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

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.       )

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☐ Soliciting Material under §240.14a-12

Essent Group Ltd.

(Name of Registrant as Specified In Its Charter)​

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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☐ Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a6(i)(1) and 0-11 .

 

 

 

 

Table of Contents

 

 

 

 

Proxy Statement Summary

This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement, before voting.

See the section of this proxy statement entitled “Frequently Asked Questions about the 2023 Annual Meeting” beginning on page 88 for more information regarding the Annual Meeting, how you may vote your shares at the Annual Meeting, and other matters relating to the Annual Meeting.

 

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2022 FINANCIAL HIGHLIGHTS

 

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EXECUTIVE SUMMARY—2022

Essent delivered strong financial results in 2022. Favorable credit performance along with increased investment income and persistency on our insured portfolio due to higher interest rates drove our economic engine to deliver high quality earnings.

In 2022, we earned $831 million or $7.72 per diluted share, compared to net income of $682 million or $6.11 per diluted share in 2021, while generating a 19% return on average equity. Our financial results for 2022 include a loss provision benefit of  $175 million as a result of favorable development together with a 40% increase in net investment income to $124 million in 2022 as a result of higher interest rates.

Mortgage rates spiked from 3.0% to 7.0% in 2022 due primarily to the Federal Reserve’s response to higher inflation. In this environment, the housing industry experienced slowing home sales, reduced refinance activity and a significant decline in mortgage origination volume. Essent wrote $63 billion of new insurance written (NIW) in 2022, a 25% decline from the $84 billion of NIW written in 2021. However, we grew our insurance in force by 10% to $227 billion in 2022 due to persistency increasing to 82% at the end of 2022, up from 65% a year earlier. At the end of 2022, our portfolio had a weighted average note rate of 3.8%, which results in reduced refinance incentives given the higher mortgage rates in the marketplace.

Higher rates are also a tailwind for our approximately $5 billion investment portfolio. We ended the year with an annualized investment yield of 3.0% while putting new money to work at a yield of approximately 5.0%. Every 1 point increase in the investment yield translates to roughly a 1 point increase in return on equity (ROE).

Through our efforts at EssentVentures, we identified the title insurance transaction we announced in February 2023. This opens a new chapter for Essent, with title insurance being a natural complement to our MI business with relatively stable underwriting performance and efficient capital requirements. The pending acquisition grants us access to a new line of business and will add a team of seasoned title professionals to Essent. It also provides us a platform to leverage our capital position, lender network and operational expertise in a well-established, adjacent sector. Title insurance has the potential help fuel Essent’s long-term growth and diversification.

Heading into 2023, we remain confident in our buy, manage and distribute operating model, despite some economic uncertainty in the U.S. As for the economy, the consumer demonstrated resilience in 2022 and unemployment has remained relatively stable. With regards to housing, we remain constructive over the longer term as we continue to believe that low inventory and demographic driven demand should support home prices.

2022 COMPENSATION HIGHLIGHTS

We maintain strong compensation governance practices that we believe support our pay-for-performance principles and align management incentives with the interests of our shareholders, emphasizing performance-based compensation that appropriately rewards our executives for delivering financial, operational and strategic results that meet or exceed pre-established goals. Consistent with prior years, our pay program continued to consist of three key elements significantly weighted to pay-for-performance: base salary; annual cash incentive tied to key operational and strategic goals; and long-term incentive awards linked to our common shares.

In keeping with that philosophy and consistent with prior years, a substantial majority of the compensation paid to our President and Chief Executive Officer and other named executive officers for 2022 was performance based:

 

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We believe that retaining productive employees is imperative to a sustainable model. As with our most senior executives, we also strongly believe that all employees should make good decisions, “do the right thing” and “act like owners”. To that end, we awarded equity share grants in 2023 to all of our employees that vest over a three-year period (the fourth time that we have made an employee-wide grant in Essent’s 13-year history). As a result, nearly 100% of our current workforce holds our shares directly or through future-vesting awards.

CREDIT PERFORMANCE AND RISK-BASED PRICING

Our favorable results in 2022 were driven in part by revisions to our estimate of ultimate loss for defaults reported in the second and third quarters of 2020, which resulted in a benefit recorded to the provision for losses of  $164 million. Actual claim levels were lower than initially projected, thereby reducing the need for the related reserves. At year-end 2022, our default rate was 1.7% while the credit profile of our $227 billion insured portfolio was strong, maintaining a weighted average FICO of 746 and original LTV of 92%.

Our franchise is levered to the economy and housing, so we continue to manage the business considering a range of scenarios given the uncertain economic environment. We continue to utilize programmatic reinsurance to mitigate cycle volatility in a franchise like ours while also deploying EssentEDGE®, our risk-based pricing engine, in evaluating and pricing long-tail mortgage credit risk.

“BUY, MANAGE AND DISTRIBUTE”

In 2018, we began placing programmatic reinsurance to hedge risk and mitigate volatility, transforming our operating model from “Buy and Hold” to “Buy, Manage and Distribute,” and enabling Essent to become a sustainable franchise through the credit cycle. We are pleased with the cost-efficient reinsurance protection we have acquired from capital markets and traditional reinsurers over the last five years. Today, our balance sheet is strong with $4.5 billion of equity capital, $425 million of debt, and approximately $2.5 billion of  “contingent capital” in the form of Insurance Linked Notes (ILN) and excess-of-loss (XOL) reinsurance protection, plus additional coverage from Quota Share (QS) reinsurance.

Although the cost of reinsurance has increased given capital markets volatility and a hardening reinsurance market, we are encouraged by continued interest of ILN investors and reinsurers in taking mortgage credit risk, which bodes well for the sustainability of reinsurance executions in the long term.

CAPITAL MANAGEMENT

We take a measured approach to capital management to ensure that we operate from a position of strength, balancing the needs to maintain a strong balance sheet, grow our core business, invest in our franchise, and return capital to shareholders. Given the embedded leverage in our insurance portfolio and our reinsurance coverage, we continue to be mindful of our financial

 

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leverage, with the lowest debt-to-capital in the industry at 9% at the end of 2022. At the same time, our holding company liquidity remained strong with over $1 billion of total liquidity, including $685 million of net cash and investments plus $400 million of undrawn revolving credit capacity. We are a firm believer that “capital begets opportunity.”

We have invested in the growth of our franchise through our multiple economic engines. Along with the growth of our MI portfolio, during 2022, Essent Re, our Bermuda-based reinsurance company, had another strong year of performance. In addition to reinsuring our U.S. MI business through a 35% affiliate QS agreement, Essent Re participates in risk share transactions with Fannie Mae and Freddie Mac (collectively, the “GSEs”) and provides fee-based managing general agent (MGA) services to reinsurer clients. Essent Re’s third party business has generated over $275 million income ever-to-date. Our EssentVentures unit has invested across venture capital, private equity, structured credit funds, and direct investments, with a goal to generate both financial and informational returns. As of December 31, 2022, we have invested $237 million with approximately $85 million of value created, of which $64 million has been returned as realized proceeds.

The strength of our operating model and our approach to capital management provide us with confidence in the stability of Essent’s cash flow and our ability to return earnings to our shareholders in the form of dividends and share repurchases. Since we initiated a quarterly dividend of  $0.15 per share in September 2019, we have steadily increased it to $0.25 per share in March 2023. Moving forward, we plan to review our common dividend annually. In 2022, we repurchased 2.1 million ESNT shares for $92.2 million, completing our inaugural $250 million share repurchase authorization announced in May 2021. In May 2022, our Board authorized a second $250 million share repurchase authorization. We will continue to evaluate share repurchases as we gain further clarity with the economic environment as 2023 unfolds.

We intend to continue to implement capital strategies that we believe are in the best long term interest of our franchise and shareholders.

COMMITMENT TO SUSTAINABILITY BEST PRACTICES

Essent’s mission is to serve as a trusted, best-in-class partner to the housing finance industry by responsibly offering mortgage insurance, reinsurance and risk management products to mortgage lenders and investors to support affordable home ownership. Having a home provides a sense of security, well-being and belonging. The very core of what we do enables more people to buy their own homes, creating a positive ripple effect throughout their communities.

Under the direction of our Chief Executive Officer and Board of Directors, we are committed to supporting sustainability initiatives that are relevant to the Company and align with our company-wide dedication to responsible corporate citizenship that positively impacts the communities and people served. The strength of our balance sheet and operating model helps Essent to fulfill our mission to support affordable and sustainable homeownership. We continue to believe that Essent and our industry can play a greater role in leveraging private capital to support a strong and robust housing finance system while mitigating taxpayer risk.

In 2022, we published the fourth edition of our annual Sustainability Report and continued to explore ways to enhance our overall environmental, social, and governance (ESG) initiatives. Embedded within the core of our business is a more inclusive future, and our dedication to responsible corporate stewardship is critical to our long-term success.

Our continued success is directly related to our commitment to our core values—Integrity, Service, Innovation and Community. These values are the building blocks of our business and our ESG practices.

Our commitment to Integrity starts with the active oversight by our Board of our Code of Business Conduct as well as our environmental awareness strategy, cybersecurity, corporate culture, employee engagement, diversity and community commitment. We have an ESG officer and an internal ESG Committee comprised of cross functional leaders dedicated to advancing our sustainability goals and long-term value creation.

 

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We are motivated to generate Innovation for our customers that raises the bar within our organization and our industry. In 2022, we continued to define and deploy the next generation of our pricing engine, EssentEDGE, made significant advances in our cloud migration and continued investment in the transformation of our operations to deliver a differentiating customer experience. These Innovation initiatives are focused on meeting the growing needs and expectations of our customers. Our Innovation strategy is designed to deliver our best price to our consumers and to support homeownership.

As a responsible corporate citizen, Essent is dedicated to Service and Community. Our practices make a difference in the communities where we live and work. Our corporate giving program and employee volunteer program are designed to sponsor national and local community organizations with a focus on children, education, health and housing.

Corporate Governance Practices

Essent has a strong top-down approach to ESG. Our Board is very active and has formal oversight over our environmental awareness, cybersecurity, corporate culture, employee engagement, diversity and community commitment. The charter of our Nominating, Governance and Corporate Responsibility Committee emphasizes that committee’s responsibility for the “governance” and “environmental” aspects of the Company’s sustainability programs, while the role of the Compensation Committee includes overseeing the “social” aspects of the Company’s sustainability programs, including receiving periodic updates from the Company’s management responsible for significant “social” activities. Our Corporate Governance Guidelines further detail the Board’s oversight of technology, innovation, cyber risk, and continued commitment to diversity and inclusion.

At the highest level, we believe that our Board has adopted a set of corporate governance and executive compensation standards that exemplify our commitment to sound governance practices:

 

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We have also formalized and adopted a number of internal policies with respect to corporate and institutional governance, including:

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Anti-Corruption Policy

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Anti-Money Laundering Awareness Policy

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Anti-Trust Policy

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Code of Business Conduct and Ethics

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Compliance Policy

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Corporate Giving Policy

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Disaster Recovery Plan

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Disability Accommodation Policy

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Diversity, Prevention of Discrimination & Harassment Policy

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Fitness for Duty Policy

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Fraud Policy & Procedures

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Gift & Entertainment Policy

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Government Relations and Political Activities Policy

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Human Rights and Labor Policy

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Information Security Program Policy

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Media and External Communications Policy

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Privacy Policy

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Statement of Freedom of Association, Right to Collective Bargaining

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Third Party Vendor Code of Conduct

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Vulnerability Management Policy

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Whistleblower Policy

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Our Board of Directors is committed to increasing the diversity of representation on the Board. We have two highly qualified female directors who bring with them particularly notable experience in the information technology, cybersecurity, and insurance and risk management fields. In addition, we continue to identify potential new diverse candidates to serve on our Board.

We believe that engaging with investors is fundamental to our commitment to good governance. Throughout the year, we seek opportunities to engage in two-way conversations with our investors to gain and share valuable insights into current and emerging business strategies and trends. During 2022, we held approximately 64 meetings with shareholders whose ownership represented approximately 30% of shares outstanding as of the end of 2022 to discuss various key corporate matters. Topics discussed included our underwriting guidelines, credit selection, our risk management practices including around investment risk, liquidity risk and regulatory compliance risk, corporate governance and executive compensation, among others. These meetings were conducted in person, via teleconference or one-on-one at industry conferences.

Social Issues and Human Capital

We have approximately 350 employees working across five primary offices in Pennsylvania, North Carolina, New York, Virginia and Bermuda, as well as remotely throughout the United States. We provide competitive benefits that promote the health of our employees and their families and design compelling job opportunities, aligned with our mission, in a fast-paced, results-focused work environment. All of our employees are eligible to receive grants under our equity incentive plan, which as discussed above currently has nearly 100% participation. We offer varied employee training, development, mentorship and leadership opportunities and encourage our employees to continue to develop in their careers.

At Essent, we realize that continuous engagement with our employees is vital to driving successful, meaningful outcomes. Engagement surveys are conducted periodically and allow us to identify areas of strength and opportunities for improvement to ensure continued satisfaction and retention of our employees. CEO-led town hall style meetings are held regularly with our employees, covering topics such as business strategy and outlook, the competitive landscape, and emerging industry trends, and include a question-and-answer session with management. We believe that this format facilitates strong and productive conversations across our organization. As a result of our ongoing commitment to employee engagement and satisfaction, we have had an average annual employee retention rate of approximately 95% over the past 5 years.

We are focused on cultivating a diverse and inclusive culture where our employees can freely bring diverse perspectives and varied experiences to work. We seek to hire and retain highly talented employees and empower them to create value for our shareholders. In our employee recruitment and selection process and operation of our business, we adhere to equal employment opportunity policies and encourage the participation of our employees in training programs that will enhance their effectiveness in the performance of their duties.

Our commitment to good corporate citizenship extends to supporting the communities that we serve. Our Board of Directors, management and employees are committed to transforming our communities by leveraging the power of our Company. We partner with charitable organizations, make donations, and connect our employees with volunteer opportunities to better their communities. Essent’s charitable contributions focus in particular on housing, education, children and the military.

Our employees volunteer their time and talents to support local charities and community organizations. We encourage charitable giving by employees by providing a 1:1 match of donations to 501(c)(3) organizations, up to $1,000 per employee per year.

 

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Our charitable program places special emphasis on championing education, in particular, for underserved youth. For example, we have made a $3 million, 10-year commitment to Cristo Rey Philadelphia High School. Cristo Rey is an inner-city, independent, college preparatory school for low-income students who cannot otherwise afford a private education. Cristo Rey is a new model of private high school that opened in 2012 and has developed a unique partnership with local educators, businesses and universities. We have made a $1.2 million multi-year commitment to support a Science, Technology, Engineering and Math (STEM) program specifically targeted to young women. We expanded our corporate giving program with a significant grant to the Pennsylvania-based Main Line Health Behavioral Health Services for the development of a new behavioral health unit, which opened in 2022. In 2022, we made approximately $1.7 million in contributions to over 40 worthy causes.

Environmental Responsibility

Essent is committed to the stewardship of our shared environment. While the nature of our operations does not directly impact the environment in a material way, we seek to operate our corporate facilities in an environmentally sustainable, safe and healthy manner. We strive to be energy efficient across our operations, utilizing energy management systems that conserve energy as well as LED lighting and motion control sensors. Our corporate headquarters in Radnor, Pennsylvania is Energy Star certified as an environmentally-conscious corporate headquarters. In addition, we are committed to increasing waste recycling and increasing overall environmental awareness and training across our organization.

 

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Proposal No. 1: Election of Directors

Our Board of Directors currently consists of nine directors. Our Bye-laws provide that our Board is divided into three classes consisting, as nearly as possible, of one-third of the total number of directors constituting the entire Board. Our directors hold office until their successors have been elected and qualified, or the earlier of their death, resignation or removal. Vacancies on the Board of Directors may be filled by shareholders or the Board. Our system of electing and removing directors may delay or prevent a change of our management or a change in control of our Company.

At the Annual Meeting, shareholders will elect three individuals to serve as Class III directors to hold office until our 2026 Annual General Meeting of Shareholders or until his successor has been duly elected and qualified or his earlier resignation or removal.

Each of Mark A. Casale, Douglas J. Pauls and William Spiegel has been nominated to stand for election at the Annual Meeting to serve as a Class III director. These nominees were recommended and approved for nomination by the Nominating, Governance and Corporate Responsibility Committee of our Board of Directors.

Proxies cannot be voted for a greater number of persons than the number of nominees named. If you sign and return the accompanying proxy, your shares will be voted for the election of the three nominees recommended by our Board of Directors unless you mark the proxy in such a manner as to withhold authority to vote or as to vote for one or more alternate candidates. If, for any reason, any nominee is unable or unwilling to serve, the persons named in the proxy will use their best judgment in selecting and voting for a substitute candidate, or our Board of Directors may reduce the number of Class III directors. Our Board of Directors, however, has no reason to believe that any of the nominees will be unable or unwilling to be a candidate for election at the time of the Annual Meeting.

Directors are elected by a majority of votes cast at the Annual Meeting.

The Board of Directors recommends a vote FOR the election of each of the nominated individuals.

 

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Director Criteria, Qualifications, Experience and Tenure​

The Nominating, Governance and Corporate Responsibility Committee of our Board of Directors is responsible for recommending to our Board of Directors candidates for nomination and election as directors at annual general meetings of shareholders or for appointment to fill vacancies on the Board. The Nominating, Governance and Corporate Responsibility Committee annually reviews with the Board the applicable skills and characteristics required of Board nominees in the context of current Board composition and company circumstances. In making its recommendations to our Board of Directors, the Nominating, Governance and Corporate Responsibility Committee considers, among other things, the qualifications of individual director candidates in light of the criteria described below. In accordance with its charter, the Nominating, Governance and Corporate Responsibility Committee may use a variety of sources, including but not limited to executive search firms, to identify director candidates, and has the authority to retain and approve compensation for such firms.

In evaluating a candidate, our Nominating, Governance and Corporate Responsibility Committee and our Board of Directors take into account a variety of factors, including:

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high personal and professional ethics, values and integrity;

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sound business judgment and financially literacy;

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diversity of point of view, including the candidate’s education, skill, professional background, personal accomplishments, geography, race, gender, age, ethnic background, national origin, experience with mortgage, insurance, reinsurance or other businesses and organizations that our Board deems relevant and useful, including whether such attributes or background would contribute to the diversity of the Board as a whole;

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ability and willingness to serve on any committees of our Board of Directors;

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ability and willingness to commit adequate time to the proper functioning of our Board of Directors and its committees; and

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any criteria regarding independence and other matters required by the New York Stock Exchange (NYSE) or other applicable law or regulations.

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The Nominating, Governance and Corporate Responsibility Committee and Board of Directors evaluate each individual in the context of the Board as a whole, with the objective of recommending a group that can perpetuate the success of our business and represent shareholder interests through the exercise of sound judgment, using its diversity of experience. Our Nominating, Governance and Corporate Responsibility Committee and Board of Directors evaluates the Board’s own composition in the context of the diverse experiences and perspectives that the directors collectively bring to the boardroom. Their backgrounds provide the Board with valuable insights in areas such as:

The experiences, qualifications and skills of each director that the Board considered in his or her nomination are listed beside the directors’ individual biographies on the following pages.

Based on the information available to it about a potential nominee, the Nominating, Governance and Corporate Responsibility Committee makes an initial determination whether to conduct a full evaluation of a candidate. As part of the full evaluation process, the Nominating,

 

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Governance and Corporate Responsibility Committee may conduct interviews, obtain additional background information and conduct reference checks of potential nominees. The Nominating, Governance and Corporate Responsibility Committee may also ask potential nominees to meet with management and other members of our Board of Directors. After completing this evaluation process, the Nominating, Governance and Corporate Responsibility Committee makes a recommendation to the full Board of Directors, which makes the final determination whether to nominate the candidate for election as a director.

The Board has concluded that each nominee for election as a Class III director should serve as a director based on the specific experience and attributes listed beside each such nominee’s biography below and the Board’s knowledge of that nominee, including the insight and collegiality that nominee is expected to bring to the Board’s functions and deliberations.

The Nominating, Governance and Corporate Responsibility Committee and the Board consider director tenure in making Board nomination decisions and believe that it is desirable to maintain a mix of longer-tenured, experienced directors and newer directors with fresh perspectives. While we believe that longer-tenured, experienced directors, who have accumulated a substantial understanding of our business during their service, are a significant strength of the Board, we also believe that we benefit from the skill sets and perspectives of our newest directors.

Each director is expected to maintain an acceptable level of attendance, preparedness and participation with respect to meetings of the Board of Directors and its committees. In determining whether to recommend a director for re-election, the Nominating, Governance and Corporate Responsibility Committee also considers the director’s past attendance at meetings, participation in and contributions to the activities of our Board of Directors, and the results of the most recent Board self-evaluation.

Annual Board Evaluation Process

Our Board of Directors recognizes that a robust and constructive evaluation process is an essential part of good corporate governance and board effectiveness. The evaluation processes utilized by the Board are designed and implemented under the direction of the Nominating, Governance and Corporate Responsibility Committee and aim to assess Board and committee effectiveness as well as individual director performance and contribution levels.

Each year, our directors complete governance questionnaires and self-assessments. These questionnaires and assessments facilitate a candid assessment of: the Board’s performance in areas such as business strategy, risk oversight, talent development and succession planning and corporate governance; the Board’s structure, composition and culture; and the mix of skills, qualifications and experiences of our directors.

The Nominating, Governance and Corporate Responsibility Committee and Board consider the results of the annual evaluations in connection with their review of director nominees to ensure the Board continues to operate effectively.

Shareholder Nominees for the Board of Directors

Shareholders desiring to recommend nominees for election as directors should submit their recommendations in writing to our Secretary at Essent Group Ltd., Clarendon House, 2 Church Street, Hamilton HM11, Bermuda. Recommendations from shareholders should include pertinent information concerning the proposed nominee’s background and experience. The Nominating, Governance and Corporate Responsibility Committee may consider, as one of the factors in its evaluation of shareholder recommended nominees, the size and duration of the interest of the recommending shareholder or shareholder group in our capital stock. The Nominating, Governance and Corporate Responsibility Committee may also consider the extent to which the recommending shareholder intends to continue holding its interest in our capital stock, including, in the case of nominees recommended for election at an annual general meeting of shareholders, whether the recommending shareholder intends to continue holding its interest at least through the time of such annual general meeting of shareholders.

 

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The Board of Directors and its Committees

Role of the Board

Governance is a continuing focus at the Company, starting with our Board of Directors and extending to management and all employees. The Board reviews the Company’s policies and business strategies and advises and counsels the CEO and the other executive officers who manage the Company’s business. In addition, we solicit feedback from our shareholders and engage in discussions with various stakeholders on governance and executive compensation issues.

Our Board of Directors met four times during 2022. Each incumbent director attended at least 75% of the aggregate meetings of our Board of Directors during 2022 that were held following his or her election and the meetings held by all Board committees on which he or she served. Although we do not have a policy regarding the attendance of our Board members at our annual general meetings of shareholders, we encourage all directors to attend our annual general meetings of shareholders.

Our non-employee and independent directors also hold regular meetings without our management being present. Our non-employee and independent directors held four such meetings in 2022.

Board Leadership Structure

Our Board of Directors does not have a policy regarding the separation of the roles of Chief Executive Officer and Chairman of our Board of Directors, as our Board of Directors believes it is in our best interests to make that determination based on the position and direction of the Company and the membership of our Board of Directors.

Both the Chairman of the Board of Directors and Chief Executive Officer positions are currently held by Mr. Casale. Pursuant to our Corporate Governance Guidelines, in the event that the role of chairman is held by a member of our management, the independent members of our Board of Directors may designate one independent director to serve as the lead independent director. Mr. Spiegel currently serves as our lead independent director. Under the terms of our Corporate Governance Guidelines, the lead independent director has broad responsibility and authority, including:

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organizing and presiding over all meetings of our Board of Directors at which the chairman is not present, including all executive sessions of our non-employee and independent directors;

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serving as the liaison between the chairman and the non-employee directors;

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overseeing the information sent to our Board of Directors by management;

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approving meeting agendas and schedules for our Board of Directors;

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facilitating communication between our Board of Directors and management; and

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performing such other duties as requested by our Board of Directors.

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We believe that having Mr. Casale serve as both our Chief Executive Officer and the Chairman of our Board of Directors, along with a lead independent director, is in the best interests of the Company and our shareholders at this time.

A number of factors support the leadership structure chosen by our Board, including, among others:

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Mr. Casale has extensive knowledge of all aspects of us and our business and risks, our industry and our customers, is intimately involved in our day-to-day operations and is best positioned to elevate the most critical business issues for consideration by our Board of Directors;

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our Board of Directors believes that having Mr. Casale serve in both capacities allows him to more effectively execute our strategic initiatives and business plans and confront our challenges;

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the combined role is both counterbalanced and enhanced by the effective oversight and independence of our Board of Directors and the independent leadership provided by our lead independent director and independent committee chairs; and

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our Board of Directors believes that the appointment of a strong lead independent director and the use of regular executive sessions of the non-employee directors, along with the Board’s strong committee system and all directors being independent except for Mr. Casale, allow it to maintain effective oversight of management.

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Determination of Director Independence

Our Board of Directors has considered whether our directors qualify as “independent” directors in accordance with NYSE listing requirements. The NYSE independence definition include a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director nor any of his family members has engaged in various types of business dealings with us.

In its assessment of director independence, our Board considers all commercial, charitable and other transactions and relationships (including tenure of Board service) that any director or member of his or her immediate family may have with us, with any of our affiliates, or with any of our consultants or advisers. Our Board applies the same criteria for assessing independence for purposes of each of the Audit Committee, Compensation Committee and Nominating, Governance and Corporate Responsibility Committee. Furthermore, in its assessment of a director’s independence for service on the Compensation Committee, our Board considers all factors that the Board believes specifically relevant to determining whether the director has a relationship which is material to such director’s ability to be independent from management in connection with his or her duties as a member of the Compensation Committee, including but not limited to any compensation payable to such director.

Based upon these standards, our Board of Directors has determined that only Mr. Casale is not considered to be independent, as he is a current employee of the Company. In making this determination, our Board of Directors reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management.

Board Committees and their Roles

Our Board of Directors maintains standing Audit, Compensation, Nominating, Governance and Corporate Responsibility, Risk, and Technology, Innovation and Operations Committees. Each committee has a charter that, among other things, reflects what we believe to be the best current practices in corporate governance.

 

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The table below provides 2022 membership and meeting information for each of the Board’s committees.

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Dr. Karna was appointed to the Board of Directors and the Technology, Innovation and Operations Committee effective August 3, 2022.

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Corporate Governance

Our Board of Directors and management have a strong commitment to effective corporate governance. We believe that we maintain a comprehensive corporate governance framework for our operations which, among other things, takes into account the requirements of the SEC, the NYSE, the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Corporate Governance Guidelines

Our Board of Directors has adopted Corporate Governance Guidelines that serve as a flexible framework within which our Board of Directors and its committees operate. These guidelines cover a number of areas including the size and composition of the Board, Board membership criteria and director qualifications, director responsibilities, board agenda, roles of the Chairman of the Board of Directors and Chief Executive Officer, meetings of independent directors, committee responsibilities and assignments, Board member access to management and independent advisors, director communications with third parties, director compensation, director orientation and continuing education, evaluation of senior management and management succession planning.

Code of Business Conduct and Ethics

Our Code of Business Conduct and Ethics includes information regarding procedures established by the Audit Committee for the submission of complaints about our accounting or auditing matters. Our Code of Business Conduct and Ethics is applicable to our directors, executives and employees, and reflects and reinforces our commitment to integrity in the conduct of our business. Amendments to our Code of Business Conduct and Ethics and any grant of a waiver from a provision of our Code of Business Conduct and Ethics will be included in a current report on Form 8-K within four days of the date of the amendment or waiver, unless posting such information on our website will then satisfy the rules of the NYSE.

Our Audit Committee, on behalf of itself and our other non-employee directors, has established procedures to enable employees or other parties who may have a concern about our conduct or policies to communicate that concern. Our employees are encouraged and expected to report any conduct which they believe in good faith to be an actual or apparent violation of our Code of Business Conduct and Ethics. In addition, our Audit Committee has established procedures pertaining to receiving, retaining, and treating complaints received regarding accounting, internal accounting controls, or auditing matters, and with respect to the confidential, anonymous submission by our employees of concerns regarding, among other things, questionable accounting or auditing matters. Such communications may be confidential or anonymous, and may be e-mailed, submitted in writing, or reported by phone through various internal and external mechanisms as provided on our internal website. Additional procedures by which internal communications may be made are provided to each employee.

Our Code of Business Conduct and Ethics prohibits any employee or director from retaliating or taking any adverse action against anyone for raising or helping to resolve an integrity concern.

Succession Planning

Our Board of Directors, primarily through the Compensation Committee, assesses succession planning for management and leadership, with a primary focus on succession in the event of the unexpected incapacity of our Chairman of the Board of Directors, Chief Executive Officer and President. Our Corporate Governance Guidelines provide that our Chairman of the Board of Directors, Chief Executive Officer and President should at all times make available to our Board, on a confidential basis, his recommendations and evaluations of potential successors.

Share Ownership Guidelines

Both our non-employee directors as well as our senior executives (which we define as our Chief Executive Officer and each of his direct reports and includes all of our named executive officers) are required to maintain certain ownership levels of common shares during their service.

 

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Each director and senior executive is required to own a minimum number of our common shares with an aggregate value equal to the following (or such lesser amount as the director or senior executive may have been granted to date):

Furthermore, each director and senior executive must hold at least 50% of the common shares that we issue to that individual until he or she satisfies the applicable share ownership threshold, less any shares used to satisfy tax obligations arising from receiving common shares from us.

For the purposes of our share ownership guidelines, restricted common shares and restricted common share units subject to time-based vesting are treated as shares held by a director or senior executive. However, unvested performance-based restricted common shares and restricted common shares units are not treated as being owned until they are earned and vested.

Our non-employee directors and executive officers are also subject to our insider trading policy, which prohibits transactions in our securities outside of  “window” periods (except pursuant to previously adopted, approved Rule 10b5-1 plans), including short sales on our shares, or the purchase or sale of options, puts, calls, straddles, equity swaps, or other derivative securities that are directly linked to our equity.

Our Compensation Committee retains discretion to waive non-compliance with our share ownership guidelines in light of an individual director’s particular facts and circumstances from time to time.

As of December 31, 2022, our Chief Executive Officer, each of our senior executives and each member of our Board of Directors have met the applicable share ownership guidelines. Our directors are expected to satisfy their share ownership guidelines through their annual equity compensation grants in respect of their Board service.

No Hedging Policy

Members of our Board of Directors, our executives and all other Company employees are prohibited from hedging their ownership or offsetting any decline in the market value of our common shares, including by trading in publicly-traded options, puts, calls or other derivative instruments related to our common shares.

 

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Communications with our Board of Directors and Non-Employee Directors

Any shareholder or other interested party that desires to communicate directly with our Board of Directors, any committee of the Board of Directors or our non-employee directors as a group may do so by addressing the communication in care of our Secretary at Essent Group Ltd., Clarendon House, 2 Church Street, Hamilton HM11, Bermuda with a request to forward the communication to the intended recipient. The Secretary’s office opens all such correspondence and forwards it to the relevant director or group of directors, except for items unrelated to the functions of the Board, including business solicitations or advertisements.

Board of Directors’ Role in Risk Oversight

Our Board of Directors as a whole has responsibility for risk oversight, with reviews of certain areas being conducted by the relevant committees of the Board that report on their deliberations to the full Board. The oversight responsibility of our Board of Directors and its committees is enabled by management reporting processes that are designed to provide visibility to the Board about the identification, assessment and management of critical risks and management’s risk mitigation strategies. These areas of focus include competitive, economic, operational, financial (accounting, credit, liquidity and tax), legal, regulatory, compliance and reputational risks. Our Board of Directors and its committees oversee risks associated with their respective principal areas of focus, as summarized below.

We maintain an internal disclosure committee consisting of certain members of our executive management and senior employees. The disclosure committee meets at least quarterly to bring together representatives from our core business functions and employees involved in the preparation of our financial statements so that the group may discuss any issues of which the members are aware that should be considered for disclosure in our public SEC filings. The disclosure committee reports to our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer.

 

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data. Each year the Compensation Committee, based on information provided by the independent compensation consultant, reviews the total annual compensation of the non-employee directors, with a goal of positioning director compensation at the median of our peer group at that time (for additional information regarding our peer group see below under “Executives and Executive Compensation—Compensation Discussion and Analysis—Peer Group Composition” on page 38). In August 2019, the Compensation Committee asked Korn Ferry to re-evaluate the compensation that we pay to our Board of Directors. Based on information provided by Korn Ferry, the Compensation Committee approved modest changes to our non-employee director compensation program commencing in 2020 in order to bring certain elements of the program closer in line with competitive market practices while continuing to position total annual compensation at the median of our peer group, and this compensation structure remained the same for 2022.

The compensation arrangements for the non-employee directors of the Board for 2022 are described below. Mr. Casale, the Chairman of the Board of Directors and our President and Chief Executive Officer, does not receive additional compensation for serving as a member of our Board of Directors.

(1)

Award delivered in the form of restricted common share units granted under the Essent Group Ltd. 2013 Long-Term Incentive Plan, or 2013 Plan, on the date of our annual general meeting of shareholders, that vests on the first anniversary of the grant date. If a non-employee director joins our Board of Directors after the grant date for the annual equity award, such director will receive a prorated award based on the date that he or she joined our Board.

​

Our non-employee directors are required to maintain certain ownership levels of our common shares during their service as described above on page 26.

The following table sets forth compensation earned by our non-employee directors during the year ended December 31, 2022:

 

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(1)

The amounts reported in this column represent the aggregate grant date fair value of the restricted common share units granted in 2022 computed in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718. For additional information, including a discussion of the assumptions used to calculate these values, see Note 10 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022. On May 4, 2022, each of our continuing non-employee directors serving as of that date received 2,969 restricted share units in respect of their Board service through our 2023 Annual General Meeting of Shareholders. Upon her appointment to the Board on August 3, 2022, Dr. Karna received 2,220 restricted share units in respect of her Board service through our 2023 Annual General Meeting of Shareholders. All of such restricted share unit awards remained outstanding on December 31, 2022.

​

(2)

Represents the value of dividend equivalent rights credited in respect of then outstanding unvested restricted common share unit awards pursuant to the terms of the applicable award agreements in connection with the payments of our quarterly dividends in the amount of  $0.20 per share on March 21, 2022, $0.21 per share on June 10, 2022, $0.22 per share on September 12, 2022, and $0.23 per share on December 12, 2022. The March 21, 2022 dividend equivalent rights were credited to the then unvested 2,404 restricted share units granted on May 6, 2021, and the subsequent quarterly dividends were credited to the restricted share units granted on May 4, 2022. Dr. Karna was only eligible for such dividend equivalents following her appointment and the receipt of her grant of restricted share units.

​

(3)

Dr. Karna was appointed to the Board of Directors effective August 3, 2022.

​

 

30

 

 

 

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Compensation Discussion and Analysis

This Compensation Discussion and Analysis (CD&A) describes our executive compensation programs, including the oversight of such programs by our Compensation Committee and the rationale and processes used to determine the compensation for the Company’s named executive officers (“NEOs”) and provides a detailed description of those programs. This CD&A, which may include forward-looking statements, should be read together with the compensation tables and related disclosures that follow this section.

This discussion focuses on the compensation provided to the Company’s NEOs during 2022, who were:

Lawrence E. McAlee, who served as our Senior Vice President and Chief Financial Officer through June 28, 2022 (and subsequently served as a senior advisor to our chief executive officer through December 31, 2022), remained a named executive officer for 2022 pursuant to applicable SEC rules, although his employment with the Company terminated prior to year-end.

Executive Summary

As discussed above on page 3 under “Proxy Statement Summary—Executive Summary—2022”, Essent delivered strong financial results in 2022. Favorable credit performance along with increased investment income and persistency on our insured portfolio due to higher interest rates drove our economic engine to deliver high quality earnings.

 

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In 2022, we earned $831 million or $7.72 per diluted share, compared to net income of $682 million or $6.11 per diluted share in 2021, while generating a 19% return on average equity. Our financial results for 2022 include a loss provision benefit of  $175 million as a result of favorable development together with a 40% increase in net investment income to $124 million in 2022 as a result of higher interest rates.

Mortgage rates spiked from 3.0% to 7.0% in 2022 due primarily to the Federal Reserve’s response to higher inflation. In this environment, the housing industry experienced slowing home sales, reduced refinance activity and a significant decline in mortgage origination volume. Essent wrote $63 billion of new insurance written (NIW) in 2022, a 25% decline from the $84 billion of NIW written in 2021. However, we grew our insurance in force by 10% to $227 billion in 2022 due to persistency increasing to 82% at the end of 2022, up from 65% a year earlier. At the end of 2022, our portfolio had a weighted average note rate of 3.8%, which results in reduced refinance incentives given the higher mortgage rates in the marketplace.

Essent’s 2022 Performance

Executive Compensation Highlights

Consistent with our emphasis on performance-based compensation (see “—Compensation Philosophy” below), the actual incentive compensation paid to our named executive officers for 2022 was above target. The Compensation Committee of our Board of Directors, which we refer to as the “Compensation Committee” or the “Committee” in this CD&A, awarded each of our named executive officers above-target incentive compensation under our annual bonus plan for 2022 representing 175%, 165%, 160%, 250% and 165% of the annual incentive compensation targets for Messrs. Casale, Curran, Bhasin and Weinstock and Ms. Gibbons, respectively.

The Compensation Committee, with the assistance of its independent compensation consultant, Korn Ferry, engages in an ongoing review of our executive compensation program to determine

 

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that it supports the competitive compensation philosophy established by the Committee and ultimately serves the interests of our shareholders. For 2022, the Committee followed a similar process as it has used in prior years:

•

Process used for compensation determinations.   The Committee reviewed external market data presented by its independent compensation consultant to aid it in setting market-based compensation levels. The committee also considered individual and Company performance, skill sets, experience, leadership, growth potential, and other business needs as well as current best practices and developments when making compensation decisions.

​

•

Total target cash compensation.   Total target cash compensation for 2022 was targeted between the 25th and 50th percentiles of our peer group (see “—Compensation Objectives and Principles” on page 40 for additional information).

​

•

Annual equity compensation.   We continued to make annual long-term equity incentive grants to our Chief Executive Officer and other named executive officers (other than Mr. Weinstock).

​

As a result of this review, in May 2022, the Compensation Committee made the following changes to the compensation of Mr. Casale:

•

Mr. Casale’s annual base salary was increased to $1,000,000, retroactively effective January 1, 2022;

​

•

Mr. Casale’s target annual bonus was increased to 175% of his annual base salary, effective January 1, 2022; and

​

•

the target annual long term equity incentive award for Mr. Casale was set at 600% of his annual base salary, with 75% of such award being subject to performance- and time-based vesting and 25% of such award being subject to time-based vesting over a three-year period (and Mr. Casale received additional equity awards in May 2022 to reflect that increase in his target annual long term equity incentive compensation for 2022).

​

Upon his appointment as our interim Chief Financial Officer in June 2022, the Compensation Committee approved the payment of a monthly cash bonus to Mr. Weinstock in the amount of $25,000 for each month in which he served in that interim capacity.

In connection with Mr. Weinstock’s promotion in March 2023 to the role of Senior Vice President and Chief Financial Officer, the Compensation Committee adjusted Mr. Weinstock’s annual compensation as follows:

•

Mr. Weinstock’s annual base salary was increased to $375,000 effective March 14, 2023;

​

•

Mr. Weinstock’s target annual bonus was increased to 100% of his annual base salary effective January 1, 2023, all of which will be payable in cash; and

​

•

the target long term equity incentive award for Mr. Weinstock was set at 100% of his annual base salary, with 50% of such award being subject to performance- and time-based vesting and 50% of such award being subject to time-based vesting over a three-year period.

​

In connection with his promotion, the Compensation Committee also approved a grant of 25,000 restricted share units to Mr. Weinstock that vest in three equal installments on April 1, 2026, April 1, 2027 and April 1, 2028.

Advisory Vote on Compensation

At our 2022 Annual General Meeting of Shareholders, our “say on pay” proposal resulted in a favorable vote from approximately 97% of the shares cast. Based on investor feedback, the high percentage of support was due to the appropriateness of the overall design of our compensation programs and our regular communications with our shareholders and responsiveness to shareholder feedback obtained through our regular engagement process. After consideration of the shareholder input we received, which in general supported the structure and design of our compensation plans and programs, particularly our emphasis on long-term equity awards, as well

 

35

 

as our strong performance and management’s and the Compensation Committee’s assessment of the continuing success of our compensation programs, the Compensation Committee determined that the overall design of our compensation programs during 2022 would be maintained consistent with immediate past years. The Compensation Committee will continue to work to ensure that our executive officers’ interests are aligned with our shareholders’ interests to support long-term value creation and continue to strengthen the Company.

Compensation Philosophy

Our compensation philosophy centers upon:

•

attracting and retaining industry-leading talent to maximize shareholder value creation over the long-term by targeting compensation levels that are competitive when measured against other companies within our industry;

​

•

emphasizing performance-based compensation that appropriately rewards our executives for delivering financial, operational and strategic results that meet or exceed pre-established goals, as reflected in our performance-based annual incentive program as well as through the use of restricted common shares subject to performance-based vesting in our long-term incentive program;

​

•

rewarding individual performance and contribution to our success; and

​

•

aligning the interests of our executives with those of our shareholders and the long-term interests of the Company through equity ownership requirements and grants of equity-based awards.

​

 

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Executive Compensation Participants

Compensation Committee—Role and Permitted Members

The Compensation Committee oversees the compensation and benefit programs of our executive officers, including each of our named executive officers. The Committee is responsible for ensuring that our compensation policies and practices support the successful recruitment, development, and retention of executive talent and leadership required to achieve our business objectives. The responsibilities of the Compensation Committee include:

•

approving the goals and objectives relating to our Chief Executive Officer’s compensation, evaluating the performance of our Chief Executive Officer in light of such goals and objectives, and setting the compensation of our Chief Executive Officer based on this evaluation;

​

•

approving the salaries and annual incentive awards of each of our other named, as well as our other executive officers who report directly to our Chief Executive Officer or the President of our primary U.S. operating subsidiary, Essent Guaranty, Inc., including each of our senior vice presidents, taking into account the recommendation of our Chief Executive Officer and such other information as the Compensation Committee believes is appropriate;

​

•

administering our equity incentive plans, including authorizing grants of restricted common shares, restricted common share units, performance units, options and other equity-based awards under these plans;

​

•

retaining and terminating, in its sole discretion, third party consultants to assist in the evaluation of director and executive compensation (with sole authority to approve any such consultant’s fees and other terms of engagement); and

​

•

assessing the appropriate structure and amount of compensation for our directors.

​

The Compensation Committee is made up entirely of  “independent” directors, consistent with the current listing standards of the NYSE. Each member of the Committee also qualifies as a “non-employee director” as defined under Section 16 of the Securities Exchange Act of 1934. By the terms of its charter, the Compensation Committee may form and delegate any of its responsibilities, as permitted by applicable laws and regulations, to a subcommittee composed of one or more members of the Committee.

Role of Management and the Chief Executive Officer in Compensation Decisions

The Compensation Committee strongly believes in aligning the interests of our named executive officers and other executives with those of our shareholders through an executive compensation program designed with input from our Chief Executive Officer who is in regular dialogue with the Committee and, as appropriate, the Committee’s independent compensation consultant, regarding internal, external, cultural, business and motivational challenges and opportunities facing us and our executive talent. To that end, our management team analyzes, with assistance from the Committee’s independent compensation consultant, trends and may recommend improvements to the compensation programs.

Our Compensation Committee seeks the views of our Chief Executive Officer in setting and administering our executive compensation programs. In particular, at the beginning of each year, Mr. Casale, the Chairman of our Board of Directors and our Chief Executive Officer, oversees the development of corporate and individual goals for purposes of annual and long-term compensation of each of our named executive officers (other than himself). These goals are derived from our corporate business plan and include both quantitative measurements and qualitative considerations selected to reinforce and enhance achievement of our operating and growth objectives. The Compensation Committee reviews these goals with Mr. Casale, adopts revisions it deems appropriate and determines the final goals for annual and long-term compensation.

 

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Following the end of each year, Mr. Casale reviews with the Compensation Committee the achievement of corporate, business unit/regional and individual goals and the performance of each named executive officer (other than himself), and presents his recommendations (without any recommendation as to his own compensation) regarding base salary adjustments, annual bonus, and long-term equity awards for our named executive officers (other than his own) to ensure alignment of shareholder interests with each executive’s goals as well as to reward the executive for their performance. Although the Committee receives management’s input with respect to executive compensation, all decisions regarding compensation for our named executive officers are made by the Committee. With respect to the non-quantitative performance measures applicable to our named executive officers, the Compensation Committee relies heavily on the views of Mr. Casale (other than as to himself). As our Chief Executive Officer, Mr. Casale oversees the day-to-day performance of the other named executive officers. As such, our Compensation Committee believes that he is well positioned to evaluate their performance and make recommendations as to their overall compensation.

Independent Compensation Advisor

The Compensation Committee has the power to hire and fire independent compensation consultants, legal counsel, or financial or other advisors as it may deem necessary to assist it in the performance of its duties and responsibilities, without consulting or obtaining the approval of the Company’s management. The Committee recognizes the importance of objective, independent expertise and advice in carrying out its responsibilities. The Compensation Committee continued to retain Korn Ferry as its independent compensation consultant through 2022. Korn Ferry reports directly to, and is directly accountable to, the Committee, and the Committee has the sole authority to retain, terminate, and obtain the advice of Korn Ferry at the Company’s expense. The Compensation Committee has selected Korn Ferry as its consultant because of its expertise and reputation and the fact that Korn Ferry has no other ties to management that could jeopardize its fully independent status, and has strong internal governance policies that help ensure that it maintains its independence. The Compensation Committee partnered with Korn Ferry throughout 2022 on various executive compensation matters, including a review of the Company’s compensation programs. The Committee, with the assistance of its independent compensation consultant, monitors market compensation practices and developments, as well as the appropriateness of the various components of the executive pay program, as our business progresses and evolves with anticipated growth and changing market conditions.

The Compensation Committee annually assesses the independence of Korn Ferry pursuant to the rules of the SEC and the listing standards of the NYSE rules. In performing the annual independence assessment, the Committee considers various factors bearing on adviser independence, including the nature and amount of work performed for the Committee during the year, the nature of any unrelated services performed for the Company, the amount of fees paid for those services in relation to the firm’s total revenues, the adviser’s policies and procedures designed to prevent conflicts of interest, and the existence of any business or personal relationship that could impact the adviser’s independence. Pursuant to SEC and NYSE rules, the Committee assessed the independence of Korn Ferry and determined that Korn Ferry’s work for the committee has not raised any conflicts of interest. During 2022, we paid Korn Ferry approximately $70,000 in fees for its services to the Compensation Committee relating to executive and director compensation.

Peer Group Composition

In making compensation decisions, the Compensation Committee considers competitive market data presented by its independent compensation consultant, including data derived from a peer group of companies approved by the Committee.

In selecting peers, the Compensation Committee seeks to maintain consistency from year to year, to the extent appropriate, and the Compensation Committee’s intention is to update its peer group every other year (other than for events potentially calling for the immediate elimination of a peer group member, such as a merger, acquisition, or bankruptcy of a peer group member). The Compensation Committee selected the members of this peer group based on the consideration of

 

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the size (measured by both revenue and market capitalization), industry, the organizational complexity of each company, the companies that we compete with for experienced executives, and the recommendations of its independent compensation consultant.

The Compensation Committee elected to continue to use the same peer group for purposes of evaluating compensation for 2022 that was used in 2021, consisting of the following 14 publicly traded companies:

Compensation Objectives and Principles

The Compensation Committee believes that the establishment and maintenance of a competitive executive compensation program is in the best interests of our shareholders. Consistent with our compensation philosophy, the executive compensation program approved by the Compensation Committee is designed to facilitate the attraction and retention of top-caliber talent, and to align the interests of our executives with those of our shareholders. For our fiscal year 2022:

•

target cash compensation of our named executive officers was determined to target the 25th to 50th percentiles of our peer group (see “—Peer Group Composition” above); and

​

•

annual incentive opportunities for our named executive officers as a percentage of base salary were determined to target the 50th percentile (median) relative to our peer group.

​

Elements of Compensation

In accordance with our overall compensation philosophy and program, executives are provided with a mix of base salary, annual incentives, long-term incentives, and retirement and welfare benefits. Our compensation philosophy places a greater portion of the potential compensation for each named executive officer “at risk” such that compensation will vary based on performance. The following table describes the key elements of compensation and the philosophy behind providing each such element:

 

39

 

The Compensation Committee reviews all elements that collectively contribute to total compensation rather than any specific formula to determine the allocation between performance-based and guaranteed compensation in making its decisions each year. This process ensures that judgments made in respect of any individual element of compensation are taken in the context of

 

40

 

the total compensation that an individual receives, particularly the balance between base salary, annual incentives and long-term incentives.

Base Salary

Base salaries are an important element of compensation and provide our executive officers with a fixed rate of cash compensation that is “non-variable” during the relevant period. In determining base pay, our Compensation Committee considers the executive’s responsibilities, growth potential, individual performance against predetermined objectives, base salary competitiveness as compared to the external market, and our operating performance.

Although the Compensation Committee targeted base salary for 2022 between the 25th and 50th percentiles of our peer group (see “—Peer Group Composition” above), actual base salary may be above or below that range based on the Committee’s review of the underlying scope of a named executive officer’s responsibilities, individual performance and experience, internal pay equity, and retention concerns. The Compensation Committee strives to maintain base salaries at levels that will attract top talent, while linking a significant portion of an executive’s total compensation opportunity to our success.

The annual base salaries for our named executive officers for 2022 were:

(1)

Effective June 28, 2022, upon his appointment as interim Chief Financial Officer, the Company agreed to pay Mr. Weinstock an additional cash bonus of  $25,000 per month for each month in which he serves in such interim capacity.

​

Performance-Based Annual Incentive Compensation

Our Board of Directors approved, and our shareholders first adopted, the Essent Group Ltd. Annual Incentive Plan in 2013, which we refer to as the “Annual Plan.” The Annual Plan was re-approved by our shareholders at our 2017 Annual General Meeting of Shareholders.

In 2022, incentive awards were made under our annual leadership bonus program pursuant to the Annual Plan. The Annual Plan is intended to advance the interests of the Company and its shareholders by:

•

providing those employees designated by the Compensation Committee, which may include our named executive officers, senior vice presidents, other senior executives, and other employees, incentive compensation tied to pre-established performance goals;

​

•

identifying and rewarding superior performance;

​

•

providing competitive compensation to attract, motivate, and retain outstanding employees who achieve superior performance for us; and

​

•

fostering accountability and teamwork throughout the Company.

​

In accordance with the terms of the Annual Plan, the Compensation Committee established our fiscal year (which coincides with the calendar year) as the performance period, designated those executives eligible to participate, set the level of potential awards, and determined the financial targets or other performance measures which, if attained, result in payment of awards under our annual leadership bonus program for 2022.

 

41

 

 

42

 

 

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Based on the achievement of corporate and, as applicable, individual, performance goals, the Compensation Committee approved annual incentive awards in the following amounts for each of our named executive officers, all of which was paid in cash.

(1)

For each of named executive officers other than Mr. Weinstock, the annual incentive bonus for 2022 was paid entirely in cash in February 2023. With respect to Mr. Weinstock, 75% of the annual incentive award was paid in cash in February 2023 and 25% was paid in the form of restricted common share units which vest in three equal annual installments commencing on March 1, 2023 subject to Mr. Weinstock’s continuous employment through each such vesting date.

​

 

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Discretionary Bonus Awards

In February 2023, the Compensation Committee approved a discretionary bonus award to each of Messrs. Casale and Weinstock in excess of his respective annual incentive opportunity potentially payable pursuant to our Annual Plan. These discretionary bonuses were awarded in recognition of contributions to the Company’s strong financial and operating performance and the achievement of significant strategic objectives during 2022. These additional amounts, when added to the amount payable pursuant to our Annual Plan, result in payouts that are comparable to the annual incentive compensation, as a percentage of target annual incentive compensation, historically paid to our named executive officers. The amount of the discretionary bonus award paid to each of Mr. Casale and Mr. Weinstock is set forth in the table below.

(1)

The discretionary bonus paid to Mr. Casale for 2022 was paid in cash in February 2023. 75% of the discretionary bonus for Mr. Weinstock was paid in cash in February 2023, with the remaining 25% was paid in the form of restricted common share units which vest in three equal annual installments commencing on March 1, 2023 subject to Mr. Weinstock’s continuous employment through each such vesting date.

​

Long-Term Equity Incentive Compensation

Through our long-term equity incentive program, we provide our senior executives, including each of our named executive officers, the opportunity to earn equity awards which are in part contingent on the attainment of multi-year performance goals. Our long-term equity incentive awards provide balanced equity incentives that reward executives’ focus on delivering both financial results and long-term growth. Equity-based compensation is used in order to facilitate retention, provide long-term motivation and focus our executives on increasing shareholder value. In addition, we believe that our long-term equity incentive compensation program balances the risks associated with short-term incentive compensation that may reward behavior with short-term benefits that may be less beneficial over the long-term. The target long-term equity incentive awards are designed to achieve, when combined with the executive’s base salary and target annual incentive compensation opportunity, total compensation at approximately the 50th percentile of comparable positions at peer group companies (see “—Peer Group Composition” above).

For 2022, the target annual long term equity incentive awards for our named executive officers (other than Mr. Weinstock) were as follows:

•

Mr. Casale—600% of his annual base salary, with 75% of such award being subject to performance- and time-based vesting and 25% being subject to time-based vesting over a three-year period; and

​

•

Messrs. Curran and Bhasin and Ms. Gibbons—200% of his or her respective annual base salary, with 50% of such award being subject to performance- and time-based vesting and 50% being subject to time-based vesting over a three-year period.

​

 

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The following table sets forth the annual long term equity incentive awards granted to our named executive officers in 2022:

(1)

Represents maximum number of shares that may vest under the awards if the applicable performance metrics are satisfied at the maximum levels.

​

The time-vested restricted common shares vest in equal annual installments during the three-year period commencing on March 1, 2022, subject to the executive’s continuous employment through each such vesting date.

The performance-vested shares, which were issued at the maximum 200% of target, become earned upon the Company’s achievement of a combination of compounded annual book value per share growth percentage and relative total shareholder return percentage as set out in the following table (with straight line interpolation between the respective levels) during the three-year performance period commencing on January 1, 2022, and any earned shares will vest on March 1, 2025, subject to the executive’s continuous employment through such date:

In February 2022, Mr. McAlee received awards for 10,659 restricted shares subject to time based vesting and 21,318 shares subject to time- and performance-based vesting on term identical to the awards discussed above to each of our other named executive officers. See “—Compensation Arrangements with Former Executive” below and “—Payments to Former Executive Officer” beginning on page 60 for a discussion of the treatment of these awards upon the termination of Mr. McAlee’s employment on December 31, 2022.

Mr. Weinstock received a total of 1,433 restricted common share units in February 2022 which vest in equal annual installments during the three-year period commencing on March 1, 2022, subject to Mr. Weinstock’s continuous employment through each such vesting date. These restricted common share units represent 25% of the value of Mr. Weinstock’s annual incentive bonus for 2021.

All outstanding restricted common shares are eligible to participate in our quarterly dividends, with any dividends in respect of unvested shares retained by the Company until such time, if ever, as the underlying share is vested. Retained dividends made in cash will be deemed reinvested in notional common shares (“dividend equivalent rights”) such that upon release and distribution of such retained dividend to the award holder, the executive will be entitled to receive on the date of such release an amount of cash or the number of whole shares or a combination thereof, as determined by our Compensation Committee, the aggregate fair value of which will be equal to the fair market value of the notional common share to which such released retained dividends relate.

 

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Compensation Arrangement with Former Executive

Effective June 28, 2022, Lawrence McAlee ceased to serve as our senior vice president and chief financial officer. Mr. McAlee subsequently served as a special advisor to our Chief Executive Officer to provide transition support through December 31, 2022. In connection with his employment termination, we entered into a letter agreement with Mr. McAlee dated June 28, 2022 which memorialized the nature of his separation and his continuing obligations to the Company pursuant to certain restrictive covenants, and provided that his receipt of any severance benefits was contingent on his execution and non-revocation of a release of claims in favor of the Company upon the termination of his employment on December 31, 2022. In connection with his separation from service with the Company, Mr. McAlee received certain severance payments and benefits (including the vesting of certain equity awards) consistent with a termination by us without “cause” under his employment agreement. Mr. McAlee also received a transition bonus upon stepping down as our senior vice president and chief financial officer. Mr. McAlee remains subject to certain restrictive covenants for 18 months following his termination, as contemplated by his employment agreement. See “—Payments to Former Executive Officer” beginning on page 60 below.

Other Elements of Compensation

As described below, we also provide certain retirement benefits and welfare benefits to our named executive officers.

Retirement Benefits

Our eligible employees, including each of our named executive officers, are eligible to participate in a tax-qualified 401(k) retirement plan. In addition to being able to make contributions (up to tax law limits), participants are eligible for a Company matching contribution of 100% of their contributions up to 5% of their eligible compensation. The matching contribution is provided on the same basis to our named executive officers as all other employees who participate in the plan. The amounts contributed to the 401(k) plan on behalf of each of the named executive officers are listed in the Summary Compensation Table elsewhere in this proxy statement.

Perquisites

We do not have a formal perquisite policy and do not emphasize special perquisites for our executive officers, although the Compensation Committee periodically reviews perquisites for our named executive officers. Rather, there are certain specific perquisites we have agreed to provide particular executives based on their specific situations. In particular, each of our named executive officers is entitled to participate in the Company’s financial counseling and diagnostic wellness programs as in effect from time to time.

Medical and Other Welfare Benefits

Our named executive officers, along with all of our other employees, are eligible to participate in medical, dental, life, accidental death and disability, long-term disability, short-term disability, and other employee benefits. The purpose of these plans is to provide competitive benefits to our employees and to help to attract and retain employees by offering a comprehensive package of benefits.

Termination, Severance and Change in Control Benefits

The employment agreements with each of Messrs. Casale, Curran and Bhasin and Ms. Gibbons provide severance payments and benefits upon certain qualifying terminations of employment. In addition, upon certain qualifying terminations following, or in some circumstances upon the occurrence of, a change in control, Messrs. Casale, Curran and Bhasin and Ms. Gibbons may be entitled to receive certain vesting of their outstanding restricted common share awards pursuant to the terms of their respective employment agreement or the terms of our equity incentive plans.

Based on the input of its independent compensation consultant, the Compensation Committee determined that these arrangements are appropriate and that the payments and benefits provided

 

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for under these arrangements upon certain qualifying terminations of employment or in connection with a change in control are consistent with market practice and essential in attracting and retaining key talent. In addition, the change in control provisions are significant to ensure that we have the continued attention and dedication of our executives during circumstances that could result in a change in control. These provisions are further described beginning on page 56 (“—Potential Payments and Benefits upon Termination or Change in Control”).

Impact of FASB ASC Topic 718

The accounting standards applicable to the various forms of long-term incentive plans under FASB ASC Topic 718 is one factor that the Compensation Committee and the Company consider in the design of long-term equity incentive programs. Other factors include the link to the performance that each vehicle provides, the degree of upside leverage and downside risk inherent in each vehicle, the impact on dilution and overhang that the vehicles have, and the role that each vehicle has in the attraction, retention, and motivation of our named executive officers and other key employee talent. The Company and its external financial advisors consider FASB ASC Topic 718 expense to ensure that it is reasonable, but expense will not be the most important factor in making decisions about awards under long-term incentive plans.

Tax Considerations and Deductibility of Compensation

The deductibility of compensation paid to any person who served as our Chief Executive Officer or Chief Financial Officer at any point during the fiscal year, any other person who is among the three highest compensated officers for the fiscal year and any other person who was a covered employee for any fiscal year beginning after December 31, 2016 is generally limited under Section 162(m) of the US Tax Code to the extent it exceeds $1 million in a given year. Our compensation philosophy strongly emphasizes performance-based compensation for our executive officers, which historically minimized the consequences of the Section 162(m) limit on deductibility. Regardless, the committee believed and continues to believe that the tax deduction limitation should not compromise its ability to design and maintain executive compensation arrangements necessary to attract and retain strong executive talent. Accordingly, achieving the desired flexibility in the design and delivery of compensation may result in compensation that in certain cases is not deductible for federal income tax purposes.

Share Ownership Guidelines

Both our non-employee directors as well as our senior executives (which we define as our Chief Executive Officer and each of his direct reports and includes all of our named executive officers) are required to maintain certain ownership levels of common shares during their service (see “Corporate Governance—Share Ownership Guidelines” on page 26 for additional information).

No Hedging Policy

Our named executive officers are prohibited from hedging their ownership or offsetting any decline in the market value of our common shares, including by trading in publicly-traded options, puts, calls or other derivative instruments related to our common shares.

 

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