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TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on September 16, 2013.

Registration No. 333-

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



ESSENT GROUP LTD.
(Exact name of registrant as specified in its charter)

Bermuda
(State or other jurisdiction of
incorporation or organization)
  6351
(Primary Standard Industrial
Classification Code Number)
  Not Applicable
(I.R.S. Employer
Identification Number)

Essent Group Ltd.
Clarendon House
2 Church Street
Hamilton HM 11, Bermuda
(441) 297-9901
(Address, including Zip Code, and Telephone Number, including Area Code, of Registrant's Principal Executive Offices)



Mark A. Casale
President and Chief Executive Officer
Essent Group Ltd.
Clarendon House
2 Church Street
Hamilton HM 11, Bermuda
(441) 297-9901
(Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service)



Copies to:

Michael Groll
Alexander M. Dye
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, New York 10019
(212) 728-8000

 

Mary Lourdes Gibbons
Senior Vice President, Chief Legal Officer
and Assistant Secretary
Essent Group Ltd.
Clarendon House
2 Church Street
Hamilton HM 11, Bermuda
(441) 297-9901

 

Richard B. Aftanas
Dwight S. Yoo
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
(212) 735-3000



Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date hereof.



             If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

             If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

             If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.    o

             If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.    o

             Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o



CALCULATION OF REGISTRATION FEE

       
 
Title of Each Class of Securities
to Be Registered

  Proposed Maximum
Aggregate
Offering Price(1)(2)

  Amount of
Registration Fee

 

Common Shares, $0.01 par value per share

  $287,500,000   $39,215

 

(1)
Includes offering price of shares which the underwriters have the option to purchase.

(2)
Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.



             The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

   


Table of Contents

The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED                , 2013

Shares

LOGO

Common Shares



          This is the initial public offering of common shares of Essent Group Ltd. We are offering             common shares to be sold in the offering. [The selling shareholders identified in this prospectus are offering an additional             common shares. We will not receive any proceeds from the sale of shares by the selling shareholders.] No public market currently exists for our common shares. The estimated initial public offering price is between $             and $             per share.

          We intend to apply to list our common shares on the New York Stock Exchange (the "NYSE") under the symbol "ESNT".

          We are an "emerging growth company" as defined under applicable Federal securities laws and may utilize reduced public company reporting requirements. Investing in our common shares involves risks. See "Risk Factors" beginning on page 15 of this prospectus.



 
Per Share
 
Total
 

Initial public offering price

  $                     $                    

Underwriting discounts and commissions

  $                     $                    

Proceeds, before expenses, to Essent Group Ltd. 

  $                     $                    

[Proceeds, before expenses, to selling shareholders]

  $                     $                    



          The underwriters also may purchase up to             additional shares from [us] [and] [from the selling shareholders] at the initial offering price less the underwriting discounts and commissions.

          Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

          We intend to apply for, and expect to receive, consent under the Bermuda Exchange Control Act 1972 (and its related regulations) from the Bermuda Monetary Authority (the "BMA") for the issue and transfer of our common shares to and between residents and non-residents of Bermuda for exchange control purposes provided our common shares remain listed on an appointed stock exchange, which includes the NYSE. In granting such consent the BMA accepts no responsibility for our financial soundness or the correctness of any of the statements made or opinions expressed in this prospectus.

          The underwriters expect to deliver the shares to purchasers on or about                      , 2013.




Goldman, Sachs & Co.

 

J.P. Morgan
Credit Suisse

 

Barclays

Dowling & Partners Securities, LLC   Keefe, Bruyette & Woods,
                         A Stifel Company
  Macquarie Capital



   

                      , 2013



TABLE OF CONTENTS

 
  Page

PROSPECTUS SUMMARY

  1

RISK FACTORS

  15

FORWARD-LOOKING STATEMENTS

  46

USE OF PROCEEDS

  48

DIVIDEND POLICY

  49

CAPITALIZATION

  50

DILUTION

  52

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

  54

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  58

BUSINESS

  91

COMPANY INFORMATION

  117

CERTAIN REGULATORY CONSIDERATIONS

  118

MANAGEMENT

  136

EXECUTIVE COMPENSATION

  143

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

  157

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND SELLING SHAREHOLDERS

  162

DESCRIPTION OF SHARE CAPITAL

  164

COMPARISON OF SHAREHOLDER RIGHTS

  169

SHARES ELIGIBLE FOR FUTURE SALE

  177

CERTAIN TAX CONSIDERATIONS

  179

UNDERWRITING (CONFLICTS OF INTEREST)

  190

LEGAL MATTERS

  195

EXPERTS

  195

ENFORCEMENT OF CIVIL LIABILITIES UNDER U.S. FEDERAL SECURITIES LAWS

  196

WHERE YOU CAN FIND ADDITIONAL INFORMATION

  197

GLOSSARY OF SELECTED INSURANCE, HOUSING FINANCE AND RELATED TERMS

  198

INDEX TO FINANCIAL STATEMENTS

  F-1

          You should rely only on the information contained in this prospectus or any free writing prospectus prepared by or on behalf of us or to which we have referred you. Neither we nor the underwriters have authorized anyone to provide you with additional or different information. Neither this prospectus nor any free writing prospectus is an offer to sell anywhere or to anyone where or to whom we are not permitted to offer or to sell securities under applicable law. The information in this prospectus or any free writing prospectus is accurate only as of the date of this prospectus or such free writing prospectus, as applicable.

          For investors outside the United States:    Neither we[, the selling shareholders,] nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States.

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TRADEMARKS

          We have proprietary rights to trademarks used in this prospectus which are important to our business, many of which are registered under applicable intellectual property laws. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the "®" or "™" symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent possible under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies' trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. Each trademark, trade name or service mark of any other company appearing in this prospectus is the property of its respective holder.


MARKET, INDUSTRY AND OTHER DATA

          This prospectus includes market and industry data and forecasts that we have developed from independent research firms, publicly available information, various industry publications, other published industry sources or our internal data and estimates. Independent research reports, industry publications and other published industry sources generally indicate that the information contained therein was obtained from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. Our internal data, estimates and forecasts are based on information obtained from our investors, trade and business organizations and other contacts in the markets in which we operate and our management's understanding of industry conditions. Except as otherwise indicated, "market share" as used in this prospectus is measured by our share of total new insurance written, or NIW, in the private mortgage insurance industry, and excludes NIW under the Home Affordable Refinance Program, or HARP, which we refer to as HARP NIW.

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PROSPECTUS SUMMARY

          The following summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider before investing in our common shares. You should read this entire prospectus, including the sections entitled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes to those statements, before making an investment decision. Unless the context otherwise indicates or requires, the terms "we," "our," "us," "Essent," and the "Company," as used in this prospectus, refer to Essent Group Ltd. and its directly and indirectly owned subsidiaries, including our primary operating subsidiary, Essent Guaranty, Inc., 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. For your reference, we have included a glossary beginning on page 198 of selected insurance, mortgage finance and related terms.


Overview

          We are an established and growing private mortgage insurance company. We were formed to serve the U.S. housing finance industry at a time when the demands of the financial crisis and a rapidly changing business environment created the need for a new, privately funded mortgage insurance company. Since writing our first policy in May 2010, we have grown to an estimated 12.0% market share based on new insurance written, or NIW, for the three months ended June 30, 2013, up from 8.6% and 3.9% for the years ended December 31, 2012 and 2011, respectively. We believe that our growth has been driven largely by the unique opportunity we offer lenders to partner with a well-capitalized mortgage insurer, unencumbered by legacy business, that provides fair and transparent claims payment practices, and consistency and speed of service.

          Private mortgage insurance plays a critical role in the U.S. housing finance system. Essent and other private mortgage insurers provide credit protection to lenders and mortgage investors by covering a portion of the unpaid principal balance of a mortgage in the event of a default. In doing so, we provide private capital to mitigate mortgage credit risk, allowing lenders to make additional mortgage financing available to prospective homeowners.

          Private mortgage insurance helps extend affordable home ownership by facilitating the sale of low down payment loans into the secondary market. Two U.S. Federal government-sponsored enterprises, Fannie Mae and Freddie Mac, which we refer to collectively as the GSEs, 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. Private mortgage insurance satisfies the GSEs' credit protection requirements for low down payment loans, supporting a robust secondary mortgage market in the United States.

          In 2010, Essent became the first private mortgage insurer to be approved by the GSEs since 1995, and is licensed to write coverage in all 50 states and the District of Columbia. We have master policy relationships with approximately 800 customers as of June 30, 2013, including 21 of the 25 largest mortgage originators in the United States for the first quarter of 2013. We believe that our customers account for nearly 70% of the annual new insurance written in the private mortgage insurance market. We have a fully functioning, scalable and flexible mortgage insurance platform and a highly experienced, talented team of 259 employees, including 52 in business development and sales and 71 in underwriting. Our holding company is domiciled in Bermuda and our U.S. insurance business is headquartered in Radnor, Pennsylvania. We operate additional underwriting and service centers in Winston-Salem, North Carolina and Irvine, California. For the six months ended June 30, 2013 and the year ended December 31, 2012, we generated new insurance written

 

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of $10.2 billion and $11.2 billion, respectively, and as of June 30, 2013, we had over $22.5 billion of insurance in force.


Market Opportunities

          Mortgage insurance is offered by both private companies and government agencies. The economic and housing market downturn that precipitated the financial crisis in 2008 had a profound impact on the private mortgage insurance industry. Incumbent mortgage insurers sustained significant financial losses and depleted capital levels, which resulted in strained relationships with banks and other lenders. Since 2007, three private mortgage insurers have ceased writing new business. To stabilize the disruption in the housing market resulting from the financial crisis, the Federal government, among other things, significantly expanded its role in the mortgage insurance market, but is now scaling back. We expect that, as the U.S. housing market continues to recover, the demand for private capital to insure mortgage risk and to facilitate secondary market loan sales will grow. As a mortgage insurer with a growing number of customers and a strong balance sheet unencumbered by legacy, pre-crisis exposures, we believe that Essent is uniquely positioned to benefit from a number of important market trends.

    Improving fundamentals of the housing market.    The U.S. housing market continues to recover from the financial crisis, with purchase money mortgage originations increasing, the rate of household formation growing, new housing starts and home sales increasing, mortgage foreclosure activity declining, and home prices increasing across most of the country from depressed levels. We believe that recent data supports continued optimism in housing market fundamentals:

    Purchase mortgage originations were $503 billion in 2012, and are expected to grow by 23.1% to $619 billion in 2013, per the Mortgage Bankers Association as of August 22, 2013.

    Household formation was 1.0 million in 2012, compared to a financial crisis low of 0.4 million in 2008, per the U.S. Department of Commerce.

    The S&P Case-Shiller 20 City Index of residential housing prices has increased for six consecutive quarters through June 30, 2013, and rose an aggregate of 12% for the twelve months ended June 30, 2013.

    The National Association of Realtors' Housing Affordability Index increased 56.2% from July 2006 to June 2013 and, as of June 30, 2013, was 25.6% higher than it was on average from 1993 to 2007.

    We believe that these strong fundamentals will lead to greater housing market activity, and support growth and profitability in the private mortgage insurance sector.

    High credit quality of new mortgage originations.    The credit quality of a mortgage loan is driven primarily by the credit profile of the borrower, as well as the type and value of the housing collateral supporting the loan. Borrowers with strong credit profiles are generally less likely to become delinquent with payments or to default on their mortgage loans. Following the financial crisis, mortgage lenders have significantly tightened their underwriting standards, generally limiting the availability of loans to borrowers with high FICO scores and low ratios of debt to income who can fully document their income and assets. From 2010 through 2012, the average borrower FICO score on all mortgage loans originated in the United States and sold to the GSEs was 762, compared to 729 for the period from 2005 through 2007. Banks have largely stopped offering loans with certain characteristics that generated high levels of defaults and losses during the financial crisis, including interest only and negative amortization loans. We believe that prudent underwriting standards,

 

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      higher credit quality borrowers, and lower mortgage default experience will translate into fewer claims for the mortgage insurance industry on policies written in the post-crisis period.

      Although we expect that credit standards will ease somewhat over time, we believe that regulatory reforms that have been, or are expected to be, implemented as a result of the financial crisis will create incentives for mortgage lenders to originate loans using prudent underwriting standards and result in a more stable housing market and housing finance system.

    Growing demand for private mortgage insurance.    Mortgage insurance is provided by both private companies, such as Essent, and government agencies, such as the FHA and the VA. In 2012, $547 billion, or 31.3%, of the $1.75 trillion aggregate mortgage originations were covered by mortgage insurance. Prior to the financial crisis, private insurers accounted for a majority of the insured mortgage origination market. From 1993-2007, private insurers covered, on average, 62% of total insured mortgage volume. During the financial crisis, government agencies began to insure an increasing percentage of the market as incumbent private insurers dealt with financial losses, depleted capital positions and declining ratings. By 2009, government agencies accounted for 85% of total insured mortgage origination volume, with the FHA accounting for 71% of the aggregate insured mortgage market. Private mortgage insurers have since regained an increasing share of the insured mortgage market, steadily rising from 16% in 2010 to 23% in 2011 to 32% in 2012. These gains have been driven in part by multiple increases in the FHA's mortgage insurance premium rates and upfront fees since 2010, as well as the inflow of private capital into the sector to support new entrants like Essent and to recapitalize incumbent private mortgage insurers. The private mortgage insurance industry benefits from both a larger origination market and increased private mortgage insurance penetration. We believe that private mortgage insurance will continue to increase its share of the insured mortgage market in the coming years.

    We also believe that additional growth opportunities will emerge for private mortgage insurers as Federal regulators seek to reduce U.S. taxpayer exposure to the mortgage markets by transferring mortgage risk from the GSEs to the private market. Federal regulators have established a goal for each of the GSEs to transfer credit risk on $30 billion of mortgages to the private market in 2013. We expect that similar, and potentially expanded, goals will be established in future periods.

    Significant barriers to entry.    The private mortgage insurance industry has significant barriers to entry due to the substantial capital necessary to fund operations and satisfy GSE requirements, the need for a customer-integrated operating platform capable of issuing and servicing mortgage insurance policies, the competitive positions and established customer relationships of existing mortgage insurance providers, and the need to obtain and maintain insurance licenses in all 50 states and the District of Columbia. Additionally, the resource commitment required by customers, and larger lenders in particular, to connect to a new mortgage insurance platform is significant, and absent a critical need, such as the capital constraints in the mortgage insurance industry during the financial crisis, they have historically been reluctant to make such an investment.

    We were formed and built the foundation of our business during a unique window when the severe dislocation in the private mortgage insurance industry caused by the financial crisis created a need for a newly capitalized mortgage insurer and allowed us to quickly establish relationships with lenders. We believe that the improving financial conditions of mortgage insurance industry participants and housing markets will make it more difficult for new parties to enter the marketplace going forward.

 

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Our Strengths

          We believe that we are well positioned to play a leading role in the private mortgage insurance industry, and that we have a number of competitive strengths that will allow us to capitalize on attractive market opportunities and to develop and grow our business in a prudent manner.

    High growth company levered to an improving U.S. residential housing market.    We believe that continued improvements in the U.S. residential housing market, more disciplined mortgage underwriting standards and increasing demand for private mortgage insurance solutions will continue to provide opportunities for Essent to deliver substantial growth. We believe these underlying housing market trends, combined with the expansion of our market share within the private mortgage insurance industry, have led, and will continue to lead, to attractive growth characteristics for Essent.

    We grew our net premiums earned from $1.4 million for the three months ended June 30, 2011 to $7.9 million for the three months ended June 30, 2012, and to $27.5 million for the three months ended June 30, 2013, representing compound annual growth of 350% since June 30, 2011.

    In addition, we increased our NIW from $561 million for the three months ended June 30, 2011 to $2.2 billion for the three months ended June 30, 2012, and to $5.9 billion for the three months ended June 30, 2013, representing compound annual growth of 224% since June 30, 2011.

    We achieved profitability in the fourth quarter of 2012 and have been profitable every quarter since. Our pre-tax income for the three months ended June 30, 2013 was $13.4 million, an increase of $12.0 million over the three months ended December 31, 2012.

    Given the expected persistency of our book and lower volumes written earlier in our history, we expect to generate meaningful growth in our net premiums earned even without a year-over-year increase in annual NIW production.

    Growing number of lender relationships based on a customer-centric approach.    We compete and establish our growing market presence through a customer-centric approach that is built on the reliability and transparency of our coverage. Through our Clarity of Coverage® master policy terms, responsive customer service, and consistent and timely underwriting process, we seek to serve our customers' needs in an efficient and differentiated manner.

    We have master policy relationships with approximately 800 customers as of June 30, 2013, including 21 of the 25 largest mortgage originators in the United States for the first quarter of 2013. Since January 1, 2012, we added 545 new customers to our platform. We believe our customers account for nearly 70% of the annual new insurance written in the private mortgage insurance market.

    We believe that our Clarity of Coverage master policy terms have been embraced by lenders as a means to ensure fair and transparent claims payment practices, differentiating Essent in the market.

    We incent our sales and business development staff to focus on building long-term, high quality customer relationships. We have a non-commission-based structure for our sales and business development staff that includes an equity ownership program, which we believe aligns their efforts with our long-term corporate objectives, including providing better customer service and better risk selection.

 

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    Increasing share of new business that is expected to generate attractive returns.    We believe that the mortgage insurance we have written to date is high quality and attractively priced. We have successfully increased our market share every quarter since our formation, growing from 3.9% for the year ended December 31, 2011 to 8.6% for the year ended December 31, 2012 to 12.0% for the three months ended June 30, 2013. We expect that our growing market presence will allow us to continue to capture an increasing share of attractively priced business going forward.

    Our entire book of business is comprised of 2010 and later vintages, and as a result we believe our book should generate attractive returns.

    We target an aggregate, after-tax unlevered return on capital of 15% on the business we write today, assuming an average NIW premium rate of 55 basis points, a cumulative claim rate of 2.5%, persistency of 80.0%, a risk to capital ratio of 16.0:1 and a long-term expense ratio of 20.0%.

    Conservative balance sheet with strong financial position and disciplined risk management philosophy.    We believe that our strong financial position has been a critical component in gaining the confidence of our customers and growing our business. We are not encumbered by a high risk, legacy book of business written during the credit bubble of the pre-2009 period. We have established risk management controls throughout our organization that we believe will support our continued financial strength. Risk management is deeply incorporated into our business decisions and processes, including customer and policy acquisition, underwriting and credit approval, ongoing portfolio monitoring, loss reserving and claims management, investment allocation and capital management.

    As of June 30, 2013, 94% of our in force book of business covered mortgages where borrowers had a FICO score of 700 or better, and 99% covered mortgages written with LTVs of 95% or lower, in each case at origination.

    We have the highest domestic financial strength rating in the private mortgage insurance industry by Standard & Poor's at "BBB+" (Stable) and the second highest by Moody's at "Baa3" (Positive).

    As of June 30, 2013, we had no financial leverage on our balance sheet, and our insurance companies had combined statutory capital of $356.2 million and a risk to capital ratio of 15.0:1. 100% of our investment assets were held in cash or investment grade fixed income securities, and over 52% of our fixed income portfolio was rated "Aaa" by Moody's.

    As of June 30, 2013, we had 90 policies reported to be in default, which reflected less than one-tenth of one percent of our aggregate policies in force.

    Scalable mortgage insurance franchise capable of supporting significant future growth.    We have invested significant resources in building our business for the long-term and creating a scalable franchise capable of supporting our future growth with limited incremental investment. We have proactively built our business to support our anticipated growth and believe we have the right team composition, management expertise, platform and organizational structure to drive improved operating efficiencies, earnings growth and higher return on equity.

    In 2009, we acquired a fully functioning, scalable and flexible mortgage insurance platform, which we have continued to develop and enhance, making it easier for our customers to do business with us. We wrote approximately 25,000 new policies in the second quarter of 2013 and serviced approximately 100,000 policies in force as of June 30, 2013.

 

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      We believe we have demonstrated an ability to attract and retain qualified employees, growing our headcount from 157 as of year-end 2011 to 259 as of June 30, 2013.

    Experienced and execution-oriented management team with a focus on long-term value creation.    Our senior management team has extensive experience in the mortgage and mortgage insurance industry, with many having prior experience with commercial and mortgage banks and the GSEs. In forming and building Essent, our management team has drawn on their collective experience to design processes, operating philosophies and compensation structures that support our goal of creating a leading mortgage insurer in the United States.

    Our senior management team has an average of over 20 years of relevant industry experience, bringing together a broad range of critical customer development, risk management and operating skills that we believe are necessary for our long-term success.

    Our senior management team has closely aligned interests as meaningful owners of Essent through a combination of a long-term incentive plan, annual share awards and voluntary share purchases.


Our Strategy

          Our goal is to be a leading private mortgage insurer in the United States through our focus on long-term customer relationships, integrated risk management, financial strength and profitability. We see a significant opportunity to continue expanding our market presence and to deliver disciplined growth. We intend to pursue strategies that leverage our competitive strengths to produce attractive earnings growth and risk-adjusted returns.

    Expand and diversify our customer base.    We believe that our growth has been and will continue to be driven by the opportunity we offer lenders to partner with a well-capitalized mortgage insurer, unencumbered by legacy business, that provides fair and transparent claims payment practices and consistency and speed of service. We intend to increase our share of our existing customers' business, and to enter into a growing number of relationships with new customers, by pursuing a core set of initiatives that involve increasing our marketing efforts to raise our brand awareness, broadening our customer outreach efforts through targeted additions to our sales force, bolstering the number of third-party front-end systems through which we can connect to customers, and maintaining high quality underwriting and customer service capabilities.

    Manage expenses to maximize operating leverage.    We have a fully functioning, scalable and flexible mortgage insurance platform that we believe can support significant growth with limited incremental investment. We believe that the scalability of our platform and our focus on controlling staffing, operating, capital and other expenses will allow us to deliver enhanced earnings over time. We believe that the benefits of an efficient expense structure extend beyond bottom line financial results, and provide us with greater flexibility to forego unattractive business that does not meet our targeted risk-return objectives.

    Protect our balance sheet by writing high quality mortgage insurance and prudently managing risk.    We intend to continue targeting high quality mortgage insurance and prudently managing the risks that we assume in our business in order to remain a well-capitalized counterparty for our customers. Our Chief Risk Officer reports directly to our Chief Executive Officer and leads a team that is responsible for implementing our risk management framework. Risk management is a significant focus of our business, including customer and policy acquisitions, underwriting and credit approvals, ongoing portfolio monitoring, loss reserving and claims management, investment portfolio allocation and

 

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      capitalization decisions. We utilize an economic capital framework to evaluate risk-adjusted returns. We also perform stress tests on our portfolio to analyze how our book of business may perform under adverse scenarios. We believe that our economic capital framework and stress testing analysis helps to inform our optimal capitalization targets, allowing us to prudently manage and protect our balance sheet.

    Promote the role and benefits of private mortgage insurance by actively engaging with policymakers, regulators and industry participants.    We believe that a strong, viable private mortgage insurance market is a critical component of the U.S. housing finance system. Mortgage insurance provides private capital to mitigate mortgage credit risk within the system, supports increased levels of homeownership, offers liquidity and process efficiencies for lenders, and provides consumers with lower-cost products and increased choice of mortgage and homeownership options. We meet frequently with policymakers, regulatory agencies, including state insurance and banking regulators and the FHFA, the GSEs, our customers and other industry participants to promote the role and value of private mortgage insurance and exchange views on the U.S. housing finance system. We intend to continue to promote legislative and regulatory policies that support a viable and competitive private mortgage insurance industry and a well-functioning U.S. housing finance system.

    Pursue new opportunities to source mortgage insurance business.    Following the financial crisis and placement of the GSEs under the conservatorship of the FHFA in 2008, regulators have sought to develop strategies and programs to reduce U.S. taxpayer exposure to the mortgage markets and to transfer mortgage credit risk to the private market. We believe that this policy direction will continue, and may lead to additional opportunities for the mortgage insurance industry, and Essent in particular. We have actively pursued the currently proposed GSE risk sharing programs, and intend to analyze future risk sharing transactions as they arise.

    Opportunistically leverage our Bermuda structure to create incremental value for shareholders.    We expect to be opportunistic in evaluating ways to leverage our Bermuda holding company structure and our reinsurer, Essent Reinsurance Ltd., or Essent Re, to enhance shareholder value. We expect to hire a small number of additional employees at Essent Re to help us selectively evaluate MI reinsurance opportunities. We believe MI reinsurance that is written in a similarly diligent and controlled manner as our existing book of business can be additive to the Essent franchise.

 

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Summary Risk Factors

          Investing in our shares involves substantial risk. The risks described under the heading "Risk Factors" immediately following this summary may cause us to not realize the full benefits of our strengths or may cause us to be unable to successfully execute all or part of our strategy. Some of the more significant challenges include the following:

    Legislative or regulatory actions or decisions to change the role of the GSEs in the U.S. housing market, changes to the charters of the GSEs or changes in the business practices of the GSEs, including actions or decisions to decrease or discontinue the use of mortgage insurance or changes in the GSEs' eligibility requirements for mortgage insurers, could reduce our revenues or adversely affect our profitability and returns.

    The amount of insurance we may be able to write could be adversely affected if lenders and investors select alternatives to private mortgage insurance.

    Our revenues, profitability and returns would decline if we lose a significant customer.

    Our business prospects and operating results could be adversely impacted by legislative or regulatory initiatives or changes such as the implementation of the Dodd-Frank Act, including if, and to the extent that, the Consumer Financial Protection Bureau's final rule defining a qualified mortgage or risk retention requirements and the associated definition of qualified residential mortgages reduce the size of the origination market, reduce the amount of low down payment loans or create incentives to use government-supported mortgage insurance programs.

    A downturn in the U.S. economy or a decline in the value of borrowers' homes from their value at the time their loans close may result in more homeowners defaulting and could increase our losses.

    If the volume of low down payment home mortgage originations declines as a result of macroeconomic conditions or otherwise, the amount of insurance that we write could decline and reduce our revenues.

    An increase in the rate of home price appreciation may cause the loan-to-value ratios of mortgages that we insure to decrease, potentially resulting in cancellations of our MI policies and/or increasing refinancing activity, which could negatively impact our revenues.

    We expect our claims to increase as our portfolio matures and our reserves may not reflect accurate estimates of our actual losses, each of which would adversely affect our business.

    The security of our information technology systems may be compromised and confidential information, including non-public personal information that we maintain, could be improperly disclosed.

          You should carefully consider all of the information included in this prospectus, including matters set forth under the headings "Risk Factors" and "Forward Looking Statements," before deciding to invest in our common shares.


Corporate and Other Information

          Essent Group Ltd. was organized as a limited liability company under the laws of Bermuda on July 1, 2008. Our registered office is located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. Our website address is www.                          . We do not incorporate the information contained on, or accessible through, our corporate website into this prospectus, and you should not consider it to be part of this prospectus.

 

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          We were founded by an experienced management team who saw a need for a new mortgage insurance company funded by private capital and unencumbered by legacy exposures, and were supported by a group of highly experienced, strategic and financial investors, including affiliates of Pine Brook Road Partners, The Goldman Sachs Group, Inc., an affiliate of Global Atlantic Financial Group, Valorina LLC, which is majority owned by an entity that is managed by Soros Fund Management LLC, Aldermanbury Investments Limited, an affiliate of J.P. Morgan, an affiliate of PartnerRe Principal Finance Inc., RenaissanceRe Ventures Ltd., funds or accounts managed by Wellington Management Company, LLP, and affiliates of HSBC, who collectively committed approximately $600 million in capital to fund our operations. We have drawn in the aggregate approximately $438 million of the available committed capital.

          Our primary wholly owned insurance subsidiary, Essent Guaranty, Inc., received its certificate of authority from the Pennsylvania Insurance Department in July 2009, and subsequently received licenses to issue mortgage insurance in all 50 states and the District of Columbia. In December 2009, we acquired our mortgage insurance platform from a former mortgage insurance industry participant. In February 2010, we became the first mortgage insurer approved by the GSEs since 1995.

          EssentTM and Clarity of Coverage® and their corresponding logos appearing in this prospectus are owned by us or one of our subsidiaries. All other trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners.


Implications of Being an Emerging Growth Company

          We qualify as an "emerging growth company" as defined in the Jumpstart our Business Startups Act of 2012, or JOBS Act. As an emerging growth company, we have elected to take advantage of the reduced disclosure requirements available to emerging growth companies under the JOBS Act about our executive compensation arrangements and the presentation of selected financial data for periods prior to the earliest audited period presented in this prospectus and an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting pursuant to the Sarbanes-Oxley Act of 2002.

          As a result of these elections, the information that we provide in this prospectus may be different than the information you may receive from other public companies in which you hold equity interests. In addition, it is possible that some investors will find our common shares less attractive as a result of our elections, which may result in a less active trading market for our common shares and more volatility in our share price.

          We may take advantage of these provisions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common shares which are held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

 

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The Offering

Common shares offered by us

                    shares

[Common shares offered by selling shareholders

                    shares]

Total common shares offered

                    shares

Option to purchase additional common shares

  The underwriters have a 30-day option to purchase an additional         common shares from [us] [and] [the selling shareholders].

Common shares to be outstanding after this offering

                    shares (or             shares if the underwriters exercise in full their option to purchase additional shares).

Use of proceeds

  We intend to use the net proceeds from this offering for general corporate purposes, which may include capital contributions to support the growth of our insurance subsidiaries. [We will not receive any proceeds from the sale of shares by the selling shareholders.] See "Use of Proceeds."

Risk factors

  See "Risk Factors" for a discussion of factors you should carefully consider before deciding whether to invest in our common shares.

Dividend policy

  We do not currently expect to pay dividends on our common shares for the foreseeable future.

Proposed trading symbol

  ESNT

Conflicts of interest

  Goldman, Sachs & Co. and/or its affiliates owns in excess of 10% of our issued and outstanding common shares and as a result is deemed to have a "conflict of interest" with us within the meaning of Rule 5121 of the Financial Industry Regulatory Authority ("Rule 5121"). Therefore, this offering will be conducted in accordance with Rule 5121, which requires that Goldman, Sachs & Co. will not make sales to discretionary accounts without the prior written consent of the account holder and that a qualified independent underwriter ("QIU") as defined in Rule 5121 participates in the preparation of the registration statement of which this prospectus forms a part and performs its usual standard of due diligence with respect thereto. Barclays Capital Inc. has agreed to act as QIU for this offering.

          Unless we indicate otherwise, the information in this prospectus:

    gives effect to the issuance of             common shares in this offering;

    assumes no exercise by the underwriters of their option to purchase additional shares;

    assumes that the initial public offering price of our common shares will be $             per share (which is the midpoint of the price range set forth on the cover page of this prospectus);

 

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    gives effect to the       for       share split effective as of                          ;

    assumes the conversion of all of our outstanding Class A common shares into             common shares;

    assumes the conversion of all of our outstanding Class B-2 common shares that are eligible to vest under the 2009 Restricted Share Plan, as amended (the "2009 Plan"), into             common shares and the forfeiture of any remaining Class B-2 common shares that are not eligible to vest in accordance with the 2009 Plan; and

    assumes our bye-laws have been amended to create a single class of common shares to be offered and sold in the offering.

 

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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

          The following tables set forth our summary consolidated financial and other data as of and for the periods indicated. The summary consolidated financial and other data as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010 have been derived from our audited consolidated financial statements and the notes thereto included elsewhere in this prospectus. Our historical results for any prior period are not necessarily indicative of results expected in any future period.

          The summary consolidated financial and other data as of and for the six months ended June 30, 2013 and 2012 have been derived from our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this prospectus. We believe our unaudited condensed consolidated financial statements included elsewhere in this prospectus have been prepared on the same basis as our audited consolidated financial statements and reflect all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of the financial position and results of operations for such periods. The summary consolidated financial and other data as of and for the six months ended June 30, 2013 and 2012 are not necessarily indicative of the results expected as of and for the year ended December 31, 2013 or for any future period.

          The information set forth under "Insurance company capital" below has been derived from the annual and quarterly statements of our insurance subsidiaries filed with the Pennsylvania Insurance Department. The accompanying data has been prepared in conformity with accounting practices prescribed or permitted by the Pennsylvania Insurance Department. Such practices vary from accounting principles generally accepted in the United States ("GAAP").

          The following data should be read together with our consolidated financial statements and the related notes thereto, as well as the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this prospectus.

 
  Six Months Ended
June 30,
   
   
   
 
 
  Year Ended December 31,  
Selected income statement data
(in thousands, except per-share amounts)
 
 
2013
 
2012
 
2012
 
2011
 
2010
 

Net premiums written

  $ 78,296   $ 22,731   $ 72,668   $ 17,865   $ 219  

Increase in unearned premium

    (29,551 )   (9,216 )   (30,875 )   (9,686 )   (9 )
                       

Net premiums earned

  $ 48,745   $ 13,515   $ 41,793   $ 8,179   $ 210  
                       

Total revenues

  $ 52,595   $ 16,767   $ 48,716   $ 14,388   $ 6,300  

Total losses and expenses

    31,829     29,596     62,592     48,838     33,928  

Income tax benefit

    (10,011 )   (307 )   (333 )   (895 )   (54 )
                       

Net income (loss)

  $ 30,777   $ (12,522 ) $ (13,543 ) $ (33,555 ) $ (27,574 )
                       

Earnings (loss) per share(1):

                               

Basic:

                               

Class A

  $ 0.90   $ (0.48 ) $ (0.49 ) $ (1.39 ) $ (1.24 )

Class B-2

        (0.01 )       N/A     N/A  

Diluted:

                               

Class A

  $ 0.89   $ (0.48 ) $ (0.49 ) $ (1.39 ) $ (1.24 )

Class B-2

        (0.01 )       N/A     N/A  

Weighted average common shares outstanding:

                               

Basic:

                               

Class A

    34,313     25,923     27,445     24,151     22,205  

Class B-2

    1,577     285     557          

Diluted:

                               

Class A

    34,459     25,923     27,445     24,151     22,205  

Class B-2

    6,549     285     557          

Pro forma earnings (loss) per share(2)

                               

Basic

  $                            

Diluted

                               

Pro forma weighted average common shares outstanding

                               

Basic

  $                            

Diluted

                               

 

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  As of June 30,   As of December 31,  
Balance sheet data
(in thousands)
 
 
2013
 
2012
 
2012
 
2011
 
2010
 

Total investments

  $ 297,805   $ 172,033   $ 247,414   $ 171,091   $ 161,725  

Cash

    129,166     21,338     22,315     18,501     15,511  

Total assets

    461,210     213,984     283,332     210,066     193,589  

Reserve for losses and LAE

    2,548     702     1,499     57      

Unearned premium reserve

    70,121     18,910     40,570     9,695     9  

Amounts due under Asset Purchase Agreement

    7,400     12,274     9,841     14,703     2,485  

Total stockholders' equity

    371,234     170,055     219,123     176,061     183,493  

Total liabilities and stockholders' equity

  $ 461,210   $ 213,984   $ 283,332   $ 210,066   $ 193,589  

Selected additional data
($ in thousands)

 
  Six Months Ended
June 30,
  Year Ended December 31,  
 
 
2013
 
2012
 
2012
 
2011
 
2010
 

New insurance written

  $ 10,216,683   $ 3,621,424   $ 11,241,161   $ 3,229,720   $ 245,898  

Loss ratio(3)

   
2.7

%
 
4.8

%
 
3.5

%
 
0.7

%
 
0.0

%

Expense ratio(4)

    62.6 %   214.2 %   146.3 %   596.4 %   16,156.2 %
                       

Combined ratio

    65.3 %   219.0 %   149.8 %   597.1 %   16,156.2 %
                       

 

 
  As of June 30,   As of December 31,  
Insurance portfolio:
 
2013
 
2012
 
2012
 
2011
 
2010
 

Insurance in force

  $ 22,576,300   $ 6,768,666   $ 13,628,980   $ 3,376,708   $ 244,968  

Risk in force

  $ 5,348,917   $ 1,596,691   $ 3,221,631   $ 777,460   $ 53,561  

Policies in force

    98,818     30,049     59,764     15,135     1,204  

Loans in default

   
90
   
21
   
56
   
3
   
 

Percentage of loans in default

    0.09 %   0.07 %   0.09 %   0.02 %    

Insurance company capital:

                               

Combined statutory capital(5)

  $ 356,169   $ 150,125   $ 203,611   $ 150,851   $ 165,144  

Risk to capital ratios:

                               

Essent Guaranty, Inc. 

    14.9:1     10.2:1     15.8:1     5.0:1     0.3:1  

Essent Guaranty of PA, Inc. 

    17.0:1     22.5:1     16.2:1     10.4:1     0.6:1  

Combined(6)

    15.0:1     10.6:1     15.8:1     5.2:1     0.3:1  

(1)
Our Class A common shares have a stated dividend; however, our Class B-2 common shares do not have a stated dividend rate. Accordingly, earnings (loss) per common share has been calculated using the "two-class" method which provides that earnings and losses be allocated to each class of common shares according to dividends declared and their respective participation rights. Because the Class A common shares accrue a 10% cumulative dividend and the Class B-2 common shares have no stated dividend rate and any dividends paid on Class B-2 common shares would be discretionary, all earnings in 2013 have been allocated to the Class A common shares for purposes of computing earnings per share. In 2012, the net loss was allocated to the Class A common shares and vested Class B-2 common shares based on contributed capital. In 2011 and 2010, the entire net loss was allocated to the Class A common shares as no Class B-2 common shares had vested.

(2)
Pro forma per share data assumes (i) the conversion of all of our Class A common shares and all of our Class B-2 common shares eligible to vest under our 2009 Plan into a single class of common shares and forfeiture of any Class B-2 common shares that are not eligible for vesting under our 2009 Plan and (ii) the              for             share split effective as of                          , as if such events occurred on January 1, 2012. Pro forma basic earnings (loss) per share consists of net income (loss) divided by the pro forma basic weighted average common shares outstanding. Pro

 

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    forma diluted earnings (loss) per share consists of net income (loss) divided by the pro forma diluted weighted average common shares outstanding.

(3)
Loss ratio is calculated by dividing the provision for loss and loss adjustment expenses by net premiums earned.

(4)
Expense ratio is calculated by dividing other underwriting and operating expenses by net premiums earned.

(5)
Combined statutory capital equals sum of statutory capital of Essent Guaranty, Inc. plus Essent Guaranty of PA, Inc., after eliminating the impact of intercompany transactions.

(6)
The combined risk to capital ratio equals the sum of the net risk in force of Essent Guaranty, Inc. and Essent Guaranty of PA, Inc. divided by the combined statutory capital.

 

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RISK FACTORS

          Investing in our common shares involves a high degree of risk. You should consider and read carefully all of the risks and uncertainties described below, as well as other information included in this prospectus, including our consolidated financial statements and related notes appearing at the end of this prospectus, before making an investment decision. The risks described below are not the only ones facing us. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition or results of operations. In such case, the trading price of our common shares could decline, and you may lose all or part of your original investment. This prospectus also contains forward-looking statements and estimates that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks and uncertainties described below.

Risks Relating to Our Business

Legislative or regulatory actions or decisions to change the role of the GSEs in the U.S. housing market generally, or changes to the charters of the GSEs with regard to the use of credit enhancements generally and private MI specifically, could reduce our revenues or adversely affect our profitability and returns.

          Since 2008, the Federal government has assumed an expanded role in many key aspects of the U.S. housing finance system. In particular, the Department of the Treasury and the FHFA placed the GSEs into conservatorship in September 2008, putting regulatory and operational control of the GSEs under the auspices of the FHFA. Although we believe the FHFA's conservatorship was intended to be temporary, the GSEs have remained in conservatorship for nearly five years. During that time, there have been a wide-ranging set of GSE and secondary market reform advocacy proposals put forward, including nearly complete privatization of the mortgage market and elimination of the role of the GSEs, recapitalization of the GSEs and a set of alternatives that would combine a Federal role with private capital, some of which eliminate the GSEs and others which envision an ongoing role for the GSEs. Since 2011, a number of comprehensive GSE/secondary market legislative reform bills have also been introduced or announced, differing widely with regard to the future role of the GSEs, the overall structure of the secondary market and the role of the Federal government within the mortgage market. As a result of the uncertainty regarding resolution of the conservatorship of the GSEs and the proper structure of any new secondary mortgage market, as well as the Federal government's recently increased role within the housing market, we cannot predict how or when the role of the GSEs may change. In addition, the size, complexity and centrality of the GSEs to the current housing finance system and the importance of housing to the nation's economy make the transition to any new housing finance system difficult and present risks to market participants, including to us.

          The charters of the GSEs currently require certain credit enhancement for low down payment mortgage loans in order for such loans to be eligible for purchase or guarantee by the GSEs, and lenders historically have relied on mortgage insurance to a significant degree in order to satisfy these credit enhancement requirements. Because the overwhelming majority of our current and expected future business is the provision of mortgage insurance on loans sold to the GSEs, if the charters of the GSEs are amended to change or eliminate the acceptability of private mortgage insurance in their purchasing practices, then our volume of new business and our revenue may decline significantly.

          Changes to the statutory requirements of the FHFA's conservatorship of the GSEs, the elimination of the GSEs or the replacement of the GSEs with any successor entities or structures, or changes to the GSE charters would require Federal legislative action, which makes predicting the

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timing or substance of such changes difficult. As a result, it is uncertain what role the GSEs, the FHFA, the government and private capital, including private mortgage insurance, will play in the U.S. housing finance system in the future or the impact and timing of any such changes on the market and our business.

Changes in the business practices of the GSEs, including actions or decisions to decrease or discontinue the use of MI or changes in the GSEs' eligibility requirements for mortgage insurers, could reduce our revenues or adversely affect our profitability and returns.

          Changes in the business practices of the GSEs, which can be implemented by the GSEs at the FHFA's direction, could negatively impact our operating results and financial performance, including changes to:

    the level of coverage when private mortgage insurance is used to satisfy the GSEs' charter requirements on low down payment mortgages;

    the overall level of guaranty fees or the amount of loan level delivery fees that the GSEs assess on loans that require mortgage insurance;

    the GSEs influence in the mortgage lender's selection of the mortgage insurer providing coverage and, if so, any transactions that are related to that selection;

    the underwriting standards that determine what loans are eligible for purchase by the GSEs, which can affect the volume and quality of the risk insured by the mortgage insurer;

    the terms on which mortgage insurance coverage can be canceled before reaching the cancellation thresholds established by law;

    programs established by the GSEs intended to avoid or mitigate loss on insured mortgages and the circumstances in which mortgage servicers must implement such programs;

    the extent to which the GSEs establish requirements for mortgage insurers' rescission practices or rescission settlement practices with lenders;

    the size of loans that are eligible for purchase or guaranty by the GSEs, which if reduced or otherwise limited may reduce the overall level of business and the number of low down payment loans with mortgage insurance that the GSEs purchase or guaranty; and

    requirements for a mortgage insurer to become and remain an approved eligible insurer for the GSEs, including, among other items, minimum capital adequacy targets and the terms that the GSEs require to be included in mortgage insurance master policies for loans that they purchase or guaranty.

          The GSEs have proposed minimum standards for mortgage insurer master policies, including standards relating to limitations of a mortgage insurer's rescission rights. The new minimum standards are expected to be implemented in 2014. These standards require us to make changes to our master policy, some of which will not be favorable to us and which could result in us paying more claims than required under our current master policy or could otherwise increase our operating costs. The imposition of standardized master policies may also make it more difficult for us to distinguish ourselves from our competitors on the basis of coverage terms.

          In addition, each of the GSEs maintains eligibility requirements for mortgage insurers. See "Certain Regulatory Considerations — GSE Qualified Mortgage Insurer Requirements." The GSEs are currently developing revisions to their respective eligibility standards for approved mortgage insurers. Although the GSEs have not publicly commented on the substance of such new eligibility requirements for mortgage insurers, we expect those rules to include a new capital adequacy framework with minimum capital requirements. Any changes in these eligibility requirements may

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negatively impact our ability to write mortgage insurance at our current levels, generate the returns we anticipate from our business or otherwise participate in the private mortgage insurance market at all. Such changes may also make us less competitive with our competitors and with providers of alternatives to mortgage insurance if we must increase our premiums in order to maintain our target returns.

The amount of insurance we may be able to write could be adversely affected if lenders and investors select alternatives to private mortgage insurance.

          We compete for business with alternatives to private mortgage insurance, consisting primarily of government-supported mortgage insurance programs as well as home purchase or refinancing alternatives that do not use any form of mortgage insurance.

          Government-supported mortgage insurance programs include, but are not limited to:

    Federal mortgage insurance programs, including those offered by the FHA and VA; and

    state-supported mortgage insurance funds, including, but not limited to, those funds supported by the states of California and New York.

          Alternatives to mortgage insurance include, but are not limited to:

    lenders and other investors holding mortgages in their portfolios and self-insuring;

    investors using other risk mitigation techniques in conjunction with reduced levels of private mortgage insurance coverage, or accepting credit risk without credit enhancement;

    mortgage sellers retaining at least a 10% participation in a loan or mortgage sellers agreeing to repurchase or replace a loan upon an event of default; and

    lenders originating mortgages using "piggyback structures" which avoid private mortgage insurance, such as a first mortgage with an 80% loan-to-value ratio and a second mortgage with a 10%, 15% or 20% loan-to-value ratio (referred to as 80-10-10, 80-15-5 or 80-20 loans, respectively) rather than a first mortgage with a 90%, 95% or 100% loan-to-value ratio that has private mortgage insurance.

          Any of these alternatives to private MI could reduce or eliminate the demand for our product, cause us to lose business or limit our ability to attract the business that we would prefer to insure. In particular, there has been substantial competition from government-sponsored mortgage insurance programs in the wake of the recent financial crisis. Government-supported mortgage insurance programs are not subject to the same capital requirements, risk tolerance or business objectives that we and other private mortgage insurance companies are, and therefore, generally have greater financial flexibility in setting their pricing, guidelines and capacity, which could put us at a competitive disadvantage. In addition, loans insured under FHA and other Federal government-supported mortgage insurance programs are eligible for securitization in Ginnie Mae securities, which may be viewed by investors as more desirable than Fannie Mae and Freddie Mac securities due to the explicit backing of Ginnie Mae securities by the full faith and credit of the U.S. Federal government.

          Consequently, if the FHA or other government-supported mortgage insurance programs maintain or increase their share of the mortgage insurance market, our business and industry could be affected. Factors that could cause the FHA or other government-supported mortgage insurance programs to maintain or increase their share of the mortgage insurance market include:

    a reduction in the premiums charged for government mortgage insurance or a loosening of underwriting guidelines;

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    past and potential future capital constraints in the private mortgage insurance industry;

    increases in premium rates or tightening of underwriting guidelines by private mortgage insurers based on past loan performance or other risk concerns;

    increased levels of loss mitigation activity by private mortgage insurers on older vintage portfolios when compared to the more limited loss mitigation activities of government insurance programs;

    imposition of additional loan level delivery fees by the GSEs on loans that require mortgage insurance;

    increases in GSE guaranty fees and the difference in the spread between Fannie Mae MBS and Ginnie Mae MBS;

    the perceived operational ease of using government insurance compared to the products of private mortgage insurers;

    differences in the enforcement of program requirements by the FHA relative to the enforcement of policy terms by private entities; and

    the implementation of new regulations under the Dodd-Frank Act (particularly the Qualified Mortgage and Qualified Residential Mortgage rules) and the Basel III Rules, which may be more favorable to the FHA than to private mortgage insurers (see "— Our business prospects and operating results could be adversely impacted if, and to the extent that, the Consumer Financial Protection Bureau's ("CFPB") final rule defining a qualified mortgage ("QM") reduces the size of the origination market or creates incentives to use government mortgage insurance programs", "— The amount of insurance we write could be adversely affected by the implementation of the Dodd-Frank Act's risk retention requirements and the definition of Qualified Residential Mortgage ("QRM")" and "— The implementation of the Basel III Capital Accord, or other changes to our customers' capital requirements, may discourage the use of mortgage insurance").

          In addition, in the event that a government-supported mortgage insurance program in one of our markets reduces prices significantly or alters the terms and conditions of its mortgage insurance or other credit enhancement products in furtherance of political, social or other goals rather than a profit motive, we may be unable to compete in that market effectively, which could have an adverse effect on our business, financial condition and operating results.

The implementation of the Basel III Capital Accord, or other changes to our customers' capital requirements, may discourage the use of mortgage insurance.

          In 1988, the Basel Committee on Banking Supervision, which we refer to as the "Basel Committee", developed the Basel Capital Accord, which we refer to as "Basel I", which set out international benchmarks for assessing banks' capital adequacy requirements. In 2005, the Basel Committee issued an update to Basel I, which we refer to as "Basel II", which, among other things, governs the capital treatment of mortgage insurance purchased and held on balance sheet by banks in respect of their origination and securitization activities. In July 2013, the Federal Reserve Board, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation approved publication of final regulatory capital rules, which we refer to as the "Basel III Rules", which govern almost all U.S. banking organizations regardless of size or business model. The Basel III Rules revise and enhance the Federal banking agencies' general risk-based capital, advanced approaches and leverage rules. The Basel III Rules will become effective on January 1, 2014, with a mandatory compliance date of January 1, 2015 for banking organizations other than advanced approaches banking organizations that are not savings and loans holding companies. On

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January 1, 2014, most banking organizations would be required to begin a multi-year transition period to the full implementation of the new capital framework.

          The Federal banking agencies' previously proposed Basel III rule would have made extensive changes to the capital requirements for residential mortgages, including eliminating capital recognition for certain low down payment mortgages covered by mortgage insurance. The Federal banking agencies decided to retain in the Basel III Rules the treatment for residential mortgage exposures that is currently set forth in the general risk-based capital rules and the treatment of mortgage insurance. In addition, with regard to the separate Basel III Rules applicable to general credit risk mitigation for banking exposures, insurance companies engaged predominantly in the business of providing credit protection, such as private mortgage insurance companies, are not eligible guarantors.

          If implementation of the Basel III Rules increases the capital requirements of banking organizations with respect to the residential mortgages we insure, it could adversely affect the size of the portfolio lending market, which in turn would reduce the demand for our mortgage insurance. If the Federal banking agencies revise the Basel III Rules to reduce or eliminate the capital benefit banks receive from insuring low down payment loans with private mortgage insurance, or if our bank customers believe that such adverse changes may occur at some time in the future, our current and future business may be adversely affected. Furthermore, if mortgage insurance companies do not meet the requirements to be an eligible guarantor for purposes of general credit mitigation, our future business prospects may be adversely affected.

Our revenues, profitability and returns would decline if we lose a significant customer.

          Our mortgage insurance business depends on our relationships with our customers, and in particular, our relationships with our largest lending customers. Our top ten customers generated 51.0% of our new insurance written, or NIW, during the six-month period ended June 30, 2013, compared to 60.4%, 84.9% and 99.6% for the years ended December 31, 2012, 2011 and 2010, respectively. For the six months ended June 30, 2013, one customer represented 16.8% of our NIW. Maintaining our business relationships and business volumes with our largest lending customers remains critical to the success of our business.

          Our master policies do not, and by law cannot, require our customers to do business with us. Under the terms of our master policy, our customers, or the parties they designate to service the loans we insure, have the unilateral right to cancel our insurance coverage at any time for any loan that we insure. Upon cancellation of coverage, subject to the type of coverage, we may be required to refund unearned premiums, if any.

          In addition, the economic downturn and challenging market conditions of the recent past adversely affected the financial condition of a number of our largest customers. If the U.S. economy enters into another recessionary period, these customers could again become subject to serious financial constraints that may jeopardize the viability of their business plans or their access to additional capital, forcing them to consider alternatives such as bankruptcy or consolidation with others in the industry. Other factors, such as rising interest rates, which could reduce mortgage origination volumes generally, rising costs associated with regulatory compliance and the relative cost of capital, may also result in consolidation among our customers. In the event our customers consolidate, they may revisit their relationships with individual mortgage insurers, such as us, which could result in a loss of customers or a reduction in our business. The loss of business from a significant customer could have a material adverse effect on the amount of new business we are able to write, and consequently, our revenue, and we can provide no assurance that any loss of business from a significant customer would be replaced from other new or existing lending customers.

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Intense competition within the private mortgage insurance industry could result in the loss of customers, lower premiums, wider credit guidelines and other changes which could lower our revenues or raise our costs.

          The private mortgage insurance industry is intensely competitive, with seven private mortgage insurers currently approved and eligible to write business for the GSEs. We compete with other private mortgage insurers on the basis of pricing, terms and conditions, underwriting guidelines, loss mitigation practices, financial strength, reputation, customer relationships, service and other factors. One or more private mortgage insurers may seek increased market share from government-supported insurance programs, such as those sponsored by the FHA, or from other private mortgage insurers by reducing pricing, loosening their underwriting guidelines or relaxing their risk management practices, which could, in turn, improve their competitive position in the industry and negatively impact our level of NIW. A decline in industry NIW might result in increased competition as certain private mortgage insurance companies may seek to maintain their NIW levels within a smaller market. In addition, the perceived increase in the credit quality of loans that currently are being insured, the relative financial strength of the existing mortgage insurance companies and the possibility of the private mortgage insurance market acquiring a greater share of the overall mortgage insurance market may encourage new entrants into the private mortgage insurance industry, which could further increase competition in our business.

          We believe that our financial strength has been a reason that some customers have done business with us. However, this competitive advantage may be mitigated if our competitors continue to improve their capital positions, profitability and financial strength ratings, or if we incur losses which weaken our financial position. Our customers may choose to diversify the mortgage insurers with which they do business due to weakness in our relative financial strength or other reasons, which could negatively affect our level of NIW and our market share.

If the volume of low down payment home mortgage originations declines, the amount of insurance that we write could decline, which would reduce our revenues.

          Our ability to write new business depends, among other things, on the origination volume of low down payment mortgages that require mortgage insurance. Factors that affect the volume of low down payment mortgage originations include:

    the level of home mortgage interest rates and the deductibility of mortgage interest and mortgage insurance for income tax purposes;

    the health of the domestic economy as well as conditions in regional and local economies;

    housing affordability;

    population trends, including the rate of household formation;

    the rate of home price appreciation, which in times of significant refinancing can affect whether refinance loans have loan-to-value ratios that require private mortgage insurance;

    government housing policies encouraging loans to borrowers that may need low down payment financing, such as first-time homebuyers;

    the extent to which the guaranty fees, loan-level price adjustments, credit underwriting guidelines and other business terms provided by the GSEs affect lenders' willingness to extend credit for low down payment mortgages;

    requirements for ability-to-pay determinations prior to extending credit as discussed below; and

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    restrictions on mortgage credit due to more stringent underwriting standards and the risk-retention requirements for securitized mortgage loans affecting lenders as discussed below.

          If the volume of low down payment loan originations declines, then our ability to write new policies may suffer, and our revenue and results of operations may be negatively impacted.

Our business prospects and operating results could be adversely impacted if, and to the extent that, the Consumer Financial Protection Bureau's ("CFPB") final rule defining a qualified mortgage ("QM") reduces the size of the origination market or creates incentives to use government mortgage insurance programs.

          The Dodd-Frank Act established the CFPB to regulate the offering and provision of consumer financial products and services under Federal law, including residential mortgages, and generally requires creditors to make a reasonable, good faith determination of a consumer's ability-to-repay any consumer credit transaction secured by a dwelling prior to effecting such transaction. The CFPB is authorized to issue the regulations governing a good faith determination; Dodd-Frank, however, provides a statutory presumption of eligibility of loans that satisfy the QM definition. The CFPB has issued a final rule defining what constitutes a QM, which we refer to as the "QM Rule," that will take effect on January 10, 2014. Under the rule, a loan is deemed to be a QM if, among other factors:

    the term of the loan is less than or equal to 30 years;

    there are no negative amortization, interest only or balloon features;

    the lender properly documents the loan in accordance with the requirements;

    the total "points and fees" do not exceed certain thresholds, generally 3% of the total loan amount; and

    the total debt-to-income ratio of the borrower does not exceed 43%.

          The QM Rule provides a "safe harbor" for QM loans with annual percentage rates, or APRs, below the threshold of 150 basis points over the Average Prime Offer Rate, or APOR, and a "rebuttable presumption" for QM loans with an APR above that threshold.

          The Dodd-Frank Act separately granted statutory authority to HUD (for FHA-insured loans), the VA (for VA-guaranteed loans) and certain other government agency insurance programs to develop their own definitions of a qualified mortgage in consultation with CFPB. We believe that HUD is considering adopting a separate definition of a qualified mortgage for loans insured by the FHA, although we do not know the extent of the differences. To the extent that these government agencies adopt their own definitions of a qualified mortgage and those definitions are more favorable to lenders and mortgage holders than those applicable to the market in which we operate, our business may be adversely affected.

          The QM Rule also provides for a second temporary category with more flexible requirements if the loan is eligible to be (i) purchased or guaranteed by the GSEs while they are in conservatorship, which represents the overwhelming majority of our business, or (ii) insured by the FHA, the VA, the Department of Agriculture or the Rural Housing Service. The second temporary category still requires that loans satisfy certain criteria, including the requirement that the loans are fully amortizing, have terms of 30 years or less and have points and fees representing 3% or less of the total loan amount. This temporary QM category expires on January, 10, 2021, or earlier if the Federal agencies issue their own qualified mortgage rules or, with respect to GSEs, if the FHFA's conservatorship ends.

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          Failure to comply with the ability-to-repay requirement exposes a lender to substantial potential liability. As a result, we believe that the QM regulations may cause changes in the lending standards and origination practices of our customers. Under the QM Rule, mortgage insurance premiums that are payable by the consumer at or prior to consummation of the loan may be included in the calculation of points and fees, including our borrower-paid single premium products. To the extent the use of private mortgage insurance causes a loan not to meet the definition of a QM, the volume of loans originated with mortgage insurance may decline or cause a change in the mix of premium plans and therefore our profitability. However, it is difficult to predict with any certainty how lenders' origination practices will change as a result of the QM rule and whether any such changes would have a negative impact on the MI industry. Our business prospects and operating results could be adversely impacted if the QM regulations reduce the size of the origination market, reduce the willingness of lenders to extend low-down payment credit, favor alternatives to private mortgage insurance such as government mortgage insurance programs or change the mix of our business in ways that may be unfavorable to us.

The amount of insurance we write could be adversely affected by the implementation of the Dodd-Frank Act's risk retention requirements and the definition of Qualified Residential Mortgage ("QRM").

          The Dodd-Frank Act requires an originator or issuer to retain a specified percentage of the credit risk exposure on securitized mortgages that do not meet the definition of QRM. In March 2011, Federal regulators issued a set of proposed rules that outlined the risk retention requirements and defined the conditions necessary to satisfy the QRM definition. In response to public comments to such proposed rule, Federal regulators issued a revised proposed risk retention rule, including QRM definitions, on August 28, 2013. The new proposed rule generally defines QRM as a mortgage meeting the requirements of a QM (see "— Our business prospects and operating results could be adversely impacted if, and to the extent that, the Consumer Financial Protection Bureau's ("CFPB") final rule defining a qualified mortgage ("QM") reduces the size of the origination market or creates incentives to use government mortgage insurance programs.") The regulators also proposed an alternative QRM definition, "QM-plus," which utilizes certain QM criteria but also incorporates a maximum LTV standard of 70% and certain other restrictions selected to reduce the risk of default. Neither of the revised proposed definitions of QRM incorporate the use of private mortgage insurance. Because of the capital support provided by the U.S. Government to the GSEs, the GSEs satisfy the proposed risk retention requirements of the Dodd-Frank Act while they are in conservatorship and sellers of loans to the GSEs are not otherwise subject to risk retention requirements. The public comments for the new proposed rule are due on October 30, 2013. The final timing of the adoption of any risk retention regulation and the definition of QRM remains uncertain.

          If the final QRM rule does not give consideration to mortgage insurance in computing LTV and a large down payment is necessary for a loan to qualify as a QRM, the attractiveness of originating and securitizing loans with lower down payments may be reduced, which may adversely affect the future demand for mortgage insurance. In addition, changes in the final regulations regarding treatment of GSE-guaranteed mortgage loans, or changes in the conservatorship or capital support provided to the GSEs by the U.S. Government, could impact the manner in which the risk-retention rules apply to GSE securitizations, originators who sell loans to GSEs and our business. The impact of these rules on the use of private MI depends on, among other things, (i) the final definition of QRM, (ii) under the proposed definition, the extent to which the presence of private mortgage insurance may adversely affect the ability of a loan to qualify as a QM and therefore as a QRM, (iii) under the QM-plus definition or any other final definition with an LTV requirement, the level of the final LTV requirement and the extent to which credit would be given for the use of MI, if any, in satisfying the LTV requirement, (iv) if, in the future, sellers of loans to the GSEs become subject to risk-retention requirements, and (v) the degree to which originators or issuers subject to risk retention requirements would see it as beneficial to utilize MI on non-QRM loans to mitigate their retained credit exposure.

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We expect our claims to increase as our portfolio matures.

          We believe, based upon our experience and industry data, that claims incidence for mortgage insurance is generally highest in the third through sixth years after loan origination. Although the claims experience on new insurance written by us in the years ended December 31, 2010, 2011 and 2012 has been favorable to date, we expect incurred losses and claims to increase as a greater amount of this book of insurance reaches its anticipated period of highest claim frequency. The actual default rate and the average reserve per default that we experience as our portfolio matures is difficult to predict and is dependent on the specific characteristics of our current in-force book (including the credit score of the borrower, the loan to value ratio of the mortgage, geographic concentrations, etc.), as well as the profile of new business we write in the future. In addition, the default rate and the average reserve per default will be affected by future macroeconomic factors such as housing prices, interest rates and employment. Incurred losses and claims could be further increased in the future in the event of general economic weakness or decreases in housing values. An increase in the number or size of claims, compared to what we anticipate, could adversely affect our results of operations or financial conditions.

Because we establish loss reserves only upon a loan default rather than based on estimates of our ultimate losses on risk in force, losses may have a disproportionate adverse effect on our earnings in certain periods.

          In accordance with industry practice and statutory accounting rules applicable to insurance companies, we establish loss reserves only for loans in default. Reserves are established for reported insurance losses and loss adjustment expenses based on when notices of default on insured mortgage loans are received. Reserves are also established for estimated losses incurred in connection with defaults that have not yet been reported. We establish reserves using estimated claim rates and claim amounts in estimating the ultimate loss. Because our reserving method does not account for the impact of future losses that could occur from loans that are not yet delinquent, our obligation for ultimate losses that we expect to occur under our policies in force at any period end is not reflected in our financial statements, except in the case where a premium deficiency exists. As a result, future losses may have a material impact on future results as defaults occur.

A downturn in the U.S. economy, a decline in the value of borrowers' homes from their value at the time their loans close and natural disasters, acts of terrorism or other catastrophic events may result in more homeowners defaulting and could increase our losses.

          Losses result from events that reduce a borrower's ability to continue to make mortgage payments, such as increasing unemployment and whether the home of a borrower who defaults on his or her mortgage can be sold for an amount that will cover unpaid principal and interest and the expenses of the sale. In general, favorable economic conditions reduce the likelihood that borrowers will lack sufficient income to pay their mortgages and also favorably affect the value of homes, thereby reducing and in some cases even eliminating a loss from a mortgage default. Deterioration in economic conditions generally increases the likelihood that borrowers will not have sufficient income to pay their mortgages and can also adversely affect housing values, which in turn can decrease the willingness of borrowers with sufficient resources to make mortgage payments when the mortgage balance exceeds the value of the home. Housing values may decline even absent deterioration in economic conditions due to declines in demand for homes, which may result from changes in buyers' perceptions of the potential for future appreciation, restrictions on mortgage credit due to more stringent underwriting standards, liquidity issues affecting lenders or other factors, such as the phase-out of the mortgage interest deduction, reductions or elimination in the deductibility of mortgage insurance premiums or changes in the tax treatment of residential property. The residential mortgage market in the United States has for some time experienced a variety of worsening economic conditions and housing values that have recently begun to stabilize

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but may not continue to do so. If our loss projections are inaccurate, our loss payments could materially exceed our expectations resulting in an adverse effect on our financial position and operating results. If economic conditions, such as employment and home prices, are less favorable than we expect, our premiums and underwriting standards may prove inadequate to shield us from a material increase in losses. In addition, natural disasters such as floods and tornadoes, acts of terrorism or other catastrophic events could result in increased claims against policies that we have written due to the impact that such events may have on the employment and income of borrowers and the value of affected homes, resulting in defaults on and claims under our policies. We cannot assure you that any strategies we may employ to mitigate the impact on us of such events, including limitations under our master policy on the payment of claims in certain circumstances where a property is damaged, the dispersal of our risk by geography and the potential use of third party reinsurance structures, will be successful.

Our success depends, in part, on our ability to manage risks in our investment portfolio.

          Our investment portfolio consists primarily of investment-grade debt obligations. Our investments are subject to fluctuations in value as a result of broad changes in market conditions as well as risks inherent in particular securities. Changing market conditions could materially impact the future valuation of securities in our investment portfolio, which may cause us to impair, in the future, some portion of the value of those securities and which could have a significant adverse effect on our liquidity, financial condition and operating results.

          Income from our investment portfolio is a source of cash flow to support our operations and make claim payments. If we, or our investment advisors, improperly structure our investments to meet those future liabilities or we have unexpected losses, including losses resulting from the forced liquidation of investments before their maturity, we may be unable to meet those obligations. Our investments and investment policies are subject to state insurance laws, which results in our portfolio being predominantly limited to highly rated fixed income securities. If interest rates rise above the rates on our fixed income securities, the market value of our investment portfolio would decrease. Any significant decrease in the value of our investment portfolio would adversely impact our financial condition.

          In addition, compared to historical averages, interest rates and investment yields on highly rated investments have generally been low during the period in which we purchased the securities in our portfolio, which limits the investment income we can generate. We depend on our investments as a source of revenue, and a prolonged period of low investment yields would have an adverse impact on our revenues and could adversely affect our operating results.

          We may be forced to change our investments or investment policies depending upon regulatory, economic and market conditions, and our existing or anticipated financial condition and operating requirements, including the tax position, of our business. Our investment objectives may not be achieved. Although our portfolio consists predominately of investment grade fixed income securities and complies with applicable regulatory requirements, the success of our investment activity and the value of our portfolio is affected by general economic conditions, which may adversely affect the markets for credit and interest-rate-sensitive securities, including the extent and timing of investor participation in these markets and the level and volatility of interest rates.

If interest rates decline, house prices appreciate or mortgage insurance cancellation requirements change, the length of time that our policies remain in force could decline and cause a decline in our revenue.

          Generally, in each year, most of our premiums are from insurance that has been written in prior years. As a result, the length of time insurance remains in force, which is also generally referred to as persistency, is a significant determinant of our revenues. A lower level of persistency

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could reduce our future revenues. Our annual persistency rate was 80.1% at June 30, 2013, compared to 94% at December 31, 2011. The factors affecting the persistency of our insurance portfolio include:

    the level of current mortgage interest rates compared to the mortgage interest rates on the insurance in force, which affects the incentives of borrowers we have insured to refinance;

    the amount of equity in a home, as homeowners with more equity in their homes can generally more readily move to a new residence or refinance their existing mortgage;

    the rate at which homeowners sell their existing homes and move to new locations, generally referred to as housing turnover, with more rapid economic growth and stronger job markets tending to increase housing turnover;

    the mortgage insurance cancellation policies of mortgage investors along with the current values of the homes underlying the mortgages in the insurance in force; and

    the cancellation of borrower-paid mortgage insurance mandated by law based on the amortization schedule of the loan, which generally occurs sooner the lower the note rate of the insured loan.

          Mortgage interest rates reached historic lows in the first half of 2013 and have begun to rise largely in response to potential changes in monetary policy by the Federal Reserve. Some portion of our insured portfolio may still be able to refinance at the current level of mortgage rates, which may reduce our future revenues. If interest rates continue to rise, persistency is likely to increase, which may extend the average life of our insured portfolio and result in higher levels of future claims as more loans remain outstanding.

The premiums we charge may not be adequate to compensate us for our liabilities for losses and, as a result, any inadequacy could materially affect our financial condition and results of operations.

          Our mortgage insurance premium rates may not be adequate to cover future losses. We set premiums at the time a policy is issued based on a number of factors, including our expectations regarding likely mortgage performance over the expected life of the coverage. These expectations may prove to be incorrect. Generally, we cannot cancel mortgage insurance coverage or adjust renewal premiums during the life of a mortgage insurance policy. As a result, higher than anticipated claims generally cannot be offset by premium increases on policies in force or mitigated by our non-renewal or cancellation of insurance coverage. The premiums we charge, and the associated investment income, may not be adequate to compensate us for the risks and costs associated with the insurance coverage provided to customers. Should we wish to increase our premium rates, any such change would be prospectively applied to new policies written, and the changes would be subject to approval by state regulatory agencies, which may delay or limit our ability to increase our premium rates.

Our delegated underwriting program may subject our mortgage insurance business to unanticipated claims.

          In our mortgage insurance business, we enter into agreements with our customers that commit us to insure loans made by them using pre-established underwriting guidelines. Once we accept a customer into our delegated underwriting program, we generally insure a loan originated by that customer without re-confirming the customer followed our specified underwriting guidelines. Under this program, a customer could commit us to insure a material number of loans with unacceptable risk profiles before we discover the problem and terminate that customer's delegated

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underwriting authority or pursue other rights that may be available to us, such as our rights to rescind coverage or deny claims, which rights are limited by the terms of our master policy.

We face risks associated with our contract underwriting business.

          We provide contract underwriting services for certain of our customers, including on loans for which we are not providing mortgage insurance. For substantially all of the existing loans that were originated through our contract underwriting services, we have agreed that if we make a material error in providing these services and the error leads to a loss for the customer, the customer may, subject to certain conditions and limitations, claim a remedy. Accordingly, we have assumed some credit risk in connection with providing these services. We also face regulatory and litigation risk in providing these services.

Because loss reserve estimates are subject to uncertainties and are based on assumptions that may be volatile, ultimate losses may be substantially different than our loss reserves.

          We establish reserves using estimated claim rates and claim amounts in estimating the ultimate loss on delinquent loans. The estimated claim rates and claim amounts represent our best estimates of what we will actually pay on the loans in default as of the reserve date. Although we have not rescinded or denied any claims to date, our master policy provides us the right to rescind or deny claims under certain circumstances. Our reserve calculations do not currently include any estimate for claim rescissions, but we may be required to do so at some later time to ensure that our reserves meet the requirements of U.S. generally accepted accounting principles.

          The establishment of loss reserves is subject to inherent uncertainty and requires judgment by management. Our estimates of claim rates and claim sizes will be strongly influenced by prevailing economic conditions, such as current rates or trends in unemployment, housing price appreciation and/or interest rates, and our best judgments as to the future values or trends of these macroeconomic factors. If prevailing economic conditions deteriorate suddenly and/or unexpectedly, our estimates of loss reserves could be materially understated, which may adversely impact our financial condition and operating results. Changes to our estimates could result in a material impact to our results of operations, even in a stable economic environment, and there can be no assurance that actual claims paid by us will not be substantially different than our loss reserves.

A downgrade in our financial strength ratings may adversely affect the amount of business that we write.

          Financial strength ratings, which various ratings organizations publish as a measure of an insurance company's ability to meet contractholder and policyholder obligations, are important to maintain confidence in our products and our competitive position. A downgrade in our financial strength ratings, or the announced potential for a downgrade, could have an adverse effect on our financial condition and results of operations in many ways, including: (i) increased scrutiny of us and our financial condition by our customers, potentially resulting in a decrease in the amount of new insurance policies that we write; (ii) requiring us to reduce the premiums that we charge for mortgage insurance in order to remain competitive; and (iii) adversely affecting our ability to obtain reinsurance or to obtain reasonable pricing on reinsurance. A ratings downgrade could also increase our cost of capital and limit our access to the capital markets.

          In addition, if the GSEs renew their historical focus on financial strength or other third party credit ratings as components of their eligibility requirements for private mortgage insurers and do not set such requirements at a level that we can satisfy, or if as a result of a downgrade we would no longer comply with such rating requirements, our revenues and results of operations would be materially adversely affected. See "—Changes in the business practices of the GSEs, including

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actions or decisions to decrease or discontinue the use of MI or changes in the GSEs' eligibility requirements for mortgage insurers, could reduce our revenues or adversely affect our profitability and returns" and "Certain Regulatory Considerations—GSE Qualified Mortgage Insurer Requirements."

We rely on our senior management team and our business could be harmed if we are unable to retain qualified personnel.

          Our success depends, in part, on the skills, working relationships and continued services of our senior management team, in particular our chief executive officer, vice chairman, chief risk officer, chief financial officer and chief legal officer. We have employment agreements with our senior management team. We have not yet experienced the departure of any key personnel; however, such departures in the future could adversely affect the conduct of our business. In such an event, we would be required to obtain other personnel to manage and operate our business, and there can be no assurance that we would be able to employ a suitable replacement for the departing individual, or that a replacement could be hired on terms that are favorable to us. Volatility or lack of performance in our share price may affect our ability to retain our key personnel or attract replacements should key personnel depart.

If servicers fail to adhere to appropriate servicing standards or experience disruptions to their businesses, our losses could unexpectedly increase.

          We depend on reliable, consistent third-party servicing of the loans that we insure. Among other things, our mortgage insurance policies require our policyholders and their servicers to timely submit premium and monthly insurance in force and default reports and utilize commercially reasonable efforts to limit and mitigate loss when a loan is in default. If one or more servicers were to experience adverse effects to its business, such servicers could experience delays in their reporting and premium payment requirements. Without reliable, consistent third-party servicing, our insurance subsidiaries may be unable to correctly record new loans as they are underwritten, receive and process payments on insured loans and/or properly recognize and establish loss reserves on loans when a default exists or occurs but is not reported to us. In addition, if these servicers fail to limit and mitigate losses when appropriate, our losses may unexpectedly increase. Significant failures by large servicers or disruptions in the servicing of mortgage loans covered by our insurance policies would adversely impact our business, financial condition and operating results.

          Furthermore, we have delegated to the GSEs, who have in turn delegated to most of their servicers, authority to accept modifications, short sales and deeds-in-lieu of foreclosure on loans we insure. Servicers are required to operate under protocols established by the GSEs in accepting these loss mitigation alternatives. We are dependent upon servicers in making these decisions and mitigating our exposure to losses. In some cases, loss mitigation decisions favorable to the GSEs may not be favorable to us, and may increase the incidence of paid claims. Inappropriate delegation protocols or failure of servicers to service in accordance with the protocols may increase the magnitude of our losses and have an adverse effect on our business, financial condition and operating results. Our delegation of loss mitigation decisions to the GSEs is subject to cancellation but exercise of our cancellation rights may have an adverse impact on our relationship with the GSEs and lenders.

Our information technology systems may become outmoded, be temporarily interrupted or fail thereby causing us to fail to meet our customers' demands.

          Our business is highly dependent on the effective operation of our information technology systems, which are vulnerable to damage or interruption from power outages, computer and

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telecommunications failures, computer viruses, cyber-attacks, security breaches, catastrophic events and errors in usage. Although we have disaster recovery and business continuity plans in place, we may not be able to adequately execute these plans in a timely fashion. Additionally, we may not satisfy our customers' requirements if we fail to invest sufficient resources in, or otherwise are unable to maintain and upgrade our information technology systems. Because we rely on our information technology systems for many critical functions, including connecting with our customers, if such systems were to fail or become outmoded, we may experience a significant disruption in our operations and in the business we receive, which could negatively affect our operating results, financial condition and profitability.

The security of our information technology systems may be compromised and confidential information, including non-public personal information that we maintain, could be improperly disclosed.

          Our information technology systems may be vulnerable to physical or electronic intrusions, computer viruses or other attacks. As part of our business, we maintain large amounts of confidential information, including non-public personal information on consumers and our employees. Breaches in security could result in the loss or misuse of this information, which could, in turn, result in potential regulatory actions or litigation, including material claims for damages, interruption to our operations, damage to our reputation or otherwise have a material adverse effect on our business, financial condition and operating results. Although we believe we have appropriate information security policies and systems in place in order to prevent unauthorized use or disclosure of confidential information, including non-public personal information, there can be no assurance that such use or disclosure will not occur.

Our holding company structure and certain regulatory and other constraints, including adverse business performance, could negatively impact our liquidity and potentially require us to raise more capital.

          Essent Group Ltd. serves as the holding company for our insurance and other subsidiaries and does not have any significant operations of its own. As a result, its principal source of funds is income from our investment portfolio, dividends and other distributions from our insurance and other subsidiaries, including permitted payments under our expense-sharing arrangements, and funds that may be raised from time to time in the capital markets. Our dividend income is limited to upstream dividend payments from our insurance and other subsidiaries, which may be restricted by applicable state insurance laws. Under Pennsylvania law, our insurance subsidiaries may pay ordinary dividends without prior approval of the Pennsylvania Insurance Commissioner (the "Commissioner"), but are not permitted to pay extraordinary dividends without the prior approval of the Commissioner. An extraordinary dividend is a dividend or distribution which, together with other dividends and distributions made within the preceding 12 months, exceeds the greater of (i) ten percent of our surplus as shown in our last annual statement on file with the Commissioner, or (ii) our net income for the period covered by such statement, but shall not include pro rata distributions of any class of our own securities. Moreover, under Pennsylvania law, dividends and other distributions may only be paid out of unassigned surplus unless approved by the Commissioner. Our primary operating subsidiary, Essent Guaranty, Inc., had negative unassigned surplus of $102.2 million as of June 30, 2013, and as a result we would not have been permitted to pay ordinary dividends from Essent Guaranty, Inc. as of that date. In addition, Essent Guaranty of PA, Inc. had negative unassigned surplus of $1.2 million as of June 30, 2013, and as a result we would not have been permitted to pay ordinary dividends from Essent Guaranty of PA, Inc. as of that date. As a result of these dividend limitations, we likely will not receive dividend income from our subsidiaries for several years and, as a result, Essent Group Ltd. may have limited liquidity and may be required to raise additional capital.

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We may need additional capital to fund our operations or expand our business, and if we are unable to obtain sufficient financing or such financing is obtained on adverse terms, we may not be able to operate or expand our business as planned, which could negatively affect our results of operations and future growth.

          We may require incremental capital to support our growth and comply with regulatory requirements. As a condition to its approval from Freddie Mac, Essent Guaranty is required to maintain a risk-to-capital ratio of no greater than 20.0:1 until December 31, 2013. Historically, we have relied upon capital commitments from our existing investors to meet capital requirements and to fund our operations. Our ability to call such capital commitments will expire following this offering and to the extent we require capital in the future, we may need to obtain financing from the capital markets or other third party sources of financing. Potential investors or lenders may be unable to provide us with financing that is attractive to us. Our access to such financing will depend, in part, on:

    general market conditions;

    the market's perception of our growth potential;

    our debt levels, if any;

    our expected results of operations;

    our cash flow; and

    the market price of our common shares.

          Our principal capital demands include funds for (i) the expansion of our business, (ii) the payment of certain corporate operating expenses, (iii) capital support for our subsidiaries, and (iv) Federal, state and local taxes. We may need to provide additional capital support to our insurance subsidiaries if required pursuant to insurance laws and regulations or by the GSEs. If we were unable to meet our obligations, our insurance subsidiaries could lose GSE approval or be required to cease writing business in one or more states, which would adversely impact our business, financial condition and operating results.

Our success will depend on our ability to maintain and enhance effective operating procedures and internal controls.

          Operational risk and losses can result from, among other things, fraud, errors, failure to document transactions properly or to obtain proper internal authorization, failure to comply with regulatory requirements, information technology failures, failure to appropriately transition new hires or external events. We continue to enhance our operating procedures and internal controls to effectively support our business and our regulatory and reporting requirements. Our management does not expect that our disclosure controls or our internal controls will prevent all potential errors and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. As a result of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons or by collusion of two or more people. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in

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conditions, or the degree of compliance with the policies or procedures may deteriorate. As a result of the inherent limitations in a cost-effective control system, misstatement due to error or fraud may occur and not be detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the disclosure controls and procedures are met. Any ineffectiveness in our controls or procedures could have a material adverse effect on our business.

          We have a risk management framework designed to assess and monitor our risks. However, there can be no assurance that we can effectively review and monitor all risks or that all of our employees will operate within our risk management framework, nor can there can be any assurance that our risk management framework will result in accurately identifying all risks and accurately limiting our exposures based on our assessments. Moreover, risk management is expected to be a new and important focus of regulatory examinations of companies under supervision. There can be no assurance that our risk management framework and documentation will meet the expectations of such regulators.

The mortgage insurance industry is, and as a participant in that industry we are, subject to litigation and regulatory risk generally.

          The MI industry faces litigation risk in the ordinary course of operations, including the risk of class action lawsuits and administrative enforcement by Federal and state agencies. Litigation relating to capital markets transactions and securities-related matters in general has increased and is expected to continue to increase as a result of the recent financial crisis. Consumers are bringing a growing number of lawsuits against home mortgage lenders and settlement service providers. Mortgage insurers have been involved in class action litigation alleging violations of Section 8 of the Real Estate Settlement Procedures Act of 1974, or RESPA, and the Fair Credit Reporting Act, or FCRA. Section 8 of RESPA generally precludes mortgage insurers from paying referral fees to mortgage lenders for the referral of MI business. This limitation also can prohibit providing services or products to mortgage lenders free of charge, charging fees for services that are lower than their reasonable or fair market value and paying fees for services that mortgage lenders provide that are higher than their reasonable or fair market value, in exchange for the referral of MI business services. Violations of the referral fee limitations of RESPA may be enforced by the CFPB, HUD, Department of Justice, state attorneys general and state insurance commissioners, as well as by private litigants in class actions. In the past, a number of lawsuits have challenged the actions of private mortgage insurers under RESPA, alleging that the insurers have violated the referral fee prohibition by entering into captive reinsurance arrangements or providing products or services to mortgage lenders at improperly reduced prices in return for the referral of MI, including the provision of contract underwriting services. In addition to these private lawsuits, other private mortgage insurance companies have received civil investigative demands from the CFPB as part of its investigation to determine whether mortgage lenders and mortgage insurance providers engaged in acts or practices in connection with their captive mortgage insurance arrangements in violation of RESPA, the Consumer Financial Protection Act and the Dodd-Frank Act. We received such an inquiry from the CFPB in January 2012; however, we do not currently have nor have we ever had any captive reinsurance arrangements. In April 2013, the United States District Court for the Southern District of Florida approved consent orders issued by the CFPB against four other private mortgage insurers relating to captive reinsurance. Under the settlements as approved, the mortgage insurers will end the challenged practices, pay monetary penalties, and be subject to monitoring by the CFPB and required to make reports to the CFPB in order to ensure their compliance with the provisions of the orders. Although we did not participate in the practices that were the subject of the CFPB investigation, the private mortgage insurance industry and our insurance subsidiaries are, and likely will continue to be, subject to substantial Federal and state regulation, which has increased in recent years as a result of the deterioration of the housing and

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mortgage markets in the United States. Increased Federal or state regulatory scrutiny could lead to new legal precedents, new regulations or new practices, or regulatory actions or investigations, which could adversely affect our financial condition and operating results.

Our operating insurance and reinsurance subsidiaries are subject to regulation in various jurisdictions, and material changes in the regulation of their operations could adversely affect us.

          Our insurance and reinsurance subsidiaries are subject to government regulation in each of the jurisdictions in which they are licensed or authorized to do business. Governmental agencies have broad administrative power to regulate many aspects of the insurance business, which may include trade and claim practices, accounting methods, premium rates, marketing practices, claims practices, advertising, policy forms, and capital adequacy. These agencies are concerned primarily with the protection of policyholders rather than shareholders. Moreover, insurance laws and regulations, among other things:

    establish solvency requirements, including minimum reserves and capital and surplus requirements;

    limit the amount of dividends, tax distributions, intercompany loans and other payments our insurance subsidiaries can make without prior regulatory approval; and

    impose restrictions on the amount and type of investments we may hold.

          The NAIC examines existing state insurance laws and regulations in the United States. During 2012, the NAIC established a Mortgage Guaranty Insurance Working Group, which we refer to as the "MGIWG", to determine and make recommendations to the NAIC's Financial Condition Committee regarding what, if any, changes are deemed necessary to the solvency regulation of mortgage guaranty insurers. On June 24, 2013, the MGIWG approved submission of a request to the NAIC's Executive Committee to revise the Mortgage Guaranty Insurance Model Act. If the NAIC were to adopt a revised Mortgage Guaranty Insurance Model Act, it may result in state legislatures enacting and implementing the revised provisions. We cannot predict the effect that any NAIC recommendations or proposed or future legislation or rule-making in the United States or elsewhere may have on our financial condition or operations.

          Our Bermuda insurance and reinsurance subsidiary, Essent Re, conducts its business from its offices in Bermuda and is not licensed or admitted to do business in any jurisdiction except Bermuda. We do not believe that Essent Re is subject to the insurance laws of any state in the United States. However, recent scrutiny of the insurance and reinsurance industry in the United States and other countries could subject Essent Re to additional regulation in the future that may make it unprofitable or illegal to operate a reinsurance business through our Bermuda subsidiary.

If our Bermuda principal operating subsidiary becomes subject to insurance statutes and regulations in jurisdictions other than Bermuda or if there is a change in Bermuda law or regulations or the application of Bermuda law or regulations, there could be a significant and negative impact on our business.

          Essent Re is a registered Bermuda Class 3A Insurer pursuant to Section 4 of the Insurance Act 1978. As such, it is subject to regulation and supervision in Bermuda. Bermuda insurance statutes and the regulations, and policies of the Bermuda Monetary Authority (the "BMA"), require Essent Re to, among other things:

    maintain a minimum level of capital and surplus;

    maintain an enhanced capital requirement, general business solvency margins and a minimum liquidity ratio;

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    restrict dividends and distributions;

    obtain prior approval regarding the ownership and transfer of shares;

    maintain a principal office and appoint and maintain a principal representative in Bermuda;

    file annual financial statements, an annual statutory financial return and an annual capital and solvency return; and

    allow for the performance of certain periodic examinations of Essent Re and its financial condition.

          These statutes and regulations may restrict Essent Re's ability to write insurance and reinsurance policies, distribute funds and pursue its investment strategy. We do not presently intend for Essent Re to be admitted to do business in the United States, U.K. or any jurisdiction other than Bermuda. However, we cannot assure you that insurance regulators in the United States, U.K. or elsewhere will not review the activities of Essent Re or its subsidiaries or agents and assert that Essent Re is subject to such jurisdiction's licensing requirements.

          Generally, Bermuda insurance statutes and regulations applicable to Essent Re are less restrictive than those that would be applicable if they were governed by the laws of any states in the United States. If in the future Essent Re becomes subject to any insurance laws of the United States or any state thereof or of any other jurisdiction, we cannot assure you that Essent Re would be in compliance with such laws or that complying with such laws would not have a significant and negative effect on our business.

          The process of obtaining licenses is very time consuming and costly, and Essent Re may not be able to become licensed in jurisdictions other than Bermuda should we choose to do so. The modification of the conduct of our business that would result if we were required or chose to become licensed in certain jurisdictions could significantly and negatively affect our financial condition and results of operations. In addition, our inability to comply with insurance statutes and regulations could significantly and adversely affect our financial condition and results of operations by limiting our ability to conduct business as well as subject us to penalties and fines.

          Because Essent Re is a Bermuda company, it is subject to changes in Bermuda law and regulation that may have an adverse impact on our operations, including through the imposition of tax liability or increased regulatory supervision. In addition, Essent Re will be exposed to any changes in the political environment in Bermuda. The Bermuda insurance and reinsurance regulatory framework recently has become subject to increased scrutiny in many jurisdictions, including the U.K. As a result of the delay in implementation of Solvency II Directive 2009/138/EC ("Solvency II"), it is unclear when the European Commission will take a final decision on whether or not it will recognize the solvency regime in Bermuda to be equivalent to that laid down in Solvency II. While we cannot predict the future impact on our operations of changes in the laws and regulation to which we are or may become subject, any such changes could have a material adverse effect on our business, financial condition and results of operations.

We are subject to banking regulations that may limit our business activities.

          The Goldman Sachs Group, affiliates of which will own approximately         % of the voting and economic interests in our business immediately following consummation of this offering (assuming no exercise by the underwriters of their option to purchase additional shares), is a bank holding company and regulated as a financial holding company under the Bank Holding Company Act of 1956, as amended, or the BHC Act. The BHC Act imposes regulations and requirements on The Goldman Sachs Group and on any company that is deemed to be controlled by The Goldman Sachs Group under the BHC Act and the regulations of the Board of Governors of the Federal Reserve System, or the Federal Reserve. Due to the size of its voting and economic interests, we

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are deemed to be controlled by The Goldman Sachs Group, and are therefore considered to be a non-bank subsidiary of The Goldman Sachs Group under the BHC Act and so we are subject to the supervision and regulation of the Federal Reserve and to certain banking laws, regulations and orders that apply to The Goldman Sachs Group. We will remain subject to this regulatory regime until The Goldman Sachs Group is no longer deemed to control us for purposes of the BHC Act, which we do not generally have the ability to control and which will not occur until The Goldman Sachs Group has significantly reduced its voting and economic interest in us.

          As a controlled non-bank subsidiary of The Goldman Sachs Group, we are restricted from engaging in activities that are not permissible under the BHC Act, or the rules and regulations promulgated thereunder. Permitted activities for a financial holding company or any controlled non-bank subsidiary generally include activities that the Federal Reserve has previously determined to be closely related to banking, financial in nature, or incidental or complementary to financial activities, including insurance underwriting and selling insurance as agent or broker such as our activity of offering private mortgage insurance and reinsurance coverage for single-family mortgage loans. Further, as a result of being subject to regulation and supervision by the Federal Reserve, we may be required to obtain the prior approval of the Federal Reserve before engaging in certain new activities or businesses, whether organically or by acquisition. The Federal Reserve could exercise its power to restrict us from engaging in any activity that, in the Federal Reserve's opinion, is unauthorized or constitutes an unsafe or unsound business practice. To the extent that these regulations impose limitations on our business, we could be at a competitive disadvantage because some of our competitors are not subject to these limitations.

          As a subsidiary of a bank holding company, we are subject to examination by the Federal Reserve and required to provide information and reports for use by the Federal Reserve under the BHC Act. In addition, we are subject to the examination authority of, and may be required to submit reports to, the CFPB because we are an affiliate of Goldman Sachs Bank USA, which is an insured depository institution with more than $10 billion in assets. Further, the Dodd-Frank Act and related financial regulatory reform calls for the issuance of numerous regulations designed to increase and strengthen the regulation of bank holding companies, including The Goldman Sachs Group and its affiliates. We cannot predict the impact of regulatory changes on our business with certainty.

          Because of The Goldman Sachs Group's status as a bank holding company, we have agreed to certain restrictions on our activities imposed by The Goldman Sachs Group that are intended to facilitate compliance with the BHC Act and that may impose certain obligations on the Company. For a discussion of these restrictions, see "Certain Relationships and Related Party Transactions—BHC Act Agreement." Furthermore, additional restrictions placed on The Goldman Sachs Group as a result of supervisory or enforcement actions may restrict us or our activities in certain circumstances, even if these actions are unrelated to our conduct or business.

          For further discussion of the applicability of banking regulation to our business and the risks presented by such regulation, see "Certain Regulatory Considerations—Banking Regulation."

Risks Relating to Taxes

          In addition to the risk factors discussed below, we advise you to read "Certain Tax Considerations—Taxation of the Company and Subsidiaries—Bermuda" and "—United States", and consult your own tax advisor regarding the tax consequences to your investment in our common shares.

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We and our non-U.S. subsidiaries may become subject to U.S. Federal income and branch profits taxation.

          Essent Group Ltd. and Essent Re intend to operate their business in a manner that will not cause them to be treated as engaged in a trade or business in the United States and, thus, will not be required to pay U.S. Federal income and branch profits taxes (other than U.S. excise taxes on insurance and reinsurance premium and withholding taxes on certain U.S. source investment income) on their income. However, because there is uncertainty as to the activities which constitute being engaged in a trade or business in the United States, there can be no assurances that the U.S. Internal Revenue Service ("IRS") will not contend successfully that Essent Group Ltd. or its non-U.S. subsidiaries are engaged in a trade or business in the United States. In addition, Section 845 of the Internal Revenue Code of 1986, as amended (the "Code"), was amended in 2004 to permit the IRS to reallocate, recharacterize or adjust items of income, deduction or certain other items related to a reinsurance contract between related parties to reflect the proper "amount, source or character" for each item (in contrast to prior law, which only covered "source and character"). If, in future periods, we were to generate income from our Bermuda operations, then any U.S. Federal income and branch profits taxes levied upon earnings from such operations could materially adversely affect our shareholders' equity and earnings.

          A recently reintroduced legislative proposal would treat certain foreign corporations as U.S. corporations if such corporation is primarily managed and controlled within the United States. There can be no assurance that the proposal would not apply to Essent Group Ltd.

          Congress has been considering legislation intended to eliminate certain perceived tax advantages of Bermuda and other non-U.S. insurance companies and U.S. insurance companies having Bermuda and other non-U.S. affiliates, including perceived tax benefits resulting principally from reinsurance between or among U.S. insurance companies and their Bermuda affiliates.

          A legislative proposal in the House of Representatives as well as a prior Senate Finance Committee staff discussion draft and other prior proposals would limit deductions for premiums ceded to affiliated non-U.S. reinsurers above certain levels. The Administration's Fiscal Year 2014 Revenue Proposals contain a similar but more restrictive provision that would deny deductions for all premiums ceded to affiliated non-U.S. reinsurers, offset by an exclusion for any ceding commissions received or reinsurance recovered from such affiliates. Two legislative proposals (H.R. 3157 and S. 1963) introduced during the 112th Congress appeared to adopt the provision contained in the Administration's Fiscal Year 2013 Revenue Proposals. Enactment of such legislation or proposal as well as other changes in U.S. tax laws, regulations and interpretations thereof to address these issues could adversely affect us to the extent we generate income from our Bermuda operations.

The Federal Insurance Excise Tax may apply on a cascading basis.

          The IRS, in Revenue Ruling 2008-15, formally announced its position that the Federal Insurance Excise Tax (the "FET") is applicable (at a 1% rate on premiums) to all reinsurance cessions or retrocessions of risks by non-U.S. insurers or reinsurers to non-U.S. reinsurers where the underlying risks are either (i) risks of a U.S. entity or individual located wholly or partly within the United States, or (ii) risks of a non-U.S. entity or individual engaged in a trade or business in the United States which are located within the United States ("U.S. Situs Risks"), even if the FET has been paid on prior cessions of the same risks. The legal and jurisdictional basis for the IRS' position is unclear. Although certain U.S. income tax treaties provide for an exemption from the FET, including the "cascading" FET, the U.S. income tax treaty with Bermuda does not provide for such an exemption. We expect, pursuant to Revenue Ruling 2008-15, that the FET could be applicable with respect to (i) risks ceded to Essent Re from a non-U.S. insurance company, or (ii) risks ceded by Essent Re to a non-U.S. insurance company that does not have a FET treaty exemption.

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Holders of 10% or more of our common shares may be subject to U.S. income taxation under the "controlled foreign corporation" ("CFC") rules.

          If you are a "10% U.S. Shareholder" (defined as a U.S. Person (as defined in "Certain Tax Considerations") who owns (directly, indirectly through non-U.S. entities or "constructively" (as defined below)) at least 10% of the total combined voting power of all classes of stock entitled to vote) of a non-U.S. corporation that is a CFC for an uninterrupted period of 30 days or more during a taxable year and you own shares in the non-U.S corporation directly or indirectly through non-U.S. entities on the last day of the non-U.S. corporation's taxable year on which it is a CFC, you must include in your gross income for U.S. Federal income tax purposes your pro rata share of the CFC's "subpart F income," even if the subpart F income is not distributed. "Subpart F income" of a non-U.S. insurance corporation typically includes "foreign personal holding company income" (such as interest, dividends and other types of passive income), as well as insurance and reinsurance income (including underwriting and investment income). A non-U.S. corporation is considered a CFC if "10% U.S. Shareholders" own (directly, indirectly through non-U.S. entities or by attribution by application of the constructive ownership rules of section 958(b) of the Code, (i.e., "constructively")) more than 50% of the total combined voting power of all classes of voting stock of that non-U.S. corporation, or the total value of all stock of that non-U.S. corporation. For purposes of taking into account insurance income, a CFC also includes a non-U.S. corporation earning insurance income in which more than 25% of the total combined voting power of all classes of stock (or more than 25% of the total value of the stock) is owned by 10% U.S. Shareholders on any day during the taxable year of such corporation, if the gross amount of premiums or other consideration for the reinsurance or the issuing of insurance or annuity contracts (other than certain insurance or reinsurance related to some country risks written by certain insurance companies, not applicable here) exceeds 75% of the gross amount of all premiums or other consideration in respect of all risks.

          We believe that because of the anticipated dispersion of our share ownership, provisions in our organizational documents that limit voting power and other factors, no U.S. Person who owns our common shares directly or indirectly through one or more non-U.S. entities should be treated as owning (directly, indirectly through non-U.S. entities, or constructively) 10% or more of the total voting power of all classes of shares of the Company or Essent Re. See "— Provisions in our bye-laws may reduce or increase the voting rights of our shares." It is possible, however, that the IRS could successfully challenge the effectiveness of these provisions.

U.S. Persons who hold our shares may be subject to U.S. income taxation at ordinary income rates on their proportionate share of our "related party insurance income" ("RPII").

          If the RPII (determined on a gross basis) of Essent Re were to equal or exceed 20% of Essent Re's gross insurance income in any taxable year and direct or indirect policyholders (and persons related to those policyholders) own directly or indirectly through entities 20% or more of the voting power or value of the Company, then a U.S. Person who owns any shares of Essent Re (directly or indirectly through non-U.S. entities) on the last day of the taxable year on which it is an RPII CFC would be required to include in its income for U.S. Federal income tax purposes such person's pro rata share of Essent Re's RPII for the entire taxable year, determined as if such RPII were distributed proportionately only to U.S. Persons at that date regardless of whether such income is distributed, in which case your investment could be materially adversely affected. In addition, any RPII that is includible in the income of a U.S. tax-exempt organization may be treated as unrelated business taxable income. The amount of RPII earned by a non-U.S. insurance subsidiary (generally, premium and related investment income from the indirect or direct insurance or reinsurance of any direct or indirect U.S. holder of shares or any person related to such holder) will depend on a number of factors, including the identity of persons directly or indirectly insured or reinsured by the company. We do not expect gross RPII of Essent Re to equal or exceed 20% of its gross insurance

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income in any taxable year for the foreseeable future, but we cannot be certain that this will be the case because some of the factors which determine the extent of RPII may be beyond our control.

U.S. Persons who dispose of our shares may be subject to U.S. Federal income taxation at the rates applicable to dividends on a portion of such disposition.

          Section 1248 of the Code in conjunction with the RPII rules provides that if a U.S. Person disposes of shares in a non-U.S. corporation that earns insurance income in which U.S. Persons own 25% or more of the shares (even if the amount of gross RPII is less than 20% of the corporation's gross insurance income and the ownership of its shares by direct or indirect policyholders and related persons is less than the 20% threshold), any gain from the disposition will generally be treated as a dividend to the extent of the holder's share of the corporation's undistributed earnings and profits that were accumulated during the period that the holder owned the shares (whether or not such earnings and profits are attributable to RPII). In addition, such a holder will be required to comply with certain reporting requirements, regardless of the amount of shares owned by the holder. These RPII rules should not apply to dispositions of our shares because the Company will not itself be directly engaged in the insurance business. The RPII provisions, however, have never been interpreted by the courts or the U.S. Treasury in final regulations, and regulations interpreting the RPII provisions of the Code exist only in proposed form. It is not certain whether these regulations will be adopted in their proposed form or what changes or clarifications might ultimately be made thereto or whether any such changes, as well as any interpretation or application of the RPII rules by the IRS, the courts, or otherwise, might have retroactive effect. The U.S. Treasury has authority to impose, among other things, additional reporting requirements with respect to RPII. Accordingly, the meaning of the RPII provisions and the application thereof to us is uncertain.

U.S. Persons who hold our shares will be subject to adverse tax consequences if we are considered to be a passive foreign investment company ("PFIC") for U.S. Federal income tax purposes.

          If we are considered a PFIC for U.S. Federal income tax purposes, a U.S. Person who owns any of our shares could be subject to adverse tax consequences, including becoming subject to a greater tax liability than might otherwise apply and to tax on amounts in advance of when tax would otherwise be imposed, in which case your investment could be materially adversely affected. In addition, if we were considered a PFIC, upon the death of any U.S. individual owning shares, such individual's heirs or estate would not be entitled to a "step-up" in the basis of the shares that might otherwise be available under U.S. Federal income tax laws. We believe that we are not, have not been, and currently do not expect to become, a PFIC for U.S. Federal income tax purposes. We cannot assure you, however, that we will not be deemed a PFIC by the IRS. If we were considered a PFIC, it could have material adverse tax consequences for an investor that is subject to U.S. Federal income taxation. There are currently no regulations regarding the application of the PFIC provisions to an insurance company. New regulations or pronouncements interpreting or clarifying these rules may be forthcoming. We cannot predict what impact, if any, such guidance would have on an investor that is subject to U.S. Federal income taxation.

U.S. tax-exempt organizations who own our shares may recognize unrelated business taxable income.

          A U.S. tax-exempt organization may recognize unrelated business taxable income if a portion of the insurance income of any of our non-U.S. insurance subsidiaries is allocated to the organization, which generally would be the case if any of our non-U.S. insurance subsidiaries is a CFC and the tax-exempt shareholder is a 10% U.S. Shareholder or there is RPII, certain exceptions do not apply and the tax-exempt organization owns any of our shares. Although we do not believe

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that any U.S. Persons should be allocated such insurance income, we cannot be certain that this will be the case. U.S. tax-exempt investors are advised to consult their own tax advisors.

Scope of application of recently enacted legislation is uncertain.

          The Foreign Account Tax Compliance Act ("FATCA") provisions of the Hiring Incentives to Restore Employment Act of 2010 and regulations issued thereunder require certain foreign financial institutions ("FFIs") (which may include us) to enter into an agreement with the IRS to disclose to the IRS the name, address, tax identification number, and other specified information of certain U.S. and non-U.S. persons who own a direct or indirect interest in the FFI and to withhold on account holders that fail to provide such information, or otherwise be subject to a 30% withholding tax with respect to (i) certain U.S. source income (including interest and dividends) and gross proceeds from any sale or other disposition of property that can produce U.S. source interest or dividends ("withholdable payments"), and (ii) "passthru payments" (generally, withholdable payments and payments that are attributable to withholdable payments) made by FFIs. Such requirements may be modified by an applicable intergovernmental agreement ("IGA"). If an IGA is entered into between Bermuda and the United States, the Company may be required to comply with implementing legislation instead of the rules described above. Further, if we are not characterized as an FFI, it may be characterized as a passive non-financial foreign entity, in which case it would appear to be subject to such 30% withholding tax on certain payments unless it either provides information to withholding agents with respect to its "substantial U.S. owners" or makes certain certifications. The regulations issued under FATCA and subsequent guidance issued by the IRS indicate that this withholding tax will not be imposed with respect to payments of income made prior to July 1, 2014, and with respect to payments of proceeds from the sale of property prior to January 1, 2017. The regulations also indicate that premiums received under any reinsurance contract outstanding on July 1, 2014, will not be subject to withholding under FATCA.

          We may be subject to the requirements imposed on FFIs or passive non-financial foreign entities under FATCA and will use reasonable efforts to avoid the imposition of a withholding tax under FATCA, which may include entering into an agreement with the IRS.

Potential foreign bank account reporting and reporting of "Specified Foreign Financial Assets."

          U.S. Persons holding our common shares should consider their possible obligation to file an IRS Form TD F 90-22.1 — Foreign Bank and Financial Accounts Report — with respect to their shares. Additionally, such U.S. and non-U.S. persons should consider their possible obligations to annually report certain information with respect to us with their U.S. Federal income tax returns. Shareholders should consult their tax advisors with respect to these or any other reporting requirement which may apply with respect to their ownership of our common shares.

Reduced tax rates for qualified dividend income may not be available in the future.

          We believe that the dividends paid on the common shares should qualify as "qualified dividend income" if, as is intended, the common shares are approved for listing on a national securities exchange. Qualified dividend income received by non-corporate U.S. Persons (as defined in "Certain Tax Considerations") is generally eligible for long-term capital gain rates. There has been proposed legislation before the U.S. Senate and House of Representatives that would exclude shareholders of certain foreign corporations from this advantageous tax treatment. If such legislation were to become law, non-corporate U.S. Persons would no longer qualify for the reduced tax rate on the dividends paid by us.

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Risks Relating to this Offering and Our Common Shares

There is no public market for our common shares and a market may never develop, which could cause our common shares to trade at a discount and make it difficult for holders of our common shares to sell their shares.

          Prior to this offering, there has been no established trading market for our common shares, and there can be no assurance that an active trading market for our common shares will develop, or if one develops, be maintained. We will negotiate the initial public offering price per share with the representatives of the underwriters and therefore that price may not be indicative of the market price of our common shares after this offering. Accordingly, no assurance can be given as to the ability of our shareholders to sell their common shares or the price that our shareholders may obtain for their common shares. In addition, the market price of our common shares may fluctuate significantly. Some of the factors that could negatively affect the market price of our common shares include:

    actual or anticipated variations in our quarterly operating results;

    changes in our earnings estimates or publication of research reports about us or the real estate industry;

    changes in market valuations of similar companies;

    any indebtedness we incur in the future;

    changes in credit markets and interest rates;

    changes in government policies, laws and regulations;

    changes impacting Fannie Mae, Freddie Mac or Ginnie Mae;

    additions to or departures of our key management personnel;

    actions by shareholders;

    speculation in the press or investment community;

    strategic actions by us or our competitors;

    changes in our credit ratings;

    general market and economic conditions;

    our failure to meet, or the lowering of, our earnings estimates or those of any securities analysts; and

    price and volume fluctuations in the stock market generally.

          The stock markets have experienced extreme volatility in recent years that has been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common shares.

Future sales of shares by existing shareholders could cause our share price to decline.

          Sales of substantial amounts of our common shares in the public market following this offering, or the perception that these sales could occur, could cause the market price of our common shares to decline. Based on shares outstanding as of                          , upon completion of this offering, we will have                      outstanding common shares (or                      outstanding common shares, assuming full exercise of the underwriters' option to purchase additional shares). All of the shares sold pursuant to this offering will be immediately tradable without restriction under the Securities Act unless held by "affiliates", as that term is defined in Rule 144 under the Securities Act. The remaining                      common shares outstanding as of                          will be

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restricted securities within the meaning of Rule 144 under the Securities Act, but will be eligible for resale subject to applicable volume, means of sale, holding period and other limitations of Rule 144 or pursuant to an exception from registration under Rule 701 under the Securities Act, subject to the terms of the lock-up agreements entered into among the underwriters and shareholders holding approximately                      common shares. Goldman, Sachs & Co. and J.P. Morgan Securities LLC, the representatives of the underwriters, may, in their sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements entered into in connection with this offering. See "Underwriting (Conflicts of Interest)." Upon completion of this offering, we intend to file one or more registration statements under the Securities Act to register the common shares to be issued under our equity compensation plans and, as a result, all common shares acquired upon exercise of options granted under our plans will also be freely tradable under the Securities Act, subject to the terms of the lock-up agreements, unless purchased by our affiliates. A total of                      common shares are reserved for issuance under our share incentive plans.

          We, our executive officers and shareholders holding approximately                      common shares [,  including                      shares held by the selling shareholders], have agreed to a "lock-up," meaning that, subject to certain exceptions, neither we nor they will sell any shares without the prior consent of Goldman, Sachs & Co. and J.P. Morgan Securities LLC for 180 days after the date of this prospectus. Following the expiration of this 180-day lock-up period,                       common shares will be eligible for future sale, subject to the applicable volume, manner of sale, holding period and other limitations of Rule 144. See "Shares Eligible for Future Sale" for a discussion of the common shares that may be sold into the public market in the future. In addition, certain of our significant shareholders may distribute shares that they hold to their investors who themselves may then sell into the public market following the expiration of the lock-up period. Such sales may not be subject to the volume, manner of sale, holding period and other limitations of Rule 144. As resale restrictions end, the market price of our common shares could decline if the holders of those shares sell them or are perceived by the market as intending to sell them. In addition, holders of approximately                      shares, or         %, of our common shares will have registration rights, subject to some conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other shareholders in the future. Once we register the shares for the holders of registration rights, they can be freely sold in the public market upon issuance, subject to the restrictions contained in the lock-up agreements.

          In the future, we may issue additional common shares or other equity or debt securities convertible into common shares in connection with a financing, acquisition, and litigation settlement or employee arrangement or otherwise. Any of these issuances could result in substantial dilution to our existing shareholders and could cause the trading price of our common shares to decline.

If securities or industry analysts do not publish research or publish misleading or unfavorable research about our business, our share price and trading volume could decline.

          The trading market for our common shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If there is no coverage of our Company by securities or industry analysts, the trading price for our shares would be negatively impacted. In the event we obtain securities or industry analyst coverage or if one or more of these analysts downgrades our shares or publishes misleading or unfavorable research about our business, our share price would likely decline. If one or more of these analysts ceases coverage of our Company or fails to publish reports on us regularly, demand for our shares could decrease, which could cause our share price or trading volume to decline.

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We are an "emerging growth company," and any decision on our part to comply only with certain reduced disclosure requirements applicable to emerging growth companies could make our common shares less attractive to investors.

          We are an "emerging growth company," as defined in the JOBS Act, and, for as long as we continue to be an "emerging growth company," we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies, including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation, shareholder approval of any golden parachute payments not previously approved and an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting pursuant to the Sarbanes-Oxley Act of 2002.

          We could remain an "emerging growth company" for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act, which would occur if, among other things, the market value of common equity securities held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the preceding three-year period.

          We cannot predict whether investors will find our common shares less attractive if we choose to rely on one or more of these exemptions. If some investors find our common shares less attractive as a result of any decisions to reduce future disclosure, there may be a less active trading market for our common shares and our share price may be more volatile.

The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly after we are no longer an "emerging growth company."

          We have historically operated as a private company and have not been subject to the same financial and other reporting and corporate governance requirements as a public company. After this offering, we will be required to file annual, quarterly and other reports with the SEC. We will need to prepare and timely file financial statements that comply with SEC reporting requirements. We will also be subject to other reporting and corporate governance requirements, under the listing standards of the NYSE and the Sarbanes-Oxley Act of 2002, which will impose significant compliance costs and obligations upon us. The changes necessitated by becoming a public company will require a significant commitment of additional resources and management oversight which will increase our operating costs. These changes will also place significant additional demands on our finance and accounting staff, which may not have prior public company experience or experience working for a newly public company, and on our financial accounting and information systems. We may in the future hire additional accounting and financial staff with appropriate public company reporting experience and technical accounting knowledge. Other expenses associated with being a public company include increases in auditing, accounting and legal fees and expenses, investor relations expenses, increased directors' fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses. As a public company, we will be required, among other things, to:

    prepare and file periodic reports, and distribute other shareholder communications, in compliance with the Federal securities laws and the NYSE rules;

    define and expand the roles and the duties of our board of directors and its committees;

    institute more comprehensive compliance, investor relations and internal audit functions; and

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    evaluate and maintain our system of internal controls over financial reporting, and report on management's assessment thereof, in compliance with rules and regulations of the SEC and the Public Company Accounting Oversight Board.

          In particular, upon completion of this offering, the Sarbanes-Oxley Act of 2002 will require us to document and test the effectiveness of our internal controls over financial reporting in accordance with an established internal control framework, and to report on our conclusions as to the effectiveness of our internal controls. Likewise, our independent registered public accounting firm will be required to provide an attestation report on the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 unless we choose to utilize the exemption from such attestation requirement available to "emerging growth companies." As described above, we expect to qualify as an emerging growth company upon completion of this offering and could potentially qualify as an emerging growth company until 2018. In addition, upon completion of this offering, we will be required under the Securities Exchange Act of 1934, as amended, to maintain disclosure controls and procedures and internal controls over financial reporting. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we are unable to conclude that we have effective internal controls over financial reporting, investors could lose confidence in the reliability of our financial statements. This could result in a decrease in the value of our common shares. Failure to comply with the Sarbanes-Oxley Act of 2002 could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities.

We have broad discretion to use our net proceeds from this offering and our investment of those proceeds may not yield favorable returns.

          Our management has broad discretion to spend the proceeds from this offering and you may not agree with the way the proceeds are spent. The failure of our management to apply these funds effectively could result in unfavorable returns. This could adversely affect our business, causing the price of our common shares to decline.

We do not intend to pay dividends on our common shares and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common shares.

          We do not intend to declare and pay dividends on our share capital for the foreseeable future. We currently intend to retain all our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your common shares for the foreseeable future and the success of an investment in our common shares will depend upon any future appreciation in their value. There is no guarantee that our common shares will appreciate in value or even maintain the price at which our shareholders have purchased their shares. Furthermore, our subsidiaries are restricted by state insurance laws and regulations from declaring dividends to us. See "— Our holding company structure and certain regulatory and other constraints, including adverse business performance, could negatively affect our liquidity and potentially require us to raise more capital."

Holders of our shares may have difficulty effecting service of process on us or enforcing judgments against us in the United States.

          We are a Bermuda exempted company. As a result, the rights of holders of our common shares will be governed by Bermuda law and our memorandum of association and bye-laws. The rights of shareholders under Bermuda law may differ from the rights of shareholders of companies incorporated in other jurisdictions. Certain of our directors and some of the named experts referred to in this prospectus are not residents of the United States, and a substantial portion of our assets are located outside the United States. As a result, it may be difficult for investors to effect service of

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process on those persons in the United States or to enforce in the United States judgments obtained in U.S. courts against us or those persons based on the civil liability provisions of the U.S. securities laws. It is doubtful whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions.

U.S. persons who own our shares may have more difficulty in protecting their interests than U.S. persons who are shareholders of a U.S. corporation.

          The Companies Act 1981 of Bermuda (the "Companies Act"), which applies to us, differs in certain material respects from laws generally applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain significant provisions of the Companies Act and our bye-laws which differ in certain respects from provisions of Delaware corporate law. Because the following statements are summaries, they do not discuss all aspects of Bermuda law that may be relevant to us and our shareholders.

          Interested Directors:    Bermuda law provides that if a director has an interest in a material contract or proposed material contract with us or any of our subsidiaries or has a material interest in any person that is a party to such a contract, the director must disclose the nature of that interest at the first opportunity either at a meeting of directors or in writing to the board. Under Delaware law such transaction would not be voidable if:

    the material facts as to such interested director's relationship or interests were disclosed or were known to the board of directors and the board of directors had in good faith authorized the transaction by the affirmative vote of a majority of the disinterested directors;

    such material facts were disclosed or were known to the shareholders entitled to vote on such transaction and the transaction were specifically approved in good faith by vote of the majority of shares entitled to vote thereon; or

    the transaction were fair as to the corporation as of the time it was authorized, approved or ratified. Under Delaware law, the interested director could be held liable for a transaction in which the director derived an improper personal benefit.

          Business Combinations with Large Shareholders or Affiliates.    As a Bermuda company, we may enter into business combinations with our large shareholders or affiliates, including mergers, asset sales and other transactions in which a large shareholder or affiliate receives, or could receive, a financial benefit that is greater than that received, or to be received, by other shareholders, without obtaining prior approval from our board of directors or from our shareholders. If we were a Delaware company, we would need prior approval from our board of directors or a supermajority of our shareholders to enter into a business combination with an interested shareholder for a period of three years from the time the person became an interested shareholder, unless we opted out of the relevant Delaware statute.

          Shareholders' Suits.    The rights of shareholders under Bermuda law are not as extensive as the rights of shareholders in many U.S. jurisdictions. Class actions and derivative actions are generally not available to shareholders under the laws of Bermuda. However, the Bermuda courts ordinarily would be expected to follow English case law precedent, which would permit a shareholder to commence an action in the name of the company to remedy a wrong done to the company where an act is alleged to be beyond the corporate power of the company, is illegal or would result in the violation of our memorandum of association or bye-laws. Furthermore, a court would consider acts that are alleged to constitute a fraud against the minority shareholders or where an act requires the approval of a greater percentage of our shareholders than actually approved it. The prevailing party in such an action generally would be able to recover a portion of

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attorneys' fees incurred in connection with such action. Our bye-laws provide that shareholders waive all claims or rights of action that they might have, individually or in the right of the company, against any director or officer for any act or failure to act in the performance of such director's or officer's duties, except with respect to any fraud or dishonesty of such director or officer. Class actions and derivative actions generally are available to shareholders under Delaware law for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. In such actions, the court has discretion to permit the winning party to recover attorneys' fees incurred in connection with such action.

          Indemnification of Directors.    We may indemnify our directors or officers or any person appointed to any committee by the board of directors acting in their capacity as such in relation to any of our affairs for any loss arising or liability attaching to them by virtue of any rule of law in respect of any negligence, default, breach of duty or breach of trust of which such person may be guilty in relation to the company other than in respect of his own fraud or dishonesty. Under Delaware law, a corporation may indemnify a director or officer of the corporation against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in defense of an action, suit or proceeding by reason of such position if such director or officer acted in good faith and in a manner he or she reasonably believed to be in or not be opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, such director or officer had no reasonable cause to believe his or her conduct was unlawful.

We may repurchase your common shares without your consent.

          Under our bye-laws and subject to Bermuda law, we have the option, but not the obligation, to require a shareholder to sell to us at fair market value the minimum number of common shares which is necessary to avoid or cure any adverse tax consequences or materially adverse legal or regulatory treatment to us, our subsidiaries or our shareholders if our board of directors reasonably determines, in good faith, that failure to exercise our option would result in such adverse consequences or treatment.

Provisions in our bye-laws may reduce or increase the voting rights of our shares.

          In general, and except as provided under our bye-laws and as provided below, the common shareholders have one vote for each common share held by them and are entitled to vote, on a non-cumulative basis, at all meetings of shareholders. However, if, and so long as, the shares of a shareholder are treated as "controlled shares" (as determined pursuant to sections 957 and 958 of the Code) of any U.S. Person (as that term is defined in "Certain Tax Considerations") (that owns shares directly or indirectly through non-U.S. entities) and such controlled shares constitute 9.5% or more of the votes conferred by our issued shares, the voting rights with respect to the controlled shares owned by such U.S. Person will be limited, in the aggregate, to a voting power of less than 9.5%, under a formula specified in our bye-laws. The formula is applied repeatedly until the voting power of all 9.5% U.S. Shareholders has been reduced to less than 9.5%. In addition, our board of directors may limit a shareholder's voting rights when it deems it appropriate to do so to (i) avoid the existence of any 9.5% U.S. Shareholder; and (ii) avoid certain material adverse tax, legal or regulatory consequences to us, any of our subsidiaries or any direct or indirect shareholder or its affiliates. "Controlled shares" include, among other things, all shares that a U.S. Person is deemed to own directly, indirectly or constructively (within the meaning of section 958 of the Code). The amount of any reduction of votes that occurs by operation of the above limitations will generally be reallocated proportionately among our other shareholders whose shares were not "controlled shares" of the 9.5% U.S. Shareholder so long as such reallocation does not cause any person to become a 9.5% U.S. Shareholder.

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          Under these provisions, certain shareholders may have their voting rights limited, while other shareholders may have voting rights in excess of one vote per share. Moreover, these provisions could have the effect of reducing the votes of certain shareholders who would not otherwise be subject to the 9.5% limitation by virtue of their direct share ownership.

          We are authorized under our bye-laws to request information from any shareholder for the purpose of determining whether a shareholder's voting rights are to be reallocated under the bye-laws. If any holder fails to respond to this request or submits incomplete or inaccurate information, we may, in our sole discretion, eliminate the shareholder's voting rights.

There are regulatory limitations on the ownership and transfer of our common shares.

          Common shares may be offered or sold in Bermuda only in compliance with the provisions of the Companies Act and the Bermuda Investment Business Act 2003, which regulates the sale of securities in Bermuda. In addition, the BMA must approve all issues and transfers of shares of a Bermuda exempted company. However, the BMA has pursuant to its statement of June 1, 2005 given its general permission under the Exchange Control Act 1972 (and related regulations) for the issue and free transfer of our common shares to and among persons who are non-residents of Bermuda for exchange control purposes as long as the shares are listed on an appointed stock exchange, which includes the NYSE. This general permission would cease to apply if the Company were to cease to be so listed. We intend to apply for, and expect to receive, consent under the Bermuda Exchange Control Act 1972 (and its related regulations) from the BMA for the issue and transfer of our common shares to and between residents and non-residents of Bermuda for exchange control purposes provided our common shares remain listed on an appointed stock exchange, which includes the NYSE. Bermuda insurance law requires that any person who becomes a holder of at least 10%, 20%, 33% or 50% of the common shares of an insurance or reinsurance company or its parent company must notify the BMA in writing within 45 days of becoming such a holder or 30 days from the date they have knowledge of having such a holding, whichever is later. The BMA may, by written notice, object to a person holding 10%, 20%, 33% or 50% of our common shares if it appears to the BMA that the person is not fit and proper to be such a holder. The BMA may require the holder to reduce their shareholding in us and may direct, among other things, that the voting rights attaching to their shares shall not be exercisable. A person that does not comply with such a notice or direction from the BMA will be guilty of an offense.

          The insurance holding company laws and regulations of the Commonwealth of Pennsylvania, the state in which our insurance subsidiaries are domiciled, require that, before a person can acquire direct or indirect control of an insurer domiciled in the state, prior written approval must be obtained from the Pennsylvania Insurance Department. The state insurance regulators are required to consider various factors, including the financial strength of the acquirer, the integrity and management experience of the acquirer's board of directors and executive officers, and the acquirer's plans for the future operations of the reinsurer or insurer. Pursuant to applicable laws and regulations, "control" over an insurer is generally presumed to exist if any person, directly or indirectly, owns, controls, holds the power to vote or holds proxies representing, 10 percent or more of the voting securities of that reinsurer or insurer. Indirect ownership includes ownership of Essent's common shares.

          Except in connection with the settlement of trades or transactions entered into through the facilities of the NYSE, our board of directors may generally require any shareholder or any person proposing to acquire our shares to provide the information required under our bye-laws. If any such shareholder or proposed acquirer does not provide such information, or if the board of directors has reason to believe that any certification or other information provided pursuant to any such request is inaccurate or incomplete, the board of directors may decline to register any transfer or to

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effect any issuance or purchase of shares to which such request is related. Although these restrictions on transfer will not interfere with the settlement of trades on the NYSE, we may decline to register transfers in accordance with our bye-laws and board of directors resolutions after a settlement has taken place.

Future offerings of debt or equity securities, which may rank senior to our common shares, may restrict our operating flexibility and adversely affect the market price of our common shares.

          If we decide to issue debt securities in the future, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any equity securities or convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common shares and may adversely affect the market price of our common shares. Any such debt or preference equity securities will rank senior to our common shares and will also have priority with respect to any distributions upon a liquidation, dissolution or similar event, which could result in the loss of all or a portion of your investment. Our decision to issue such securities will depend on market conditions and other factors beyond our control, and we cannot predict or estimate the amount, timing or nature of our future offerings.

Purchasing our common shares through this offering will result in an immediate and substantial dilution of your investment.

          The initial public offering price of our common shares is substantially higher than the net tangible book value per share of our common shares. Therefore, if you purchase our common shares in this offering, your interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common shares and the pro forma as adjusted net tangible book value per share of our common shares after this offering. See "Dilution."

          Furthermore, if we raise additional capital by issuing new equity securities at a lower price than the initial public offering price, your interest will be further diluted, which may result in the loss of all or a portion of your investment. If our future access to public markets is limited or our performance decreases, we may need to carry out a private placement or public offering of our common shares at a lower price than the initial public offering price which will also dilute the interests of our shareholders.

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FORWARD-LOOKING STATEMENTS

          This prospectus includes forward-looking statements, including in the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and "Certain Regulatory Considerations." These forward-looking statements include, without limitation, statements regarding our industry, business strategy, plans, goals and expectations concerning our market position, international expansion, future operations, margins, profitability, future efficiencies, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words "may," "believes," "intends," "seeks," "anticipates," "plans," "estimates," "expects," "should," "assumes," "continues," "could," "will," "future" and the negative of these or similar terms and phrases are intended to identify forward-looking statements in this prospectus.

          Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Although we believe the expectations reflected in the forward-looking statements are reasonable, we can give you no assurance these expectations will prove to have been correct. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, the following:

    changes in or to GSEs, whether through Federal legislation, restructurings or a shift in business practices;

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

    competition for our customers;

    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 FHA;

    decline in NIW and franchise value due to loss of a significant customer;

    decline in the volume of low down payment mortgage originations;

    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 may discourage the use of private mortgage insurance;

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

    uncertainty of loss reserve estimates;

    deteriorating economic conditions;

    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;

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    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;

    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;

    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;

    scope of recently enacted legislation is uncertain;

    potential inability of our insurance subsidiaries to pay dividends; and

    other risks and factors listed under "Risk Factors" and elsewhere in this prospectus.

          In light of these risks, uncertainties and other factors, the forward-looking statements contained in this prospectus might not prove to be accurate and you should not place undue reliance upon them. All forward-looking statements speak only as of the date made and we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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USE OF PROCEEDS

          Based upon an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from this offering of approximately $              million, after deducting estimated underwriting discounts and commissions in connection with this offering and estimated offering expenses payable by us of $              million. See "Underwriting (Conflicts of Interest)."

          [We will not receive any of the proceeds from the common shares to be sold by the selling shareholders in this offering.]

          We intend to use the net proceeds we receive from this offering for general corporate purposes, which may include capital contributions to support the growth of our insurance subsidiaries. We will have broad discretion over the way that we use the net proceeds of this offering received by us. See "Risk Factors — We have broad discretion to use our net proceeds from this offering and our investment of those proceeds may not yield favorable returns."

          A $1.00 increase or decrease in the assumed initial public offering price of $             per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase or decrease the net proceeds to us from this offering by $             , assuming estimated offering expenses payable by us. An increase or decrease of                  shares in the number of common shares offered by us would increase or decrease the total consideration paid to us by new investors and the total consideration paid to us by all shareholders by $              million, assuming the initial public offering price of $             per share (the midpoint of the price range set forth on the cover page of this prospectus) remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. The information discussed above is illustrative only and will vary based on the actual public offering price and other terms of this offering determined at pricing.

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DIVIDEND POLICY

          We do not currently expect to declare or pay dividends on our common shares for the foreseeable future. Instead, we intend to retain earnings to finance the growth and development of our business and general corporate purposes. Any payment of dividends will be at the discretion of our board of directors and will depend upon various factors then existing, including earnings, financial condition, results of operations, capital requirements, level of indebtedness, contractual restrictions with respect to payment of dividends, restrictions imposed by applicable law, general business conditions and other factors that our board of directors may deem relevant. In addition, the ability of our insurance subsidiaries to pay dividends to Essent Group Ltd. is limited by state insurance laws. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources" and "Risk Factors — Our holding company structure and certain regulatory and other constraints, including adverse business performance, could negatively impact our liquidity and potentially require us to raise more capital." In addition, under the Companies Act, we may only declare or pay a dividend if, among other matters, there are reasonable grounds for believing that we are, and would after the payment be, able to pay our respective liabilities as they become due and that the realizable value of our assets will, and after the payment would, exceed our liabilities.

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CAPITALIZATION

          The following table sets forth our capitalization as of June 30, 2013:

    on an actual basis;

    on an adjusted basis to reflect (i)  the             for             share split effective as of                           , (ii) the conversion of all of our Class A common shares and Class B-2 common shares eligible to vest under our 2009 Plan into a single class of common shares (and the forfeiture of any Class B-2 common shares not eligible for vesting under our 2009 Plan), and (iii) the sale by us of                  common shares in this offering, at an assumed public offering price of $             per share (the midpoint of the range set forth on the cover page of this prospectus).

          You should read this table in conjunction with the sections of this prospectus entitled "Selected Consolidated Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus.

 
  As of June 30, 2013  
($ in thousands)
 
Actual
 
As
Adjusted(1)
 

Cash

  $ 129,166   $    
           

Equity

             

Class A common shares, $0.01 par value per share(2)

  $ 474      

Class B-1 common shares, $0.01 par value per share(3)

         

Class B-2 common shares, $0.01 par value per share(4)

    92      

Common shares, $0.01 par value per share(5)

           

Additional paid-in capital

    473,378        

Accumulated other comprehensive income

    (1,639 )      

Accumulated deficit

    (66,735 )      

Treasury stock, at cost

    (34,336 )      
           

Total stockholders' equity

    371,234        
             

Total capitalization

  $ 371,234        
           

(1)
Each $1.00 increase (decrease) in the public offering price per share would increase (decrease) our total stockholders' equity and total capitalization by $              million (assuming no exercise of the underwriters' option to purchase additional shares).

(2)
75,500,000 shares authorized, of which there are 47,433,451 shares issued (including treasury shares) and 44,052,083 shares outstanding, including 432,576 unvested shares, actual; no shares authorized and no shares issued and outstanding, as adjusted.

(3)
84,769,663 shares authorized and no shares issued and outstanding, actual; no shares authorized and no shares issued and outstanding, as adjusted.

(4)
9,269,663 shares authorized, of which there are 9,226,165 shares issued (including treasury shares) and 9,224,591 shares outstanding, including 6,555,898 unvested

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    shares, actual; no shares authorized and no shares issued and outstanding, as adjusted.

(5)
Upon consummation of this offering and after giving effect to our             for             share split effective as of                          , our Class A common shares will convert into             common shares (including                  unvested common shares), our Class B-2 common shares eligible for vesting under our 2009 Plan, will convert into             common shares (including                  unvested common shares) and our Class B-2 common shares that are not eligible for vesting will be forfeited under our 2009 Plan.

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DILUTION

          If you invest in our common shares, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share of our common shares and the pro forma as adjusted net tangible book value per share of our common shares immediately after this offering.

          As of June 30, 2013 our net tangible book value was $              million, or $             per common share, and our historical net tangible book value per share was $             . Historical net tangible book value per share has been determined by dividing net tangible book value (total book value of tangible assets less total liabilities) by the number of common shares outstanding at June 30, 2013. Pro forma net tangible book value gives effect to the conversion of all of our outstanding Class A common shares and Class B-2 common shares eligible for vesting under our 2009 Plan into a single class of common shares, the forfeiture of any Class B-2 common shares not eligible for vesting under our 2009 Plan and the              for             share split effective as of             , and would have been $              million or $             per common share, as of June 30, 2013.

          Pro forma as adjusted net tangible book value also gives effect to the sale of our common shares sold by us in this offering at an assumed initial public offering price of $             per share (the midpoint of the price range set forth on the cover page of this prospectus) and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, would have been $              million, or $             per share as of June 30, 2013. This represents an immediate increase in net tangible book value per share of $             to the existing shareholders and dilution in net tangible book value per share of $             to new investors who purchase shares in this offering. The following table illustrates this per share dilution to new investors:

Assumed initial public offering price per share

        $    

Pro forma net tangible book value per share as of June 30, 2013

  $          

Increase in net tangible book value per share attributable to new investors in this offering

  $          

Pro forma as adjusted net tangible book value per share after this offering

        $    
           

Dilution of net tangible book value per share to new investors

        $    
           

          A $1.00 increase or decrease in the assumed initial public offering price of $             per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase or decrease total consideration paid by new investors and total consideration paid by all shareholders by $              million, assuming that the number of common shares offered by us set forth on the front cover of this prospectus remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. An increase or decrease of              million shares in the number of shares offered by us would increase or decrease the total consideration paid to us by new investors and total consideration paid to us by all shareholders by $              million, assuming the assumed initial public offering price of $             per share (the midpoint of the price range set forth on the cover page of this prospectus) remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

          The following table summarizes, as of June 30, 2013, the total number of common shares purchased from us, the total consideration paid to us and the average price per share paid by the

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existing shareholders and by new investors purchasing shares in this offering (amounts in thousands, except percentages and per share data):

 
  Shares
Purchased
  Total
Consideration
   
 
 
 
Average
Price
Per Share
 
 
 
Number
 
Percent
 
Amount
 
Percent
 

Existing shareholders

            % $         % $    

New investors

                               
                       

Total

          100 % $       100 %      
                         

          [The foregoing table does not reflect proceeds to be realized by the selling shareholders in connection with the sales by them in this offering.]

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

          The following tables set forth our historical consolidated financial data as of and for the periods indicated. The selected consolidated financial and other data as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010 have been derived from our audited consolidated financial statements and the notes thereto included elsewhere in this prospectus. Our historical operating results are not necessarily indicative of future operating results.

          The selected consolidated financial and other data as of and for the six months ended June 30, 2013 and 2012 has been derived from our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this prospectus. We believe our unaudited condensed consolidated financial statements included elsewhere in this prospectus have been prepared on the same basis as our audited consolidated financial statements and reflect all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of the consolidated financial position and results of operations for such periods. The selected consolidated financial and other data as of and for the six months ended June 30, 2013 and 2012 are not necessarily indicative of the results expected as of and for the year ended December 31, 2013 or for any future period.

          The information set forth under "Insurance company capital" below has been derived from the annual and quarterly statements of our insurance subsidiaries filed with the Pennsylvania Insurance Department. The accompanying data has been prepared in conformity with accounting practices prescribed or permitted by the Pennsylvania Insurance Department. Such practices vary from GAAP.

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          The following data should be read together with our consolidated financial statements and the related notes thereto, as well as the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this prospectus.

 
  Six Months Ended
June 30,
   
   
   
 
 
  Year Ended December 31,  
Summary of operations
(in thousands, except per-share amounts)
 
 
2013
 
2012
 
2012
 
2011
 
2010
 

Revenues:

                               

Net premiums written

  $ 78,296   $ 22,731   $ 72,668   $ 17,865   $ 219  

Increase in unearned premiums

    (29,551 )   (9,216 )   (30,875 )   (9,686 )   (9 )
                       

Net premiums earned

    48,745     13,515     41,793     8,179     210  

Net investment income

    1,744     998     2,269     1,169     214  

Realized investment gains, net

    93     104     143     364     13  

Other income

    2,013     2,150     4,511     4,676     5,863  
                       

Total revenues

    52,595     16,767     48,716     14,388     6,300  
                       

Losses and expenses:

                               

Provision for losses and LAE

    1,310     646     1,466     57      

Other underwriting and operating expenses

    30,519     28,950     61,126     48,781     33,928  
                       

Total losses and expenses

    31,829     29,596     62,592     48,838     33,928  
                       

Income (loss) before income taxes

    20,766     (12,829 )   (13,876 )   (34,450 )   (27,628 )

Income tax benefit

   
(10,011

)
 
(307

)
 
(333

)
 
(895

)
 
(54

)
                       

Net income (loss)

  $ 30,777   $ (12,522 ) $ (13,543 ) $ (33,555 ) $ (27,574 )
                       

Earnings (loss) per share(1):

                               

Basic:

                               

Class A

  $ 0.90   $ (0.48 ) $ (0.49 ) $ (1.39 ) $ (1.24 )

Class B-2

        (0.01 )       N/A     N/A  

Diluted:

                               

Class A

  $ 0.89   $ (0.48 ) $ (0.49 ) $ (1.39 ) $ (1.24 )

Class B-2

        (0.01 )       N/A     N/A  

Weighted average common shares outstanding:

                               

Basic:

                               

Class A

    34,313     25,923     27,445     24,151     22,205  

Class B-2

    1,577     285     557          

Diluted:

                               

Class A

    34,459     25,923     27,445     24,151     22,205  

Class B-2

    6,549     285     557          

Pro forma earnings (loss) per share(2)

                               

Basic

  $                            

Diluted

                               

Pro forma weighted average common shares outstanding

                               

Basic

  $                            

Diluted

                               

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  As of June 30,   As of December 31,  
Balance sheet data
(in thousands)
 
 
2013
 
2012
 
2012
 
2011
 
2010
 

Total investments

  $ 297,805   $ 172,033   $ 247,414   $ 171,091   $ 161,725  

Cash

    129,166     21,338     22,315     18,501     15,511  

Total assets

    461,210     213,984     283,332     210,066     193,589  

Reserve for losses and LAE

    2,548     702     1,499     57      

Unearned premium reserve

    70,121     18,910     40,570     9,695     9  

Amounts due under Asset Purchase Agreement

    7,400     12,274     9,841     14,703     2,485  

Total stockholders' equity

  $ 371,234   $ 170,055   $ 219,123   $ 176,061   $ 183,493  

 

Selected additional data
($ in thousands)
  Six Months Ended June 30,   Year Ended December 31,  
 
 
2013
 
2012
 
2012
 
2011
 
2010
 

New insurance written

  $ 10,216,683   $ 3,621,424   $ 11,241,161   $ 3,229,720   $ 245,898  

Loss ratio(3)

   
2.7

%
 
4.8

%
 
3.5

%
 
0.7

%
 
0.0

%

Expense ratio(4)

    62.6 %   214.2 %   146.3 %   596.4 %   16,156.2 %
                       

Combined ratio

    65.3 %   219.0 %   149.8 %   597.1 %   16,156.2 %
                       

 

 
  As of June 30,   As of December 31,  
 
 
2013
 
2012
 
2012
 
2011
 
2010
 

Insurance portfolio:

                               

Insurance in force

  $ 22,576,300   $ 6,768,666   $ 13,628,980   $ 3,376,708   $ 244,968  

Risk in force

  $ 5,348,917   $ 1,596,691   $ 3,221,631   $ 777,460   $ 53,561  

Policies in force

    98,818     30,049     59,764     15,135     1,204  

Loans in default

   
90
   
21
   
56
   
3
   
 

Percentage of loans in default

    0.09 %   0.07 %   0.09 %   0.02 %    

Insurance company capital:

                               

Combined statutory capital(5)

  $ 356,169   $ 150,125   $ 203,611   $ 150,851   $ 165,144  

Risk to capital ratios:

                               

Essent Guaranty, Inc. 

    14.9:1     10.2:1     15.8:1     5.0:1     0.3:1  

Essent Guaranty of PA, Inc. 

    17.0:1     22.5:1     16.2:1     10.4:1     0.6:1  

Combined(6)

    15.0:1     10.6:1     15.8:1     5.2:1     0.3:1  

(1)
Our Class A common shares have a stated dividend; however, our Class B-2 common shares do not have a stated dividend rate. Accordingly, earnings (loss) per common share has been calculated using the "two-class" method which provides that earnings and losses be allocated to each class of common shares according to dividends declared and their respective participation rights. Because the Class A common shares accrue a 10% cumulative dividend, the Class B-2 common shares have no stated dividend rate and any dividends paid on Class B-2 common shares would be discretionary, all earnings in 2013 have been allocated to the Class A Common shares for purposes of computing earnings per share. In 2012, the net loss was allocated to the Class A common shares and vested Class B-2 common shares based on contributed capital. In 2011 and 2010, the entire net loss was allocated to the Class A common shares as no Class B-2 common shares had vested.

(2)
Pro forma per share data assumes (i) the conversion of all of our Class A common shares and all of our Class B-2 common shares eligible to vest under our 2009 Plan into a single class of common shares and the forfeiture of any Class B-2 common shares that are not eligible for vesting under our 2009 Plan and (ii) the             for             share split effective as of                          , as if such events occurred on January 1, 2012. Pro forma basic earnings (loss) per share consists of net income (loss) divided by the pro forma basic weighted average common shares outstanding. Pro forma diluted earnings (loss) per share consists of net income (loss) divided by the pro forma diluted weighted average common shares outstanding.

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(3)
Loss ratio is calculated by dividing the provision for loss and loss adjustment expenses by net premiums earned.

(4)
Expense ratio is calculated by dividing other underwriting and operating expenses by net premiums earned.

(5)
Combined statutory capital equals sum of statutory capital of Essent Guaranty, Inc. plus Essent Guaranty of PA, Inc., after eliminating the impact of intercompany transactions.

(6)
The combined risk to capital ratio equals the sum of the net risk in force of Essent Guaranty, Inc. and Essent Guaranty of PA, Inc. divided by combined statutory capital.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          The following discussion should be read in conjunction with the "Selected Consolidated Financial Data" and our financial statements and related notes thereto included elsewhere in this prospectus. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management's expectations. Factors that could cause such differences are discussed in the sections entitled "Forward-Looking Statements" and "Risk Factors." We are not undertaking any obligation to update any forward-looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward-looking statements or other statements were made. Therefore, no reader of this document should rely on these statements being current as of any time other than the time at which this document is declared effective by the U.S. Securities and Exchange Commission.

Overview

          We are an established and growing private mortgage insurance company. We were formed to serve the U.S. housing finance industry at a time when the demands of the financial crisis and a rapidly changing business environment created the need for a new, privately funded mortgage insurance company. Since writing our first policy in May 2010, we have grown to an estimated 12.0% market share for the three months ended June 30, 2013, up from 8.6% and 3.9% for the years ended December 31, 2012 and 2011, respectively. We believe that our growth has been driven largely by the unique opportunity we offer lenders to partner with a well-capitalized mortgage insurer, unencumbered by legacy business, that provides fair and transparent claims payment practices, and consistency and speed of service.

          In 2010, Essent became the first private mortgage insurer to be approved by the GSEs since 1995, and is licensed to write coverage in all 50 states and the District of Columbia. We have master policy relationships with approximately 800 customers as of June 30, 2013, including 21 of the 25 largest mortgage originators in the United States for the first quarter of 2013. We believe that our customers account for nearly 70% of the annual new insurance written in the private mortgage insurance market. We have a fully functioning, scalable and flexible mortgage insurance platform, which we acquired from Triad Guaranty Inc. and its wholly-owned subsidiary, Triad Guaranty Insurance Corporation (collectively, "Triad"), in exchange for up to $30 million in cash and the assumption of certain contractual obligations. Our holding company is domiciled in Bermuda and our U.S. insurance business is headquartered in Radnor, Pennsylvania. We operate additional underwriting and service centers in Winston-Salem, North Carolina and Irvine, California. We have a highly experienced, talented team with 259 employees, including 52 in business development and sales and 71 in underwriting. For the six months ended June 30, 2013 and the year ended December 31, 2012, we generated new insurance written of $10.2 billion and $11.2 billion, respectively, and as of June 30, 2013, we had over $22.5 billion of insurance in force.

Legislative and Regulatory Developments

          Our results are significantly impacted by, and our future success may be affected by, legislative and regulatory developments affecting the housing finance industry. Key regulatory and legislative developments that may affect us include:

    Housing Finance and GSE Reform

          The overwhelming majority of our current and expected future business is the provision of mortgage insurance on loans sold to the GSEs. Therefore, changes to the business practices of the GSEs or any regulation relating to the GSEs may impact our business and our results of

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operations. The FHFA is the regulator and conservator of the GSEs with authority to control and direct their operations. The FHFA has, and is likely to continue, to direct changes to the business operations of the GSEs in ways that affect the MI industry. In addition, it is likely that Federal legislation will be necessary to resolve the conservatorship of the GSEs, and such legislation could materially affect the role and charter of the GSEs and the operation of the housing finance system. In 2011, the U.S. Department of the Treasury recommended options for winding down the GSEs and using a combination of Federal housing policy changes to contract the government's footprint in housing finance and restore a larger role for private capital. Since 2011, Members of Congress have introduced several bills intended to reform the secondary market and the role of the GSEs, although no comprehensive housing finance or GSE reform legislation has been enacted to date. See "Certain Regulatory Considerations — Federal Laws and Regulations — Housing Financing Reform", "Risk Factors — Legislative or regulatory actions or decisions to change the role of the GSEs in the U.S. housing market generally, or changes to the charters of the GSEs with regard to the use of credit enhancements generally and private MI specifically, could reduce our revenues or adversely affect our profitability and returns", and "Risk Factors — Changes in the business practices of the GSEs, including actions or decisions to decrease or discontinue the use of MI or changes in the GSEs' eligibility requirements for mortgage insurers, could reduce our revenues or adversely affect our profitability and returns."

    Dodd-Frank Act

          Various regulatory agencies have produced, and are now in the process of developing additional, new rules under the Dodd-Frank Act that are expected to have a significant impact on the housing finance industry, including the QM definition and the risk retention requirement and related QRM definition.

    QM Definition

          Under the Dodd-Frank Act, the CFPB is authorized to issue regulations governing a loan originator's determination that, at the time a loan is originated, the consumer has a reasonable ability to repay the loan. The Dodd-Frank Act provides a statutory presumption that a borrower will have the ability to repay a loan if the loan has characteristics satisfying the QM definition. The CFPB has issued a final rule defining what constitutes a QM that will take effect on January 10, 2014. Under the QM Rule, a loan is deemed to be a QM if it has certain loan features, satisfies extensive documentation requirements and meets limitations on fees and points and APRs. The QM Rule also provides for a second temporary category with more flexible requirements if the loan is eligible to be purchased or guaranteed by the GSEs while they are in conservatorship, which is the overwhelming majority of our business. This second temporary category still requires that loans satisfy certain criteria, including the requirement that the points and fees represent 3% or less of the total loan amount.

          Failure to comply with the ability-to-repay requirement exposes a lender to substantial potential liability. As a result, we believe that the QM regulations may cause changes in the lending standards and origination practices of our customers. Such changes may include a further tightening of mortgage origination practices and lending standards, which may further improve the credit quality of new mortgages, but may also result in a reduction of the overall volume of mortgage originations. To the extent the use of private mortgage insurance causes a loan not to meet the definition of a QM, the volume of loans originated with mortgage insurance may decline. In addition, the impact of the mortgage insurance premiums on the calculation of points and fees for purposes of QM may influence the use of MI, as well as our mix of premium plans and therefore our profitability. See "— Factors Affecting Our Results of Operations — Persistency and Business Mix." Finally, to the extent that government agencies that offer mortgage insurance adopt their own definitions of a qualified mortgage and those definitions are more favorable to lenders than those applicable in the market we operate in, our business may be adversely affected. See "Certain

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Regulatory Considerations — Federal Regulation — Dodd-Frank Act — Qualified Residential Mortgage Regulations — Risk Retention Requirements" and "Risk Factors — Our Business prospects and operating results could be adversely impacted if, and to the extent that, the Consumer Financial Protection Bureau's ("CFCB") final rule defining a qualified mortgage ("QM") reduces the size of the origination market or creates incentives to use government mortgage insurance programs."

    Risk Retention Requirements and QRM Definition

          The Dodd-Frank Act provides for an originator or issuer risk-retention requirement on securitized mortgage loans that do not meet the definition of a QRM. Federal regulators issued the proposed risk-retention rule in March 2011, and in response to public comment on such proposed rule, issued a revised proposed-risk retention rule on August 28, 2013, including a definition of QRM that generally defines QRM as a mortgage meeting the requirements of QM (see "Certain Regulatory Considerations — Federal Regulations — Dodd-Frank Act — Qualified Mortgage Regulations—Ability to Repay Requirements"). In addition, the regulators also requested public comments on an alternative definition that, among other things, incorporates a maximum LTV standard of 70% and certain other restrictions selected to reduce the risk of default. Neither of the revised proposed definitions of QRM incorporate the use of private mortgage insurance. Under the proposed rule, the GSEs satisfy the risk retention requirements of the Dodd-Frank Act while they are in conservatorship. The proposed rule is now subject to public comment and final rules have yet to be issued. The final timing of the adoption of any risk retention regulation and the definition of QRM remains uncertain.

          Issuers may prefer not to retain risk and may therefore have a strong incentive to originate loans that meet the definition of a QRM. If the final rule gives consideration to private mortgage insurance in the definition of QRM, issuers may benefit from the use of private mortgage insurance for mortgage securitizations subject to the risk retention requirements. However, if the final QRM rule does not give consideration to MI in the definition of QRM, the attractiveness of originating and securitizing loans with lower down payments may be reduced, which may adversely affect the future demand for MI and our business. In addition, changes in the final regulations regarding treatment of GSE-guaranteed mortgage loans, could impact our business. The ultimate impact of these rules on the use of MI depends on, among other things, (i) the final definition of QRM, (ii) under the proposed definition, the extent to which the presence of private mortgage insurance may adversely affect the ability of a loan to qualify as a QM and therefore as a QRM, (iii) under the QM-plus definition or any other final definition with an LTV requirement, the level of the final LTV requirement and the extent to which credit would be given for the use of MI, if any, in satisfying the LTV requirement, (iv) if, in the future, sellers of loans to the GSEs become subject to risk-retention requirements, and (v) the degree to which originators or issuers subject to risk retention requirements would see it as beneficial to utilize MI on non-QRM loans to mitigate their retained credit exposure. See "Certain Regulatory Considerations — Federal Regulation — Dodd-Frank Act — Qualified Residential Mortgage Regulations — Risk Retention Requirements" and "Risk Factors — The amount of insurance we write could be adversely affected by the implementation of the Dodd-Frank Act's risk retention requirements and the definition of Qualified Residential Mortgage ("QRM")."

    Basel III

          In July 2013, the Federal Reserve Board, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation approved publication of final regulatory capital rules, which we refer to as the "Basel III Rules", governing almost all U.S. banking organizations regardless of size or business model. The Basel III Rules revise and enhance the Federal banking agencies' general risk-based capital, advanced approaches and leverage rules. The Basel III Rules will become effective on January 1, 2014, with a mandatory compliance date of January 1, 2015 for

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banking organizations other than advanced approaches banking organizations that are not savings and loan holding companies.

          The Federal banking agencies previously issued proposed rules that would have made extensive changes to the capital requirements for residential mortgages, including eliminating capital recognition for certain low down payment mortgages covered by mortgage insurance. After consideration of extensive comments with regard to the proposed capital rules for residential mortgages, the Federal banking agencies decided to retain in the Basel III Rules the treatment for residential mortgage exposures that is currently set forth in the general risk-based capital rules and the treatment of mortgage insurance.

          The Basel III Rules continue to afford FHA-insured loans a lower risk-weighting than low down payment loans insured with private MI, and Ginnie Mae mortgage-backed securities are afforded a lower risk weighting than Fannie Mae and Freddie Mac mortgage-backed securities. Therefore, with respect to capital requirements, FHA-insured loans will continue to have a competitive advantage over loans insured by private mortgage insurance and then sold to and securitized by the GSEs.

          In addition, with regard to the separate Basel III Rules applicable to general credit risk mitigation for banking exposures, insurance companies engaged predominantly in the business of providing credit protection, such as private mortgage insurance companies, are not eligible guarantors.

          If implementation of the Basel III Rules increases the capital requirements of banking organizations with respect to the residential mortgages we insure, it could adversely affect the size of the portfolio lending market, which in turn would reduce the demand for our mortgage insurance, but may create incentives for banks to originate and sell loans to the GSEs which could expand demand for mortgage insurance. If the Federal banking agencies revise the Basel III Rules to reduce or eliminate the capital benefit banks receive from insuring low down payment loans with private mortgage insurance, or if our bank customers believe that such adverse changes may occur at some time in the future, our current and future business may be adversely affected. Furthermore, if mortgage insurance companies do not meet the requirements to be an eligible guarantor for purposes of general credit mitigation, our future business prospects may be adversely affected. "Risk Factors — The implementation of the Basel III capital accord, or other changes to our customers capital adequacy requirements and the Basel III guidelines may discourage the use of mortgage insurance."

    FHA Reform

          The FHA is our primary competitor outside of the private mortgage insurance industry and the FHA's role in the mortgage insurance industry is also significantly dependent upon regulatory developments. The U.S. Congress is considering reforms of the housing finance market, which includes consideration of the future mission, size and structure of the FHA, which is part of HUD. In HUD's annual report to Congress on the financial status of the FHA Mutual Mortgage Insurance Fund, or MMIF, dated November 16, 2012, the capital reserve ratio of the MMIF turned to a negative 1.44%, below the congressionally mandated required minimum level of 2%. In part as a result of this capital shortfall, Congress is considering legislation to reform the FHA. If FHA reform were to raise FHA premiums, tighten FHA credit guidelines, make other changes which make lender use of FHA less attractive, or implement credit risk sharing between FHA and private mortgage insurers, these changes may be beneficial to our business. However, there can be no assurance that any FHA reform legislation will be enacted into law, and what provisions may be contained in any final legislation, if any. Therefore, the future impact on our business is uncertain. See "Certain Regulatory Considerations — Federal Regulation — FHA Reform" and "Risk Factors — The amount of insurance we may be able to write could be adversely affected if lenders and investors select alternatives to private mortgage insurance."

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Factors Affecting Our Results of Operations

    Net Premiums Written and Earned

          Premiums are based on insurance in force, or IIF, during all or a portion of a period. A change in the average IIF during a period causes premiums to increase or decrease as compared to prior periods. Average premiums rates in effect during a given period will also cause premiums to differ when compared to earlier periods. IIF at the end of a reporting period is a function of the IIF at the beginning of such reporting period plus NIW less policy cancellations (including claims paid) during the period. As a result, premiums are generally influenced by:

    NIW, is the aggregate principal amount of the new mortgages that are insured during a period. Many factors affect NIW, including, among others, the volume of low down payment home mortgage originations and the competition to provide credit enhancement on those mortgages;

    Cancellations of our insurance policies, which are impacted by payments on mortgages, home price appreciation, or refinancings, which in turn are affected by mortgage interest rates. Cancellations are also impacted by the levels of rescissions and claim payments;

    Premium rates, which represent the amount of the premium due as a percentage of IIF. Premium rates are based on the risk characteristics of the loans insured, the percentage of coverage on the loans, competition from other mortgage insurers and general industry conditions; and

    Premiums ceded or assumed under reinsurance arrangements. To date, we have not entered in to any reinsurance contracts.

          Premiums are paid either on a monthly installment basis ("monthly premiums"), in a single payment at origination ("single premiums"), or in some cases as an annual premium. For monthly premiums, we receive a monthly premium payment which is recorded as net premiums earned in the month the coverage is provided. Net premiums written may be in excess of net premiums earned due to single premium policies. For single premiums, we receive a single premium payment at origination, which is recorded as "unearned premium" and earned over the estimated life of the policy, which ranges from 36 to 156 months depending on the term of the underlying mortgage and loan-to-value ratio at date of origination. If single premium policies are cancelled due to repayment of the underlying loan and the premium is non-refundable, the remaining unearned premium balance is immediately recognized as earned premium revenue. Substantially all of our single premium policies in force as of June 30, 2013 were non-refundable. Premiums collected on an annual basis are recognized as net premiums earned on a straight line basis over the year of coverage. For the six months ended June 30, 2013, monthly and single premium policies comprised 80.3% and 19.7% of our NIW, respectively.

    Persistency and Business Mix

          The percentage of IIF that remains on our books after any 12-month period is defined as our persistency rate. Because our insurance premiums are earned over the life of a policy, higher persistency rates can have a significant impact on our profitability. The persistency rate on our portfolio was 80.1% at June 30, 2013. Generally, higher prepayment speeds lead to lower persistency.

          Prepayment speeds and the relative mix of business between single premium policies and monthly premium policies also impact our profitability. Our premium rates include certain assumptions regarding repayment or prepayment speeds of the mortgages. Because premiums are paid at origination on single premium policies, assuming all other factors remain constant, if loans are prepaid earlier than expected, our profitability on these loans is likely to increase and, if loans are repaid slower than expected, our profitability on these loans is likely to decrease. By contrast, if monthly premium loans are repaid earlier than anticipated, our premium earned with respect to those loans and therefore our profitability declines. Currently, the expected return on single premium policies is less than the expected return on monthly policies.

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    Net Investment Income

          Our investment portfolio was comprised entirely of investment grade fixed income securities and money market investments, as of June 30, 2013. The principal factors that influence investment income are the size of the investment portfolio and the yield. As measured by amortized cost (which excludes changes in fair market value, such as from changes in interest rates), the size of our investment portfolio is mainly a function of capital contributions and cash generated from or used in operations which is impacted by net premiums received, investment earnings, net claim payments and expenses. Realized gains and losses are a function of the difference between the amount received on the sale of a security and the security's amortized cost, as well as any "other than temporary" impairments recognized in earnings. The amount received on the sale of fixed income securities is affected by the coupon rate of the security compared to the yield of comparable securities at the time of sale.

    Other Income

          In connection with the acquisition of our mortgage insurance platform, we entered into a services agreement with Triad to provide certain information technology maintenance and development and customer support-related services. In return for these services, we receive a fee which is recorded in other income. From the period from December 1, 2009 to November 30, 2010, this fee was based on a fixed amount. Effective December 1, 2010, the fee is adjusted monthly based on the number of Triad's MI policies in force and, accordingly, will decrease over time as Triad's existing policies are cancelled. The services agreement provides for a minimum monthly fee of $150,000 for the duration of the services agreement. The services agreement expires on November 30, 2014 and provides for two subsequent five year renewals at Triad's option. See note 6 to our audited consolidated financial statements.

          Other income also includes revenues associated with contract underwriting services. The level of contract underwriting revenue is dependent upon the number of customers who have engaged us for this service and the number of loans underwritten for these customers.

    Provision for Losses and Loss Adjustment Expenses

          The provision for losses and loss adjustment expenses reflect the current expense that is recorded within a particular period to reflect actual and estimated loss payments that we believe will ultimately be made as a result of insured loans that are in default.

          Losses incurred are generally affected by:

    the overall state of the economy, which broadly affects the likelihood that borrowers may default on their loans and have the ability to cure such defaults;

    changes in housing values, which affect our ability to mitigate our losses through the sale of properties with loans in default as well as borrower willingness to continue to make mortgage payments when the value of the home is below or perceived to be below the mortgage balance;

    the product mix of IIF, with loans having higher risk characteristics generally resulting in higher defaults and claims;

    the size of loans insured, with higher average loan amounts tending to increase losses incurred;

    the loan-to-value ratio, with higher average loan-to-value ratios tending to increase losses incurred;

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    the percentage of coverage on insured loans, with deeper average coverage tending to increase losses incurred;

    credit quality of borrowers, including higher debt-to-income ratios and lower FICO scores, which tend to increase incurred losses;

    the rate at which we rescind policies. Because of tighter underwriting standards generally in the mortgage lending industry and terms set forth in our Clarity of Coverage master policy endorsement, we expect that our level of rescission activity will be lower than recent rescission activity seen in the MI industry; and

    the distribution of claims over the life of a book. The average age of our insurance portfolio is young with 90% of our IIF as of June 30, 2013 having been originated since January 1, 2012. As a result, based on historical industry performance, we expect the number of defaults and claims we experience, as well as our provision for losses and loss adjustment expenses, to increase as our portfolio seasons. See "— Mortgage Insurance Earnings and Cash Flow Cycle" below.

          We establish loss reserves for delinquent loans when we are notified that a borrower has missed at least two consecutive monthly payments ("Case Reserves"), as well as estimated reserves for defaults that may have occurred but not yet been reported to us ("IBNR Reserves"). We also establish reserves for the associated loss adjustment expenses ("LAE"), consisting of the estimated cost of the claims administration process, including legal and other fees. Using both internal and external information, we establish our reserves based on the likelihood that a default will reach claim status and estimated claim severity. See "— Critical Accounting Policies" for further information.

          We believe, based upon our experience and industry data, that claims incidence for mortgage insurance is generally highest in the third through sixth years after loan origination. As of June 30, 2013, 45% of our IIF relates to business written during the first six months of 2013 and substantially all of our policies in force are less than three years old. Although the claims experience on new insurance written by us to date has been favorable to date, we expect incurred losses and claims to increase as a greater amount of this book of insurance reaches its anticipated period of highest claim frequency. The actual default rate and the average reserve per default that we experience as our portfolio matures is difficult to predict and is dependent on the specific characteristics of our current in-force book (including the credit score of the borrower, the loan to value ratio of the mortgage, geographic concentrations, etc.), as well as the profile of new business we write in the future. In addition, the default rate and the average reserve per default will be affected by future macroeconomic factors such as housing prices, interest rates and employment.

    Other Underwriting and Operating Expenses

          Our other underwriting and operating expenses include components that are substantially fixed, as well as expenses that generally increase or decrease in line with the level of NIW.

          Our most significant expense is compensation and benefits for our employees, which represented 65% of other underwriting and operating expenses for the six months ended June 30, 2013 and 52%, 49% and 51% of other underwriting and operating expenses for the years ended December 31, 2012, 2011 and 2010, respectively. Compensation and benefits expense has steadily increased each period since 2010 as we have increased our staffing from 68 employees at January 1, 2010 to 259 at June 30, 2013, primarily in our business development and operations functions to support the growth of our business. From January 1, 2010 to June 30, 2013, we grew our sales organization from 2 employees to 52 employees, which contributed to the growth of our

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active customers and NIW, and also expanded our underwriting and customer service teams from 9 employees to 96 to support this new business.

          Depreciation and amortization expense represented 4% of other underwriting and operating expenses for the six months ended June 30, 2013 and 25%, 28% and 20% of other underwriting and operating expenses for the years ended December 31, 2012, 2011 and 2010, respectively. A significant portion of the depreciation expense recorded during these periods related to the assets acquired from Triad for $30 million in cash and the assumption of certain contractual obligations. The purchase price of the assets acquired from Triad was allocated primarily to acquired technology (94%) and workforce-in-place (4%) and is being amortized to expense on a straight-line basis over 36 months and 48 months, respectively, from the date of acquisition. The acquired technology component of the purchase price was fully depreciated as of November 30, 2012 and, accordingly, depreciation and amortization expense will decline in 2013 compared to prior periods.

          Underwriting and other expenses also include legal, consulting, other professional fees, premium taxes, travel, entertainment, marketing, licensing, supplies, hardware, software, rent, utilities and other expenses.

          We anticipate that as we continue to add customers and increase our IIF, our expenses will also continue to increase. In addition, as a result of the increase in our IIF, we expect that our net premiums earned will grow faster than our underwriting and other expenses resulting in a decline in our expense ratio. Subsequent to completion of the offering, we expect to incur incremental costs related to being a public company, including certain operating and compensation expenses.

    Income Taxes

          Income taxes are incurred based on the amount of earnings or losses generated in the jurisdictions in which we operate and the applicable tax rates and regulations in those jurisdictions. To date, substantially all of our business activity has been conducted in the United States where we are subject to corporate level Federal income taxes. Our U.S. insurance subsidiaries are generally not subject to income taxes in the states in which we operate; however, our non-insurance subsidiaries are subject to state income taxes. In lieu of state income taxes, our insurance subsidiaries pay premium taxes that are recorded in other underwriting and operating expenses. The amount of income tax expense or benefit recorded in future periods will be dependent on the jurisdictions in which we operate and the tax laws and regulations in effect.

          Essent Group Ltd. and its wholly owned subsidiary, Essent Re, are domiciled in Bermuda, which does not have a corporate income tax. To date, these entities have incurred expenses and generated limited amounts of investment income.

          Since inception and prior to June 30, 2013, we recorded a valuation allowance against deferred tax assets, and as such, we generally did not record a benefit associated with the losses incurred in prior periods or other income tax benefits. The income tax provision or benefit recognized in prior periods related to changes in our valuation allowance associated with changes in deferred tax liabilities resulting from the increase or decrease in the unrealized gain on our investment portfolio. At June 30, 2013, after weighing all the evidence, we concluded that it is more likely than not that our deferred tax assets will be realized. As a result, we have released the valuation allowance on our deferred tax assets as of June 30, 2013, except for amounts that will be released against income before income taxes for the remainder of the year. The release of the valuation allowance resulted in the recognition of $10.0 million as a benefit for Federal income taxes in the second quarter of 2013. Starting in 2014, we expect that our effective tax rate will approach the statutory tax rate.

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    Mortgage Insurance Earnings and Cash Flow Cycle

          In general, the majority of any underwriting profit (premium revenue minus losses) that a book generates occurs in the early years of the book, with the largest portion of any underwriting profit realized in the first year. Subsequent years of a book generally result in modest underwriting profit or underwriting losses. This pattern generally occurs because relatively few of the claims that a book will ultimately experience typically occur in the first few years of the book, when premium revenue is highest, while subsequent years are affected by declining premium revenues, as the number of insured loans decreases (primarily due to loan prepayments), and increasing losses.

Key Performance Indicators

    Insurance In Force

          As discussed above, premiums we collect and earn are generated based on our IIF, which is a function of our NIW and cancellations. From May 2010, when we first began writing policies, through June 30, 2013, we have increased our NIW. We have also grown the number of customers who have approved us to provide mortgage insurance over this period, as well as increased our share of NIW from certain customers over time. The following table includes a summary of the change in our IIF for the six months ended June 30, 2013 and 2012 and the years ended December 31, 2012, 2011 and 2010. In addition, this table includes our RIF at the end of each period and the number of customers that purchased MI during each respective period.

 
  Six Months Ended
June 30,
  Year Ended December 31,  
($ thousands)
 
2013
 
2012
 
2012
 
2011
 
2010
 

IIF, beginning of period

  $ 13,628,980   $ 3,376,708   $ 3,376,708   $ 244,968   $  

NIW

    10,216,683     3,621,424     11,241,161     3,229,720     245,898  

Cancellations

    (1,269,363 )   (229,466 )   (988,889 )   (97,980 )   (930 )
                       

IIF, end of period

  $ 22,576,300   $ 6,768,666   $ 13,628,980   $ 3,376,708   $ 244,968  
                       

Average IIF during the period

  $ 17,753,344   $ 4,858,954   $ 7,581,042   $ 1,397,224   $ 64,264  

RIF, end of period

 
$

5,348,917
 
$

1,596,691
 
$

3,221,631
 
$

777,460
 
$

53,561
 

Number of Customers generating NIW during the period

   
557
   
262
   
463
   
134
   
13
 

          Our cancellation activity is relatively low because the average age of our insurance portfolio is young. Following is a summary of our IIF at June 30, 2013 by vintage:

($ in thousands)
 
$
 
%
 

2013 (through June 30)

  $ 10,085,910     45 %

2012

    10,287,399     45  

2011

    2,071,477     9  

2010

    131,514     1  
           

  $ 22,576,300     100 %
           

    Average Premium Rate

          Our average premium rate is dependent on a number of factors, including: (1) the risk characteristics and average coverage on the mortgages we insure; (2) the mix of monthly premiums

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compared to single premiums in our portfolio; (3) cancellations of non-refundable single premiums during the period; and (4) changes to our pricing.

          The following table outlines our average premium rate, which reflects net premium earned as a percentage of average IIF, calculated on an annualized basis for interim periods, for the periods presented:

 
  Six Months Ended
June 30,
  Year Ended December 31,  
($ thousands)
 
2013
 
2012
 
2012
 
2011
 
2010
 

Net premiums earned

  $ 48,745   $ 13,515   $ 41,793   $ 8,179   $ 210  

Average IIF during the period

  $ 17,753,344   $ 4,858,954   $ 7,581,042   $ 1,397,224   $ 64,264  

Average premium rate

    0.55 %   0.56 %   0.55 %   0.59 %   0.56 %

    Persistency Rate

          The measure for assessing the impact of policy cancellations on IIF is our persistency rate, defined as the percentage of IIF that remains on our books after any twelve-month period. See additional discussion regarding the impact of the persistency rate on our performance in "— Factors Affecting Our Results of Operations — Persistency and Business Mix."

    Risk to Capital

          The risk to capital ratio is frequently used as a measure of capital adequacy in the mortgage insurance industry and is calculated as a ratio of net risk in force to statutory capital. Net risk in force represents total risk in force net of reinsurance ceded and net of exposures on policies for which loss reserves have been established. Statutory capital is computed based on accounting practices prescribed or permitted by the Pennsylvania Insurance Department. See additional discussion in "— Liquidity and Capital Resources — Risk to Capital."

          As of June 30, 2013, our combined net risk in force was $5.3 billion and our combined statutory capital was $356.2 million resulting in a risk to capital ratio of 15.0 to 1. The amount of capital required varies in each jurisdiction in which we operate; however, generally, the maximum permitted risk to capital ratio is 25.0 to 1. As a condition to its approval from Freddie Mac, until December 31, 2013 Essent Guaranty is required to maintain a risk-to-capital ratio of no greater than 20.0:1. State insurance regulators and the GSEs are currently examining their respective capital rules to determine whether, in light of the recent financial crisis, changes are needed to more accurately assess mortgage insurers' ability to withstand stressful economic conditions. As a result, the capital metrics under which they assess and measure capital adequacy may change in the future. Independent of the state regulator and GSE capital requirements, management continually assesses the risk of our insurance portfolio and current market and economic conditions to determine the appropriate levels of capital to support our business.

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Results of Operations

          The following table sets forth our results of operations for the periods indicated:

 
  Six Months Ended
June 30,
   
   
   
 
 
  Year Ended December 31,  
Summary of Operations
($ in thousands)
 
 
2013
 
2012
 
2012
 
2011
 
2010
 

Revenues:

                               

Net premiums written

  $ 78,296   $ 22,731   $ 72,668   $ 17,865   $ 219  

Increase in unearned premiums

    (29,551 )   (9,216 )   (30,875 )   (9,686 )   (9 )
                       

Net premiums earned

    48,745     13,515     41,793     8,179     210  

Net investment income

    1,744     998     2,269     1,169     214  

Realized investment gains, net

    93     104     143     364     13  

Other income

    2,013     2,150     4,511     4,676     5,863  
                       

Total revenues

    52,595     16,767     48,716     14,388     6,300  
                       

Losses and expenses:

                               

Provision for losses and LAE

    1,310     646     1,466     57      

Other underwriting and operating expenses

    30,519     28,950     61,126     48,781     33,928  
                       

Total losses and expenses

    31,829     29,596     62,592     48,838     33,928  
                       

Income (loss) before income taxes

    20,766     (12,829 )   (13,876 )   (34,450 )   (27,628 )

Income tax benefit

    (10,011 )   (307 )   (333 )   (895 )   (54 )
                       

Net income (loss)

  $ 30,777   $ (12,522 ) $ (13,543 ) $ (33,555 ) $ (27,574 )
                       

Six Months Ended June 30, 2013 Compared to the Six Months Ended June 30, 2012

          For the six months ended June 30, 2013, we reported net income of $30.8 million, compared to a net loss of $12.5 million for the six months ended June 30, 2012. The increase in our operating results in the first six months of 2013 over the same period in 2012 was primarily due to an increase in net premiums earned associated with the growth of our IIF and an increase in net investment income as well as the income tax benefit recorded due to the reversal of our valuation allowance against deferred tax assets, partially offset by increases in other underwriting and operating expenses and the provision for losses and loss adjustment expenses.

    Net Premiums Written and Earned

          Net premiums written and earned increased in the six months ended June 30, 2013 by 244% and 261%, respectively, compared to the six months ended June 30, 2012 primarily due to the increase in our average IIF from $4.9 billion in the first half of 2012 to $17.8 billion in the first half of 2013.

          In the six months ended June 30, 2013, unearned premiums increased by $29.6 million as a result of net premiums written on single premium policies of $36.5 million which was partially offset by $6.9 million of unearned premium that was recognized in earnings during the period. In the six months ended June 30, 2012, unearned premiums increased by $9.2 million as a result of net premiums written on single premium policies of $10.6 million partially offset by $1.4 million of unearned premium that was recognized in earnings during the period.

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    Net Investment Income

          Our net investment income was derived from the following sources for the period indicated:

 
  Six Months
Ended
June 30,
 
($ in thousands)
 
2013
 
2012
 

Fixed maturities

  $ 2,024   $ 1,163  

Short-term investments

    4     10  
           

Gross investment income

    2,028     1,173  

Investment expenses

    (284 )   (175 )
           

Net investment income

  $ 1,744   $ 998  
           

          The increase in net investment income to $1.7 million for the six months ended June 30, 2013 as compared to $1.0 million for the six months ended June 30, 2012 is primarily due to an increase in the size of our investment portfolio as a result of capital contributions from our investors and cash flows generated from operations. The average cash and investment portfolio balance was $325.9 million and $189.7 million during the six months ended June 30, 2013 and 2012, respectively. The pre-tax investment income yield was 1.2% in each of the six month periods ended June 30, 2013 and 2012. The pre-tax investment income yields are calculated based on amortized cost. See "— Liquidity and Capital Resources" for further details of our investment portfolio.

    Other Income

          Other income includes fees earned for information technology and customer support services provided to Triad and contract underwriting revenues. The decline in other income for the six months ended June 30, 2013 compared to the same period in 2012 is primarily due to a reduction in the number of Triad's MI policies in force. This fee will continue to decrease over time as Triad's existing policies are cancelled. Contract underwriting revenue increased to $0.4 million in the six months ended June 30, 2013 from $0.2 million in the first six months ended June 30, 2012 primarily due to an increase in the number of customers using the service.

    Provision for Losses and Loss Adjustment Expenses

          The increase in the provision for losses and LAE was primarily due to an increase in the number of insured loans in default partially offset by previously identified defaults that cured and paid claims.

          The following table presents a roll forward of insured loans in default for the periods indicated:

 
  Six Months
Ended
June 30,
 
 
 
2013
 
2012
 

Beginning default inventory

    56     3  

Plus: new defaults

    135     33  

Less: cures

    (95 )   (15 )

Less: claims paid

    (6 )    
           

Ending default inventory

    90     21  
           

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          The increase in the number of defaults at June 30, 2013 compared to June 30, 2012 is primarily due to an increase in our IIF and policies in force and a marginal increase in the default rate driven by an increase in the average age of the insurance portfolio.

          The following table includes additional information about our loans in default as of the dates indicated:

 
  As of June 30,  
 
 
2013
 
2012
 

Case reserves (in thousands)

  $ 2,315   $ 655  

Ending default inventory

    90     21  

Average reserve per default

  $ 25,725   $ 31,202  

Default rate

    0.09 %   0.07 %

Claims received included in ending default inventory

   
3
   
 

          The decrease in the average reserve per default is primarily due to changes in the composition (such as mark-to-market loan to value ratios, risk in force, and number of months past due) of the underlying loans in default. The primary factor contributing to the decrease in the average reserve per default from June 30, 2012 to June 30, 2013 is a decrease in the average RIF of the default inventory.

          The following tables provide a reconciliation of the beginning and ending reserve balances for losses and LAE and a detail of reserves and defaulted RIF by the number of missed payments and pending claims.

 
  As of
June 30,
 
($ in thousands)
 
2013
 
2012
 

Reserve for losses and LAE at beginning of year

  $ 1,499   $ 57  

Add provision for losses and LAE occurring in:

             

Current year

    1,435     703  

Prior years

    (125 )   (57 )
           

Incurred losses during the current period

    1,310     646  
           

Deduct payments for losses and LAE occurring in:

             

Current year

    4     1  

Prior years

    257      
           

Loss and LAE payments during the current period

    261     1  
           

Reserve for losses and LAE at end of period

  $ 2,548   $ 702  
           

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  As of June 30, 2013  
($ in thousands)
 
Number of
Policies in
Default
 
Percentage of
Policies in
Default
 
Amount of
Reserves
 
Percentage of
Reserves
 
Defaulted
RIF
 
Reserves as a
Percentage of
RIF
 

Missed payments:

                                     

Three payments or less

    49     55 % $ 740     32 % $ 2,559     29 %

Four to eleven payments

    34     38     1,154     50     1,762     66  

Twelve or more payments

    4     4     215     9     287     75  

Pending claims

    3     3     206     9     196     105  
                             

Total

    90     100 % $ 2,315     100 % $ 4,804     48 %
                             

IBNR

                174                    

LAE and other

                59                    
                                     

Total reserves

              $ 2,548                    
                                     

 

 
  As of June 30, 2012  
($ in thousands)
 
Number of
Policies in
Default
 
Percentage of
Policies in
Default
 
Amount of
Reserves
 
Percentage of
Reserves
 
Defaulted
RIF
 
Reserves as a
Percentage of
RIF
 

Missed payments:

                                     

Three payments or less

    10     48 % $ 220     34 % $ 630     35 %

Four to eleven payments

    9     43     413     63     526     78  

Twelve or more payments

    2     9     22     3     41     54  

Pending claims

                         
                             

Total

    21     100 % $ 655     100 % $ 1,197     55 %
                             

IBNR

                33                    

LAE and other

                14                    
                                     

Total reserves

              $ 702                    
                                     

          During the six-month period ended June 30, 2013, the provision for losses and LAE was $1.3 million, comprised of $1.4 million of current year loss development partially offset by $0.1 million of favorable prior years' loss development. During the six-month period ended June 30, 2012, the provision for losses and LAE was $0.6 million, comprised of $0.7 million of current year loss development partially offset by favorable prior years' loss development of $0.1 million. In both periods, the favorable prior years' loss development is the result of a re-estimation of amounts ultimately to be paid on prior year defaults in the default inventory.

          During the six-month period ended June 30, 2013, we paid 6 claims for a total amount of $0.2 million. We paid no claims during the six months ended June 30, 2012.

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    Other Underwriting and Operating Expenses

          Following are the components of our other underwriting and operating expenses for the periods indicated:

 
  Six Months Ended June 30,  
 
  2013   2012  
($ in thousands)
 
$
 
%
 
$
 
%
 

Compensation and benefits

  $ 19,990     65 % $ 15,328     53 %

Depreciation and amortization

    1,105     4     8,005     28  

Other

    9,424     31     5,617     19  
                   

  $ 30,519     100 % $ 28,950     100 %
                   

Number of employees at end of period

    259           184        

          Other underwriting and operating expenses increased to $30.5 million in the six months ended June 30, 2013 as compared to $29.0 million in the six months ended June 30, 2012. The significant factors contributing to the change in other underwriting and operating expenses are:

    Compensation and benefits increased primarily due to the increase in our work force to 259 at June 30, 2013 from 184 at June 30, 2012. Additional employees were hired to support the growth in our business, particularly in our sales organization, as well as our underwriting and customer service teams. Compensation and benefits is composed of cash compensation, including salaries, wages and bonus, stock compensation expense, benefits and payroll taxes.

    Depreciation and amortization expense decreased in 2013 compared to 2012 as the substantial majority of the assets acquired from Triad were fully depreciated as of November 30, 2012. Depreciation expense associated with these assets during the six months ended June 30, 2012 was $6.6 million.

    Other expenses, including premium taxes, travel, marketing, hardware, software, rent and other facilities expenses, increased as a result of the expansion of our business.

    Income Taxes

          Our subsidiaries in the United States file a consolidated U.S. Federal income tax return. Our income tax benefit was $10.0 million and $0.3 million for the six months ended June 30, 2013 and 2012, respectively. Our effective tax rate was (48.2)% and (2.4)% for the six months ended June 30, 2013 and 2012, respectively. Since inception and prior to June 30, 2013, we had evaluated the realizability of our deferred tax assets on a quarterly basis and concluded that it was more likely than not that some portion or all of the deferred tax asset would not be realized and provided a valuation allowance against the deferred tax assets. Accordingly, we did not record a benefit associated with the losses incurred in prior periods or for other income tax benefits. The income tax provision or benefit recognized in prior periods related to changes in our valuation allowance associated with changes in deferred tax liabilities relating to the change in the unrealized gain on our investment portfolio. At June 30, 2013, we concluded that it is more likely than not that our deferred tax assets will be realized. As a result, we have released the valuation allowance on our deferred tax assets as of June 30, 2013 except for amounts that will be reversed as an income tax benefit over the remainder of the year in accordance with Accounting Standard Codification ("ASC") 740-270. The release of the valuation allowance resulted in the recognition of $10.0 million as a benefit for income taxes in the second quarter of 2013.

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          The positive evidence that weighed in favor of releasing the allowance as of June 30, 2013 and ultimately outweighed the negative evidence against releasing the allowance was the following:

    the substantial growth in our IIF which has driven the increase in net premiums earned experienced in 2012 and through June 30, 2013;

    our increasing level of profitability in the fourth quarter of 2012 and the first two quarters of 2013 and our expectations regarding the sustainability of these profits;

    our expectation that we will be in a three-year cumulative income position in 2013;

    the strong credit profile of the loans we have insured since we began to issue MI policies in 2010;

    the size of our IIF and our contractual rights for future premiums from this book of business;

    our taxable income for 2012 and our expectations regarding the likelihood of future taxable income; and

    our current net operating loss carryforwards will be fully utilized in 2013

          Our determination of the amount of deferred tax asset valuation allowance to reverse as of June 30, 2013 was based on the guidance in ASC 740-270 regarding accounting for income taxes in interim periods. This guidance distinguishes between amounts that are recognized through the use of an estimated annual effective tax rate applied to year-to-date operating results and specific events that are discretely recognized as they occur. Under ASC 740-270, the tax benefit of an operating loss carryforward from prior years shall be included in the effective tax rate computation if the tax benefit is expected to be realized as a result of ordinary income in the current year. Otherwise, the tax benefit shall be recognized in each interim period to the extent that income in the period and for the year to date is available to offset the operating loss carryforward or, in the case of a change in judgment about realizability of the related deferred tax asset in future years, the effect shall be recognized in the interim period in which the change occurs. We estimated our pretax income for the year to determine the amount of tax benefit that was expected to be realized from ordinary income in 2013 and that amount was used to reduce tax expense from continuing operations to zero. The remainder of the tax benefit resulted from a change in estimate of future years' income and was recognized as a discrete benefit in the six months ended June 30, 2013. At June 30, 2013, the remaining valuation allowance was $11.4 million and we expect that it will be reversed as an income tax benefit throughout the remaining quarters of 2013 until that amount is reduced to zero as of December 31, 2013. The timing of the reduction of this remaining valuation allowance will be determined by the timing of our estimated income recognition for 2013.

          Income before income taxes recorded in the remainder of 2013 may be greater or less than our current estimate. If income before income taxes recorded for the remainder of 2013 is greater than our current estimate, we will recognize a provision for income taxes in subsequent periods of 2013. Conversely, if income before income taxes recorded for the remainder of 2013 is lower than our current estimate, we will recognize an additional benefit for income taxes in subsequent periods of 2013. Starting in 2014, we expect that our effective tax rate will approach the statutory tax rate.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

          For the years ended December 31, 2012 and 2011, we reported net losses of $13.5 million and $33.6 million, respectively. The reduction in our net loss in 2012 compared to 2011 was primarily due to an increase in net premiums earned and net investment income, partially offset by increases in other underwriting and operating expenses and the provision for losses and LAE.

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    Net Premiums Written and Earned

          Net premiums written and earned increased in the year ended December 31, 2012 by 307% and 411%, respectively, compared to the year ended December 31, 2011 primarily due to the increase in our average IIF to $7.6 billion for the year ended December 31, 2012 from $1.4 billion for the year ended December 31, 2011. The favorable impact of the increase in IIF on net premium earned was partially offset by a reduction in the average premium rate from 0.59% in 2011 to 0.55% in 2012.

          During the year ended December 31, 2012, unearned premiums increased to $30.9 million as a result of net premiums written on single premium policies of $35.7 million partially offset by $4.8 million of unearned premium that was recognized in earnings during the year. During the year ended December 31, 2011, unearned premiums increased by $9.7 million as a result of net premiums written on single premium policies of $10.3 million partially offset by $0.6 million of unearned premium that was recognized during the year.

    Net Investment Income

          The components of net investment income were derived from the following sources:

 
  Year Ended
December 31,
 
($ in thousands)
 
2012
 
2011
 

Fixed maturities

  $ 2,632   $ 1,447  

Short-term investments

    14     92  
           

Gross investment income

    2,646     1,539  

Investment expenses

    (377 )   (370 )
           

Net investment income

  $ 2,269   $ 1,169  
           

          The increase in net investment income during the year ended December 31, 2012 as compared to the year ended December 31, 2011 is primarily due to an increase in the size of our investment portfolio as a result of capital contributions from our investors and cash flows generated from operations, as well as an increase in the pre-tax investment income yield. The average cash and investment portfolio balance was $214.0 million and $179.2 million in 2012 and 2011, respectively. The pre-tax investment income yield increased from 0.86% in 2011 to 1.2% in 2012. The increase in the pre-tax investment income is primarily due to a decrease in the portion of the portfolio invested in U.S. Treasury and Agency bonds and an increase in the allocation to higher yielding investment grade corporate, municipal and asset backed securities and an extension of the portfolio duration from 2.3 years at December 31, 2011 to 3.1 years at December 31, 2012.

    Other Income

          Other income includes fees earned for information technology and customer support services provided to Triad and contract underwriting revenues. The decline in other income is primarily due to the decline in service fee income from Triad of $4.7 million in 2011 to $3.8 million in 2012 as a result of a reduction in Triad's MI policies in force. This fee will continue to decline in future periods as Triad's existing policies are cancelled. Offsetting the decrease in service fee income from Triad is a increase in contract underwriting revenue to $0.7 million in the year ended December 31, 2012 from less than $0.1 million in the year ended December 31, 2011 primarily due to an increase in the number of customers using the service.

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    Provision for Losses and Loss Adjustment Expenses

          The provision for loss and LAE increased from $0.1 million in 2011 to $1.5 million in 2012 because of an increase in the number of new insured loans in default partially offset by previously identified defaults that cured.

          The following table presents a roll forward of insured loans in default for the periods indicated:

 
  Year Ended
December 31,
 
 
 
2012
 
2011
 

Beginning default inventory

    3      

Plus: new defaults

    117     6  

Less: cures

    (63 )   (3 )

Less: claims paid

    (1 )    
           

Ending default inventory

    56     3  
           

          The increase in the number of defaults at December 31, 2012 compared to December 31, 2011 is primarily due to an increase in our IIF and policies in force and an increase in the average age of the insurance portfolio.

          The following tables include additional information about our loans in default as of the dates indicated:

 
  As of
December 31,
 
 
 
2012
 
2011
 

Case reserves (in thousands)

  $ 1,393   $ 56  

Ending default inventory

    56     3  

Average direct reserve per default

  $ 24,860   $ 18,515  

Default rate

    0.09 %   0.02 %

Claims received included in ending default inventory

   
3
   
 

          The increase in the average reserve per default is primarily due to changes in the composition (such as mark-to-market loan to value ratios, risk in force, and number of months past due) of the underlying loans in default. The primary factor contributing to the increase in the average reserve per default from December 31, 2011 to December 31, 2012 is an increase in the average RIF of the default inventory.

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          The following tables provide a reconciliation of the beginning and ending reserve balances for losses and LAE and a detail of reserves and defaulted RIF by the number of missed payments and pending claims.

 
  As of
December 31,
 
($ in thousands)
 
2012
 
2011
 

Reserve for losses and LAE at beginning of year

  $ 57   $  

Add provision for losses and LAE occurring in:

             

Current year

    1,523     57  

Prior years

    (57 )    
           

Incurred losses during the current year

    1,466     57  
           

Deduct payments for losses and LAE occurring in:

             

Current year

    24      

Prior years

         
           

Loss and LAE payments during the current year

    24      
           

Reserve for losses and LAE at end of year

  $ 1,499   $ 57  
           

 

 
  As of December 31, 2012  
($ in thousands)
 
Number
of Policies
in Default
 
Percentage
of Policies
in Default
 
Amount
of Reserves
 
Percentage
of Reserves
 
Defaulted
RIF
 
Reserves as a
Percentage of
RIF
 

Missed payments:

                                     

Three payments or less

    30     54 % $ 391     28 % $ 1,335     29 %

Four to eleven payments

    19     34     689     49     948     73  

Twelve or more payments

    4     7     132     10     184     72  

Pending claims

    3     5     181     13     168     108  
                             

Total

    56     100 % $ 1,393     100 % $ 2,635     53 %
                             

IBNR

                70                    

LAE and other

                36                    
                                     

Total reserves

              $ 1,499                    
                                     

 

 
  As of December 31, 2011  
($ in thousands)
 
Number
of Policies
in Default
 
Percentage
of Policies in
Default
 
Amount
of Reserves
 
Percentage
of Reserves
 
Defaulted
RIF
 
Reserves as a
Percentage of
RIF
 

Missed payments:

                                     

Three payments or less

    1     33 % $ 56     100 % $ 56     100 %

Four to eleven payments

    2     67             96      

Twelve or more payments

                         

Pending claims

                         
                             

Total

    3     100.0 % $ 56     100 % $ 152     36 %
                             

IBNR

                                   

LAE and other

                1                    
                                     

Total reserves

              $ 57                    
                                     

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          During the year ended December 31, 2012, the provision for losses and LAE was $1.5 million, comprised of $1.6 million of current year loss development partially offset by $0.1 million of favorable prior years' loss development, as a result of a re-estimation of amounts to be paid on prior year defaults in the default inventory. During the year ended December 31, 2011, net losses incurred were $0.1 million, comprised solely of current year loss development. Given the small number of defaults in 2011, management established case reserves based upon a specific review of each loan in default and considering factors such as subsequent performance and policy deductibles.

          During the year ended December 31, 2012, we paid one claim for approximately $18,000. We paid no claims during 2011.

    Other Underwriting and Operating Expenses

          Following are the components of our other underwriting and operating expenses for the periods indicated:

 
  Year Ended December 31,  
 
  2012   2011  
($ in thousands)
 
$
 
%
 
$
 
%
 

Compensation and benefits

  $ 31,624     52 % $ 24,011     49 %

Depreciation and amortization

    15,156     25     13,591     28  

Other

    14,346     23     11,179     23  
                   

  $ 61,126     100 % $ 48,781     100 %
                   

Number of employees at end of period

    209           157        

          Other underwriting and operating expenses increased to $61.1 million during the year ended December 31, 2012 as compared to $48.8 million for the year ended December 31, 2011. The significant factors contributing to the change in other underwriting and operating expenses are:

    Compensation and benefits increased due to the increase in our work force to 209 at December 31, 2012 from 157 employees at December 31, 2011. Additional employees were hired to support the growth in our business, particularly in our sales organization, as well as our underwriting and customer service teams. Compensation and benefits is composed of cash compensation, including salaries, wages and bonus, stock compensation expense, benefits and payroll taxes.

    Depreciation and amortization expense increased in 2012 compared to 2011 primarily due to an increase in the depreciation on the assets acquired from Triad as well as depreciation and amortization for additional property and equipment acquired.

    Other expenses, including premium taxes, travel, marketing, hardware, software, rent and other facilities expenses, increased as a result of the expansion of our business.

    Income Taxes

          Our subsidiaries in the United States file a consolidated U.S. Federal income tax return. Our income tax benefit was $0.3 million and $0.9 million for the years ended December 31, 2012 and 2011, respectively. Our effective tax rate was (2.4)% and (2.6)% for the years ended December 31, 2012 and 2011, respectively. As of December 31, 2012 and 2011, and the years then ended, we had a full valuation allowance recorded against deferred tax assets.

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Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

          For the years ended December 31, 2011 and 2010, we reported net losses of $33.6 million and $27.6 million, respectively. The increase in our net loss in 2011 compared to 2010 was primarily due to an increase in other underwriting and operating expenses and a reduction in other income, partially offset by increases in net premiums earned and net investment income.

    Net Premiums Written and Earned

          Net premiums written and earned increased in the year ended December 31, 2011 to $17.9 million and $8.2 million, respectively, compared to net written and earned premiums of $0.2 million during the year ended December 31, 2010 primarily due to the increase in our average IIF to $1.4 billion for the year ended December 31, 2011 from $64.3 million for the year ended December 31, 2010.

          The increase in the unearned premium reserve in 2011 over 2010 is due to net premium written on single premium policies during the year ended December 31, 2011 of $10.3 million partially offset by $0.6 million of unearned premium that was recognized during the period.

    Net Investment Income

          The components of net investment income were derived from the following sources:

 
  Year Ended
December 31,
 
($ in thousands)
 
2011
 
2010
 

Fixed maturities

  $ 1,447   $ 210  

Short-term investments

    92     270  
           

Gross investment income

    1,539     480  

Investment expenses

    (370 )   (266 )
           

Net investment income

  $ 1,169   $ 214  
           

          The increase in net investment income during the year ended December 31, 2011 as compared to the year ended December 31, 2010 is primarily due to the change in the mix of fixed income investments and an extension of the duration of the portfolio. As of December 31, 2010, the average cash and investment portfolio was composed of U.S. Treasury and Agency bonds and Agency MBS with a duration of 1.0 year. During 2011, we added investment grade corporate securities to the portfolio and increased the duration to 2.3 years, which resulted in an increase in the pre-tax investment income yield from 0.27% during 2010 to 0.86% in 2011. The average investment portfolio balance was $179.2 million and $181.0 million in 2011 and 2010, respectively.

    Other Income

          Other income principally includes fees earned for information technology and customer support services provided to Triad. Other income declined from $5.9 million in 2010 to $4.7 million in 2011 primarily due to the reduction in Triad's MI policies in force. Prior to December 1, 2010, the fee received was based on a fixed amount. Subsequent to December 1, 2010, the fee is adjusted monthly based on the number of Triad's MI policies in force and, accordingly, will decrease over time as Triad's existing policies are cancelled.

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    Provision for Losses and Loss Adjustment Expenses

          During 2011, we incurred 6 defaults, 3 of which subsequently cured, resulting in 3 defaults in inventory as of December 31, 2011 and a reserve for losses and loss adjustment expenses of $0.1 million. As of December 31, 2010, we had no loans in default. The increase in the number of defaults at December 31, 2011 is primarily due to an increase in our IIF and policies in force and an increase in the average age of the insurance portfolio. The average reserve per default at December 31, 2011 was $18,515.

 
  As of December 31, 2011  
($ in thousands)
 
Number
of Policies
in Default
 
Percentage
of Policies in
Default
 
Amount
of Reserves
 
Percentage
of Reserves
 
Defaulted
RIF
 
Reserves as a
Percentage of
RIF
 

Missed payments:

                                     

Three payments or less

    1     33 % $ 56     100 % $ 56     100 %

Four to eleven payments

    2     67             96      

Twelve or more payments

                         

Pending claims

                         
                             

Total

    3     100 % $ 56     100 % $ 152     36 %
                             

IBNR

                                   

LAE and other

                1                    
                                     

Total reserves

              $ 57                    
                                     

          During the year ended December 31, 2011, the provision for losses and LAE was $0.1 million, representing current year loss development as there were no loans in default in 2010 and, accordingly, no provision for losses and LAE was recorded during that period. Given the small number of defaults, management established case reserves based upon a specific review of each loan in default and considering factors such as subsequent performance and policy deductibles.

          We paid no claims during 2011 or 2010.

    Other Underwriting and Operating Expenses

          Other underwriting and operating expenses increased to $48.8 million during the year ended December 31, 2011 as compared to $33.9 million in the year ended December 31, 2010.

 
  Year Ended December 31,  
 
  2011   2010  
($ in thousands)
 
$
 
%
 
$
 
%
 

Compensation and benefits

  $ 24,011     49 % $ 17,337     51 %

Depreciation and amortization

    13,591     28     6,636     20  

Other

    11,179     23     9,955     29  
                   

  $ 48,781     100 % $ 33,928     100 %
                   

Number of employees at end of period

    157           103        

          The significant factors contributing to the change in other underwriting and operating expenses are:

    Compensation and benefits increased due to the increase in our work force to 157 at December 31, 2011 from 103 at December 31, 2010. Additional employees were hired to support the growth in our business, particularly in our sales organization, as well as our

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      underwriting and customer service teams. Compensation and benefits is composed of cash compensation, including salaries, wages and bonus, stock compensation expense, benefits and payroll taxes.

    Depreciation expense increased in 2011 compared to 2010 primarily due to the acquisition of the assets from Triad. On the date of acquisition, December 1, 2009, we recorded the purchase price associated with the fixed payments of $15 million and began to amortize these assets over 36 months. Effective March 31, 2011, we determined it was probable that we would pay the contingent payments and recorded the additional purchase price of $15 million and began amortization of this portion of the purchase price over the remaining depreciable life of 20 months. See note 6 to our audited consolidated financial statements.

    Other expenses, including premium taxes, travel, marketing, hardware, software, rent and other facilities expenses increased as a result of the expansion of our business, partially offset by a reduction in legal and consulting fees.

    Income Taxes

          The Company's subsidiaries in the United States file a consolidated U.S. Federal income tax return. The Company's income tax benefit was $0.9 million and $0.1 million for the years ended December 31, 2011 and 2010, respectively. Our effective tax rate was (2.6)% and (0.2)% for the years ended December 31, 2011 and 2010, respectively. As of December 31, 2011 and 2010, and the years then ended, we had a full valuation allowance recorded against our deferred tax assets.

Liquidity and Capital Resources

    Overview

          Our sources of funds consist primarily of:

    our investment portfolio and interest income on the portfolio;

    net premiums that we will receive from our existing IIF as well as policies that we write in the future; and

    capital contributions.

          Our obligations consist primarily of:

    claim payments under our policies; and

    the other costs and operating expenses of our business.

          As of June 30, 2013, we had substantial liquidity in addition to our investment portfolio, with $129.2 million of cash. Our cash position increased during the six months ended June 30, 2013 primarily as a result of $125 million in capital contributions received from our investors.

          As of June 30, 2013, our principal source of additional funding was equity contributions from our investors. Our current investors committed, subject to certain conditions, to make equity contributions to Essent in the amount of approximately $600.3 million. As of June 30, 2013, $438.3 million of this equity commitment had been drawn. The obligation of the current investors to make equity contributions to the Company will not continue following consummation of this offering. See "Certain Relationships and Related Party Transactions."

          Management believes that the Company has sufficient liquidity available both at the holding company and in its insurance and other operating subsidiaries to meet its operating cash needs and obligations and committed capital expenditures for the next 12 months.

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          While the Company and all of its subsidiaries are expected to have sufficient liquidity to meet all their expected obligations, additional capital may be required to meet any new capital requirements that are adopted by regulatory authorities or the GSEs, or to provide additional capital related to the growth of our risk in force in our insurance portfolio, or to fund new business initiatives.

          At the operating subsidiary level, liquidity could be impacted by any one of the following factors:

    significant decline in the value of our investments;

    inability to sell investment assets to provide cash to fund operating needs;

    decline in expected revenues generated from operations;

    increase in expected claim payments related to our IIF; or

    increase in operating expenses.

          Our insurance subsidiaries are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which it is authorized to operate and the GSEs. Under the insurance laws of the Commonwealth of Pennsylvania, the insurance subsidiaries may pay dividends during any twelve-month period in an amount equal to the greater of (i) 10% of the preceding year-end statutory policyholders' surplus or (ii) the preceding year's statutory net income. The Pennsylvania statute also requires that dividends and other distributions be paid out of positive unassigned surplus without prior approval. The insurance subsidiaries currently have negative unassigned surplus and therefore would require prior approval by the Pennsylvania Insurance Commissioner to make any dividend payment or other distributions in 2013. At June 30, 2013, our insurance subsidiaries were in compliance with these rules and regulations. The insurance subsidiaries have paid no dividends since their inception.

          In addition, as a condition to its approval from Freddie Mac, until December 31, 2013 Essent Guaranty is required to maintain a risk-to-capital ratio of no greater than 20.0:1.

          We anticipate using a portion of the proceeds from this offering to support the growth of our business and maintain statutory capital at levels that meet the capital requirements prescribed by the GSEs and regulations in the jurisdictions in which our insurance subsidiaries are authorized to operate.

    Cash Flows

          The following table summarizes our consolidated cash flows from operating, investing and financing activities:

 
  Six Months
Ended June 30,
  Year Ended December 31,  
($ in thousands)
 
2013
 
2012
 
2012
 
2011
 
2010
 

Net cash provided by (used in) operating activities

  $ 47,799   $ 3,372   $ 36,639   $ (8,245 ) $ (21,733 )

Net cash (used in) provided by investing activities

    (62,106 )   (929 )   (79,729 )   (9,155 )   17,158  

Net cash provided by financing activities

    121,158     394     46,904     20,390     6,835  
                       

Net increase in cash

  $ 106,851   $ 2,837   $ 3,814   $ 2,990   $ 2,260  
                       

    Operating Activities

          Cash flow provided by operations totaled $47.8 million for the six months ended June 30, 2013 as compared to cash provided by operating activities of $3.4 million for the six months ended

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June 30, 2012. The increase in cash flow from operations of $44.4 million was a result of the increase in premium collected and net investment income partially offset by an increase in expenses paid and a decrease in other income.

          Cash flow provided by operations totaled $36.6 million for the year ended December 31, 2012 as compared to cash flow used in operations of $8.2 million for the year ended December 31, 2011. The increase in cash flow from operations of $44.8 million was a result of the increase in premium collected and net investment income partially offset by an increase in expenses paid and a decrease in other income.

          Cash flow used in operations totaled $8.2 million for the year ended December 31, 2011 as compared to cash flow used in operations of $21.7 million for the year ended December 31, 2010. The reduction in operating cash flow deficit in 2011 of $13.5 million was the result of the increase in premium collected, earned premiums and net investment income partially offset by an increase in expenses paid and a decrease in other income.

    Investing Activities

          Cash flow used in investing activities totaled $62.1 million for the six months ended June 30, 2013 as compared to cash used in investing activities of $0.9 million for the six months ended June 30, 2012. The increase in cash flow used in investing activities was primarily related to investing a portion of capital contributions which totaled $125 million.

          Cash flow used in investing activities totaled $79.7 million for the year ended December 31, 2012 as compared to $9.2 million for the year ended December 31, 2011. The increase in cash flow used in investing activities of $70.5 million was primarily related to the purchase of investments from December 31, 2011 to December 31, 2012.

          Cash flow used in investing activities totaled $9.2 million for the year ended December 31, 2011 as compared to cash provided by investing activities of $17.2 million for the year ended December 31, 2010. The increase in cash flow used in investing activities of $26.4 million was primarily related to the purchase of investments from December 31, 2010 to December 31, 2011.

    Financing Activities

          Cash flow provided by financing activities totaled $121.2 million for the six months ended June 30, 2013 as compared to cash provided by financing activities of $0.4 million for the six months ended June 30, 2012. In June and March 2013, the Company issued Class A shares to the current investors for net proceeds of $123.8 million. Cash provided by financing activities in the six months ended June 30, 2012 were principally due to Class A common shares issued to the current investors largely offset by the payment of the 2011 annual fee to the current investors and payments to Triad under the asset purchase agreement. The annual fee was waived by our initial investors for the year ended December 31, 2012 and thereafter.

          Cash flow provided by financing activities totaled $46.9 million for the year ended December 31, 2012 as compared to cash flow provided by financing activities of $20.4 million for the year ended December 31, 2011. The increase in cash flow provided by financing activities of $26.5 million was primarily related to issuance of equity to our current investors for net proceeds of $54.5 million in 2012 versus $24.8 million in 2011.

          Cash flow provided by financing activities totaled $20.4 million for the year ended December 31, 2011 as compared to cash provided by investing activities of $6.8 million for the year ended December 31, 2010. The increase in cash flow provided by financing activities of $13.6 million was primarily related to issuance of equity to our current investors for net proceeds of $24.8 million in 2011 versus net proceeds of $11.2 million from issuance of equity to our current investors net of treasury shares acquired and a $1.8 million dividend in 2010.

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    Risk to Capital

          We compute our risk to capital ratio on a separate company statutory basis, as well as for our combined insurance operations. The risk to capital ratio is our net risk in force divided by our statutory capital. Our net risk in force represents risk in force net of reinsurance ceded, if any, and net of exposures on policies for which loss reserves have been established. Statutory capital consists primarily of statutory policyholders' surplus (which increases as a result of statutory net income and decreases as a result of statutory net loss and dividends paid), plus the statutory contingency reserve. The statutory contingency reserve is reported as a liability on the statutory balance sheet. A mortgage insurance company is required to make annual contributions to the contingency reserve of 50% of net premiums earned. These contributions must generally be maintained for a period of ten years. However, with regulatory approval a mortgage insurance company may make early withdrawals from the contingency reserve when incurred losses exceed 35% of net premiums earned in a calendar year.

          Our combined risk to capital calculation as of June 30, 2013 is as follows:

Combined statutory capital:
($ in thousands)
   
 

Policyholders' surplus

  $ 306,704  

Contingency reserves

    49,465  
       

Combined statutory capital

  $ 356,169  
       

Combined net risk in force

  $ 5,346,427  
       

Combined risk to capital ratio

    15.0:1  
       

          For additional information regarding regulatory capital see note 11 to our unaudited condensed consolidated financial statements. Our combined statutory capital equals the sum of statutory capital of Essent Guaranty, Inc. plus Essent Guaranty of PA, Inc., after eliminating the impact of intercompany transactions. The combined risk to capital ratio equals the sum of the net risk in force of Essent Guaranty, Inc. and Essent Guaranty of PA, Inc. divided by combined statutory capital. The information above has been derived from the annual and quarterly statements of our insurance subsidiaries, which have been prepared in conformity with accounting practices prescribed or permitted by the Pennsylvania Insurance Department. Such practices vary from accounting principles generally accepted in the United States.

    Financial Strength Ratings

          The financial strength of Essent Guaranty, our principal mortgage insurance subsidiary, is rated Baa3 by Moody's Investors Service ("Moody's") with a positive outlook. Standard & Poor's Rating Services' ("S&P") insurer financial strength rating of Essent Guaranty is BBB+ with a stable outlook.

Financial Condition

    Stockholders' Equity

          As of June 30, 2013, stockholders' equity was $371.2 million compared to $219.1 million as of December 31, 2012. This increase was primarily due to recorded net income as well as $125.0 million in capital contributions received from our investors. Stockholders' equity was $219.1 million as of December 31, 2012 compared to $176.1 million as of December 31, 2011, primarily as a result of capital contributions from our investors, partially offset by a recorded net loss in 2012.

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    Investments

          As of June 30, 2013, the total fair value of our investment portfolio was $297.8 million, compared to $247.4 million as of December 31, 2012. In addition, our total cash was $129.2 million as of June 30, 2013, compared to $22.3 million as of December 31, 2012. This increase was primarily due to $125.0 million in capital contributions in the form of cash that was received in the first six months of 2013 but had not been fully invested as of June 30, 2013.

          As of December 31, 2012, the total fair value of our investment portfolio was $247.4 million, compared to $171.1 million as of December 31, 2011. In addition, our total cash was $22.3 million as of December 31, 2012, compared to $18.5 million as of December 31, 2011. This increase was due to cash generated by operations and capital contributions in 2012 that had not been fully invested as of December 31, 2012. See "Business — Investment Portfolio" for further information regarding our investment portfolio.


Investment Portfolio by Asset Class

 
  June 30, 2013   December 31, 2012   December 31, 2011  
Asset Class
($ in thousands)
 
 
Fair Value
 
Percent
 
Fair Value
 
Percent
 
Fair Value
 
Percent
 

U.S. Treasury securities

  $ 68,685     23.1 % $ 79,488     32.0 % $ 86,271     50.4 %

U.S. Agency securities

    19,371     6.5     19,593     8.0     22,724     13.3  

U.S. Agency Mortgage-backed securities

    24,841     8.3     29,640     12.0     24,769     14.5  

Municipal debt securities(A)

    36,403     12.2     37,654     15.2         0.0  

Corporate debt securities

    113,731     38.2     63,399     25.6     26,766     15.6  

Mortgage-backed securities

    12,990     4.4     5,592     2.3         0.0  

Asset-backed securities

    19,686     6.6     8,951     3.6         0.0  

Money market investments

    2,098     0.7     3,097     1.3     10,561     6.2  
                           

Total Investments

  $ 297,805     100.0 % $ 247,414     100.0 % $ 171,091     100.0 %
                           

(A)
All municipal securities are general obligation bonds. For information regarding the amortized cost and fair value of the municipal debt securities, see note 4 to our audited consolidated financial statements and note 3 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus.


Investment Portfolio by Rating

 
  June 30, 2013   December 31, 2012   December 31, 2011  
Rating(1)
($ in thousands)
 
 
Fair Value
 
Percent
 
Fair Value
 
Percent
 
Fair Value
 
Percent
 

Aaa

  $ 156,480     52.5 % $ 159,763     64.6 % $ 134,812     78.8 %

Aa1

    15,151     5.1     13,317     5.4     1,975     1.2  

Aa2

    8,840     3.0     8,144     3.3     1,567     0.9  

Aa3

    6,497     2.2     4,031     1.6     7,309     4.3  

A1

    18,490     6.2     11,621     4.7     8,399     4.9  

A2

    16,234     5.5     16,521     6.7     11,495     6.7  

A3

    30,463     10.2     16,401     6.6     5,534     3.2  

Baa1

    15,034     5.0     6,321     2.6         0.0  

Baa2

    24,542     8.2     9,753     3.9         0.0  

Baa3

    6,074     2.1     1,542     0.6         0.0  

Below Baa3-

        0.0         0.0         0.0  
                           

Total Investments

  $ 297,805     100.0 % $ 247,414     100.0 % $ 171,091     100.0 %
                           

(1)
Based on ratings issued by Moody's, if available. S&P rating utilized if Moody's not available.

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Investment Portfolio by Effective Duration

 
  June 30, 2013   December 31, 2012   December 31, 2011  
Effective Duration
($ in thousands)
 
 
Fair Value
 
Percent
 
Fair Value
 
Percent
 
Fair Value
 
Percent
 

< 1 Year

  $ 52,664     17.7 % $ 33,345     13.5 % $ 49,618     29.0 %

1 to < 2 Years

    28,809     9.7     41,712     16.9     23,958     14.0  

2 to < 3 Years

    50,455     16.9     33,475     13.5     35,415     20.7  

3 to < 4 Years

    53,529     18.0     42,516     17.1     30,900     18.1  

4 to < 5 Years

    68,566