehensive (loss) income(152,299)50,707 
Retained earnings3,007,162 2,754,814 
Total stockholders’ equity4,215,068 4,236,114 
Total liabilities and stockholders’ equity$5,586,145 $5,722,174 
 
See accompanying notes to condensed consolidated financial statements.

1

Essent Group Ltd. and Subsidiaries
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
 Three Months Ended March 31,
(In thousands, except per share amounts)20222021
Revenues:  
Net premiums written$199,731 $204,361 
Decrease in unearned premiums15,599 14,706 
Net premiums earned215,330 219,067 
Net investment income24,680 21,788 
Realized investment (losses) gains, net(7,352)641 
Income from other invested assets24,705 526 
Other income7,248 2,775 
Total revenues264,611 244,797 
Losses and expenses:  
(Benefit) provision for losses and LAE(106,858)32,322 
Other underwriting and operating expenses40,796 42,239 
Interest expense2,226 2,051 
Total losses and expenses(63,836)76,612 
Income before income taxes328,447 168,185 
Income tax expense54,280 32,537 
Net income$274,167 $135,648 
Earnings per share:  
Basic$2.53 $1.21 
Diluted2.52 1.21 
Weighted average shares outstanding:  
Basic108,166 112,016 
Diluted108,590 112,378 
Net income$274,167 $135,648 
Other comprehensive income (loss):  
Change in unrealized depreciation of investments, net of tax benefit of ($35,897) and ($10,201) in the three months ended March 31, 2022 and 2021
(203,006)(59,203)
Total other comprehensive loss(203,006)(59,203)
Comprehensive income$71,161 $76,445 
 
See accompanying notes to condensed consolidated financial statements.

2

Essent Group Ltd. and Subsidiaries
 
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
 
 Three Months Ended March 31,
(In thousands)20222021
Common Shares  
Balance, beginning of period$1,641 $1,686 
Issuance of management incentive shares7 8 
Cancellation of treasury stock(26)(1)
Balance, end of period1,622 1,693 
Additional Paid-In Capital
Balance, beginning of period1,428,952 1,571,163 
Dividends and dividend equivalents declared227 176 
Issuance of management incentive shares(7)(8)
Stock-based compensation expense4,807 5,179 
Cancellation of treasury stock(75,396)(5,376)
Balance, end of period1,358,583 1,571,134 
Accumulated Other Comprehensive Income (Loss)
Balance, beginning of period50,707 138,274 
Other comprehensive loss(203,006)(59,203)
Balance, end of period(152,299)79,071 
Retained Earnings
Balance, beginning of period2,754,814 2,151,510 
Net income274,167 135,648 
Dividends and dividend equivalents declared(21,819)(18,119)
Balance, end of period3,007,162 2,269,039 
Treasury Stock
Balance, beginning of period  
Treasury stock acquired(75,422)(5,377)
Cancellation of treasury stock75,422 5,377 
Balance, end of period  
Total Stockholders' Equity$4,215,068 $3,920,937 

See accompanying notes to condensed consolidated financial statements.

3

Essent Group Ltd. and Subsidiaries
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
 Three Months Ended March 31,
(In thousands)20222021
Operating Activities  
Net income$274,167 $135,648 
Adjustments to reconcile net income to net cash provided by operating activities:  
Realized investment losses (gains), net7,352 (641)
Income from other invested assets(24,705)(526)
Distribution of income from other invested assets4,452 428 
Depreciation and amortization755 863 
Stock-based compensation expense4,807 5,179 
Amortization of premium on investment securities7,123 6,468 
Deferred income tax provision22,162 23,714 
Change in:  
Accrued investment income3,313 (3,652)
Accounts receivable1,009 3,867 
Deferred policy acquisition costs1,030 2,282 
Other assets4,910 (6,874)
Reserve for losses and LAE(114,373)36,182 
Unearned premium reserve(15,599)(14,706)
Other accrued liabilities4,226 (461)
Net cash provided by operating activities180,629 187,771 
Investing Activities  
Net change in short-term investments(204,276)277,528 
Purchase of investments available for sale(281,565)(681,516)
Proceeds from maturities and paydowns of investments available for sale54,035 56,603 
Proceeds from sales of investments available for sale493,211 166,390 
Purchase of other invested assets(21,796)(11,150)
Return of investment from other invested assets 6,460 
Purchase of property and equipment(716)(574)
Net cash provided by (used in) investing activities38,893 (186,259)
Financing Activities  
Treasury stock acquired(75,422)(5,377)
Payment of issuance costs for credit facility(154) 
Dividends paid(21,592)(17,943)
Net cash used in financing activities(97,168)(23,320)
Net increase (decrease) in cash122,354 (21,808)
Cash at beginning of year81,491 102,830 
Cash at end of period$203,845 $81,022 
Supplemental Disclosure of Cash Flow Information
Interest payments(1,886)(1,762)
Noncash Transactions
Lease liabilities arising from obtaining right-of-use assets$9,174 $ 
 
See accompanying notes to condensed consolidated financial statements.
4

Essent Group Ltd. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
In these notes to condensed consolidated financial statements, “Essent”, “Company”, “we”, “us”, and “our” refer to Essent Group Ltd. and its subsidiaries, unless the context otherwise requires.
 
Note 1. Nature of Operations and Basis of Presentation
 
Essent Group Ltd. (“Essent Group”) is a Bermuda-based holding company, which, through its wholly-owned subsidiaries, offers private mortgage insurance and reinsurance for mortgages secured by residential properties located in the United States. 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 primary mortgage insurance operations are conducted through Essent Guaranty, Inc. (“Essent Guaranty”), a wholly-owned subsidiary approved as a qualified mortgage insurer by the GSEs and is licensed to write mortgage insurance in all 50 states and the District of Columbia. Essent Guaranty reinsures new insurance written ("NIW") to Essent Reinsurance Ltd. (“Essent Re”), an affiliated Bermuda domiciled Class 3A Insurer licensed pursuant to Section 4 of the Bermuda Insurance Act 1978 that provides insurance and reinsurance coverage of mortgage credit risk. In April 2021, Essent Guaranty and Essent Re agreed to increase the quota share reinsurance coverage of Essent Guaranty’s NIW provided by Essent Re from 25% to 35% effective January 1, 2021. The quota share reinsurance coverage provided by Essent Re for Essent Guaranty’s NIW prior to January 1, 2021 will continue to be 25%, the quota share percentage in effect at the time NIW was first ceded. Essent Re also provides insurance and reinsurance to Freddie Mac and Fannie Mae. In 2016, Essent Re formed Essent Agency (Bermuda) Ltd., a wholly-owned subsidiary, which provides underwriting consulting services to third-party reinsurers. In accordance with certain state law requirements then in effect, Essent Guaranty also reinsures that portion of the risk that is in excess of 25% of the mortgage balance with respect to loans insured prior to April 1, 2019, after consideration of other reinsurance, to Essent Guaranty of PA, Inc. (“Essent PA”), an affiliate.

In addition to offering mortgage insurance, we provide contract underwriting services on a limited basis through CUW Solutions, LLC ("CUW Solutions"), a Delaware limited liability company, that provides, among other things, mortgage contract underwriting services to lenders and mortgage insurance underwriting services to affiliates.

We have prepared the condensed consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). We have condensed or omitted certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) pursuant to such rules and regulations. In the opinion of management, the statements include all adjustments (which include normal recurring adjustments) required for a fair statement of financial position, results of operations and cash flows for the interim periods presented. These statements should be read in conjunction with the consolidated financial statements and notes thereto, including Note 1 and Note 2 to the consolidated financial statements, included in our Annual Report on Form 10-K for the year ended December 31, 2021, which discloses the principles of consolidation and a summary of significant accounting policies. The results of operations for the interim periods are not necessarily indicative of the results for the full year. We evaluated the need to recognize or disclose events that occurred subsequent to March 31, 2022 prior to the issuance of these condensed consolidated financial statements.

Certain amounts in prior years have been reclassified to conform to the current year presentation.
 
Note 2. Recently Issued Accounting Standards

Accounting Standards Not Yet Adopted

    In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide temporary optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform. It provides optional expedients and exceptions for applying generally accepted accounting principles to contract, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. This standard may be elected and applied prospectively over time from March 12, 2020 through December 31, 2022 as reference rate reform activities occur. The adoption of, and future elections under, this ASU are not expected to have a material impact on our consolidated financial statements as the ASU will ease, if warranted, the requirements for accounting for the future effects of
5

Essent Group Ltd. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (Unaudited)

the rate reform. We continue to monitor the impact the discontinuance of LIBOR or another reference rate will have on our contracts and other transactions.

Note 3. Investments
 
Investments available for sale consist of the following:
March 31, 2022 (In thousands)Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
U.S. Treasury securities$437,450 $368 $(14,178)$423,640 
U.S. agency mortgage-backed securities902,741 689 (48,655)854,775 
Municipal debt securities (1)530,839 3,836 (22,490)512,185 
Non-U.S. government securities73,097 1,411 (2,765)71,743 
Corporate debt securities (2)1,339,172 2,845 (58,373)1,283,644 
Residential and commercial mortgage securities565,116 1,168 (27,414)538,870 
Asset-backed securities604,516 361 (10,426)594,451 
Money market funds383,597   383,597 
Total investments available for sale$4,836,528 $10,678 $(184,301)$4,662,905 
December 31, 2021 (In thousands)Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
U.S. Treasury securities$447,926 $3,833 $(2,966)$448,793 
U.S. agency securities5,501 3  5,504 
U.S. agency mortgage-backed securities1,005,611 13,365 (10,113)1,008,863 
Municipal debt securities (1)598,764 30,122 (1,287)627,599 
Non-U.S. government securities77,366 3,232 (855)79,743 
Corporate debt securities (2)1,428,645 36,067 (9,465)1,455,247 
Residential and commercial mortgage securities541,638 10,452 (6,667)545,423 
Asset-backed securities582,144 1,673 (2,114)581,703 
Money market funds210,012   210,012 
Total investments available for sale$4,897,607 $98,747 $(33,467)$4,962,887 
 March 31,December 31,
(1) The following table summarizes municipal debt securities as of:20222021
Special revenue bonds78.1 %77.1 %
General obligation bonds19.6 20.5 
Certificate of participation bonds 1.9 1.9 
Tax allocation bonds0.3 0.5 
Special tax bonds0.1  
Total100.0 %100.0 %
6

Essent Group Ltd. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (Unaudited)

 March 31,December 31,
(2) The following table summarizes corporate debt securities as of:20222021
Financial38.4 %33.7 %
Consumer, non-cyclical18.0 19.8 
Communications9.7 11.4 
Industrial6.9 7.0 
Consumer, cyclical6.4 7.0 
Energy6.0 6.0 
Technology6.0 6.8 
Utilities5.7 4.6 
Basic materials2.5 3.7 
Government0.4  
Total100.0 %100.0 %

7

Essent Group Ltd. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (Unaudited)

The amortized cost and fair value of investments available for sale at March 31, 2022, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Because most U.S. agency mortgage-backed securities, residential and commercial mortgage securities and asset-backed securities provide for periodic payments throughout their lives, they are listed below in separate categories.
 
(In thousands)Amortized
Cost
Fair
Value
U.S. Treasury securities:  
Due in 1 year$88,143 $87,953 
Due after 1 but within 5 years302,905 291,389 
Due after 5 but within 10 years42,566 40,826 
Due after 10 years3,836 3,472 
Subtotal437,450 423,640 
Municipal debt securities:  
Due in 1 year1,659 1,665 
Due after 1 but within 5 years119,337 119,368 
Due after 5 but within 10 years164,952 162,102 
Due after 10 years244,891 229,050 
Subtotal530,839 512,185 
Non-U.S. government securities:
Due in 1 year427 430 
Due after 1 but within 5 years38,669 39,429 
Due after 5 but within 10 years8,878 9,073 
Due after 10 years25,123 22,811 
Subtotal73,097 71,743 
Corporate debt securities:  
Due in 1 year214,080 214,038 
Due after 1 but within 5 years563,001 551,936 
Due after 5 but within 10 years424,445 394,068 
Due after 10 years137,646 123,602 
Subtotal1,339,172 1,283,644 
U.S. agency mortgage-backed securities902,741 854,775 
Residential and commercial mortgage securities565,116 538,870 
Asset-backed securities604,516 594,451 
Money market funds383,597 383,597 
Total investments available for sale$4,836,528 $4,662,905 

The components of realized investment (losses) gains, net on the condensed consolidated statements of comprehensive income were as follows:
 
 Three Months Ended March 31,
(In thousands)20222021
Realized gross gains$12,576 $750 
Realized gross losses(13,091)(109)
Impairment loss(6,837) 
 
8

Essent Group Ltd. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (Unaudited)

The fair value of investments available for sale in an unrealized loss position and the related unrealized losses for which no allowance for credit loss has been recorded were as follows:
 
 Less than 12 months12 months or moreTotal
March 31, 2022 (In thousands)Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
U.S. Treasury securities$303,598 $(10,257)$67,009 $(3,921)$370,607 $(14,178)
U.S. agency mortgage-backed securities614,532 (31,273)191,880 (17,382)806,412 (48,655)
Municipal debt securities301,894 (21,844)6,694 (646)308,588 (22,490)
Non-U.S. government securities16,001 (915)14,356 (1,850)30,357 (2,765)
Corporate debt securities833,120 (42,805)125,507 (15,568)958,627 (58,373)
Residential and commercial mortgage securities
356,130 (18,432)91,270 (8,982)447,400 (27,414)
Asset-backed securities493,873 (9,880)29,987 (546)523,860 (10,426)
Total$2,919,148 $(135,406)$526,703 $(48,895)$3,445,851 $(184,301)
 
 Less than 12 months12 months or moreTotal
December 31, 2021 (In thousands)Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
U.S. Treasury securities$207,122 $(2,170)$28,012 $(796)$235,134 $(2,966)
U.S. agency mortgage-backed securities582,108 (9,414)26,131 (699)608,239 (10,113)
Municipal debt securities91,719 (1,281)312 (6)92,031 (1,287)
Non-U.S. government securities22,986 (855)  22,986 (855)
Corporate debt securities522,120 (7,200)46,875 (2,265)568,995 (9,465)
Residential and commercial mortgage securities
268,617 (5,200)38,256 (1,467)306,873 (6,667)
Asset-backed securities339,137 (1,954)13,101 (160)352,238 (2,114)
Total$2,033,809 $(28,074)$152,687 $(5,393)$2,186,496 $(33,467)
 
At March 31, 2022 and December 31, 2021, we held 1,994 and 1,180 individual investment securities, respectively, that were in an unrealized loss position. We assess our intent to sell these securities and whether we will be required to sell these securities before the recovery of their amortized cost basis when determining whether to record an impairment on the securities in an unrealized loss position. In assessing whether the decline in the fair value at March 31, 2022 of any of these securities resulted from a credit loss or other factors, we made inquiries of our investment managers to determine that each issuer was current on its scheduled interest and principal payments. We reviewed the credit rating of these securities noting that approximately 98% of the securities at March 31, 2022 had investment-grade ratings. We concluded that gross unrealized losses noted above are principally associated with the changes in interest rates subsequent to purchase rather than due to credit impairment. We recorded impairments of $6.8 million due to our intent to sell securities in an unrealized loss position in the three months ended March 31, 2022. There were no impairments in the three months ended March 31, 2021.

The Company's other invested assets at March 31, 2022 and December 31, 2021 totaled $212.5 million and $170.5 million, respectively. Other invested assets are principally comprised of limited partnership interests which are generally accounted for under the equity method or fair value using net asset value (or its equivalent) as a practical expedient. Our proportionate share of earnings or losses or changes in fair value are reported in income from other invested assets on the condensed consolidated statements of comprehensive income. For entities accounted for under the equity method that follow industry-specific guidance for investment companies, our proportionate share of earnings or losses includes changes in the fair value of the underlying assets of these entities. Due to the timing of receiving financial information from these partnerships, the results are generally reported on a one month or quarter lag.

Through June 30, 2021, unrealized gains and losses reported by these entities were included in other comprehensive income (“OCI”). Subsequent to June 30, 2021, management concluded that unrealized gains and losses on these investments
9

Essent Group Ltd. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (Unaudited)

should be reflected in earnings rather than OCI. Income from other invested assets for the three months ended March 31, 2022, includes $15.0 million of net unrealized gains.

Other invested assets that are accounted for at fair value using the net asset value (or its equivalent) as a practical expedient totaled $105.8 million as of March 31, 2022. Approximately 56% of these investments were in limited partnerships invested in real estate, with the remaining limited partnerships invested in financial services, technology, and traditional private equity investments. At March 31, 2022, maximum future funding commitments were $8.3 million. For limited partnership investments that have a contractual expiration date, we expect the liquidation of the underlying assets to occur over the next three to nine years. For certain of these investments, the Company does not have the contractual option to redeem, but receives distributions based on the liquidation of the underlying assets. In addition, the Company generally does not have the ability to sell or transfer these investments without the consent from the general partner of individual limited partnerships.

The fair value of investments deposited with insurance regulatory authorities to meet statutory requirements was $9.3 million at March 31, 2022 and $9.7 million at December 31, 2021. In connection with its insurance and reinsurance activities, Essent Re is required to maintain assets in trusts for the benefit of its contractual counterparties. The fair value of the investments on deposit in these trusts was $985.7 million at March 31, 2022 and $982.6 million at December 31, 2021. Essent Guaranty is required to maintain assets on deposit in connection with its fully collateralized reinsurance agreements (see Note 4). The fair value of the assets on deposit was $8.5 million at March 31, 2022 and $8.5 million at December 31, 2021. Essent Guaranty is also required to maintain assets on deposit for the benefit of the sponsor of a fixed income investment commitment. The fair value of the assets on deposit was $9.0 million at March 31, 2022 and $9.0 million at December 31, 2021.

Net investment income consists of: 
 Three Months Ended March 31,
(In thousands)20222021
Fixed maturities$26,223 $23,024 
Short-term investments44 81 
Gross investment income26,267 23,105 
Investment expenses(1,587)(1,317)
Net investment income$24,680 $21,788 
 
Note 4. Reinsurance
 
In the ordinary course of business, our insurance subsidiaries may use reinsurance to provide protection against adverse loss experience and to expand our capital sources. Reinsurance recoverables are recorded as assets and included in other assets on our condensed consolidated balance sheets, predicated on a reinsurer's ability to meet their obligations under the reinsurance agreements. If the reinsurers are unable to satisfy their obligations under the agreements, our insurance subsidiaries would be liable for such defaulted amounts.

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Essent Group Ltd. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (Unaudited)

The effect of reinsurance on net premiums written and earned is as follows:
Three Months Ended 
March 31,
(In thousands)20222021
Net premiums written:
Direct$220,254 $235,257 
Ceded (1)(20,523)(30,896)
Net premiums written$199,731 $204,361 
Net premiums earned:
Direct$235,853 $249,963 
Ceded (1)(20,523)(30,896)
Net premiums earned$215,330 $219,067 
(1)Net of profit commission.

Quota Share Reinsurance

    Effective September 1, 2019, Essent Guaranty entered into a quota share reinsurance agreement with a panel of third-party reinsurers ("QSR 2019"). Each of the third-party reinsurers has an insurer financial strength rating of A or better by S&P Global Ratings, A.M. Best or both. Under QSR 2019, Essent Guaranty will cede premiums earned related to 40% of risk on eligible single premium policies and 20% of risk on all other eligible policies written September 1, 2019 through December 31, 2020, in exchange for reimbursement of ceded claims and claims expenses on covered policies, a 20% ceding commission, and a profit commission of up to 60% that varies directly and inversely with ceded claims. QSR 2019 is scheduled to terminate on December 31, 2030. Essent Guaranty has certain termination rights under QSR 2019, including the option to terminate QSR 2019 with no termination fee on December 31, 2021, and the option, subject to a termination fee, to terminate QSR 2019 on December 31, 2022, or annually thereafter. As Essent Guaranty did not exercise its option to terminate QSR 2019 effective December 31, 2021, the maximum profit commission that Essent Guaranty could earn will increase to 63% in 2022 and thereafter.

Effective January 1, 2022, Essent Guaranty entered into a quota share reinsurance agreement with a panel of third-party reinsurers ("QSR 2022"). Each of the third-party reinsurers has an insurer financial strength rating of A or better by S&P Global Ratings, A.M. Best or both. Under QSR 2022, Essent Guaranty will cede premiums earned related to 20% of risk on all eligible policies written January 1, 2022 through December 31, 2022, in exchange for reimbursement of ceded claims and claims expenses on covered policies, a 20% ceding commission, and a profit commission of up to 62% that varies directly and inversely with ceded claims. QSR 2022 is scheduled to terminate on December 31, 2032. Essent Guaranty has certain termination rights under QSR 2022, including the option to terminate QSR 2022, subject to a termination fee, on December 31, 2024, or quarterly thereafter.

Total RIF ceded under QSR 2019 and QSR 2022 was $5.0 billion as of March 31, 2022.

Excess of Loss Reinsurance

Essent Guaranty has entered into fully collateralized reinsurance agreements ("Radnor Re Transactions") with unaffiliated special purpose insurers domiciled in Bermuda. For the reinsurance coverage periods, Essent Guaranty and its affiliates retain the first layer of the respective aggregate losses, and a Radnor Re special purpose insurer will then provide second layer coverage up to the outstanding reinsurance coverage amount. Essent Guaranty and its affiliates retain losses in excess of the outstanding reinsurance coverage amount. The reinsurance premium due to each Radnor Re special purpose insurer is calculated by multiplying the outstanding reinsurance coverage amount at the beginning of a period by a coupon rate, which is the sum of one-month LIBOR or SOFR plus a risk margin, and then subtracting actual investment income collected on the assets in the related reinsurance trust during that period. The aggregate excess of loss reinsurance coverage decreases over a ten-year period as the underlying covered mortgages amortize. Essent Guaranty has rights to terminate the Radnor Re Transactions. The Radnor Re entities collateralized the coverage by issuing mortgage insurance-linked notes ("ILNs") in an aggregate amount equal to the initial coverage to unaffiliated investors. The notes have ten-year legal maturities and are non-
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Essent Group Ltd. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (Unaudited)

recourse to any assets of Essent Guaranty or its affiliates. The proceeds of the notes were deposited into reinsurance trusts for the benefit of Essent Guaranty and will be the source of reinsurance claim payments to Essent Guaranty and principal repayments on the ILNs.

Essent Guaranty has also entered into reinsurance agreements with panels of reinsurers that provide aggregate excess of loss coverage immediately above or pari-passu to the coverage provided by the Radnor Re Transactions. The aggregate excess of loss reinsurance coverage decreases over a ten-year period as the underlying covered mortgages amortize. Essent Guaranty has rights to terminate these reinsurance agreements.
    
The following table summarizes Essent Guaranty's excess of loss reinsurance agreements as of March 31, 2022:
Vintage YearReinsurerEffective DateOptional Termination Date
2015 & 2016Radnor Re 2019-2 Ltd.June 20, 2019June 25, 2024
2017Radnor Re 2018-1 Ltd.March 22, 2018March 25, 2023(1)
2017Panel of ReinsurersNovember 1, 2018October 1, 2023(2)
2018Radnor Re 2019-1 Ltd.February 28, 2019February 25, 2026
2018Panel of ReinsurersFebruary 28, 2019February 25, 2026
2019Radnor Re 2020-1 Ltd.January 30, 2020January 25, 2027
2019Panel of ReinsurersJanuary 30, 2020January 25, 2027
2019 & 2020Radnor Re 2020-2 Ltd.October 8, 2020October 25, 2027
2020 & 2021Radnor Re 2021-1 Ltd.June 23, 2021June 26, 2028
2021Radnor Re 2021-2 Ltd.November 10, 2021November 25, 2027
(1)If the reinsurance agreement is not terminated at the optional termination date, the risk margin component of the reinsurance premium increases by 50%.
(2)If the reinsurance agreement is not terminated at the optional termination date, the reinsurance premium increases by 50%.

The following table summarizes Essent Guaranty's excess of loss reinsurance coverages and retentions as of March 31, 2022:
(In thousands)Remaining
Reinsurance in Force
Vintage YearRemaining
Insurance
in Force
Remaining
Risk
in Force