Essent Group Ltd.ESNT
Essent Group Ltd. Fair Value Disclosure
Fair Value of Financial Instruments
We carry certain of our financial instruments at fair value. We define fair value as the current amount that would be exchanged to sell an asset or transfer a liability, other than in a forced liquidation.
Fair Value Hierarchy
ASC No. 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. The level within the fair value hierarchy to measure the financial instrument shall be determined based on the lowest level input that is significant to the fair value measurement. The three levels of the fair value hierarchy are as follows:
•Level 1—Quoted prices for identical instruments in active markets accessible at the measurement date.
•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and valuations in which all significant inputs are observable in active markets. Inputs are observable for substantially the full term of the financial instrument.
•Level 3—Valuations derived from one or more significant inputs that are unobservable.
Determination of Fair Value
When available, we generally use quoted market prices to determine fair value and classify the financial instrument in Level 1. In cases where quoted market prices for similar financial instruments are available, we utilize these inputs for valuation techniques and classify the financial instrument in Level 2. In cases where quoted market prices are not available, fair values are based on estimates using discounted cash flows, present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rates and estimates of future cash flows and we classify the financial instrument in Level 3. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
We used the following methods and assumptions in estimating fair values of financial instruments:
•Investments available for sale—Investments available for sale are valued using quoted market prices in active markets, when available, and those investments are classified as Level 1 of the fair value hierarchy. Level 1 investments available for sale include investments such as U.S. Treasury securities and money market funds. Investments available for sale are classified as Level 2 of the fair value hierarchy if quoted market prices are not available and fair values are estimated using quoted prices of similar securities or recently executed transactions for the securities. U.S. agency securities, U.S. agency mortgage-backed securities, municipal debt securities, non-U.S. government securities, corporate debt securities, residential and commercial mortgage securities and asset-backed securities are classified as Level 2 investments.
We use independent pricing sources to determine the fair value of securities available for sale in Level 1 and Level 2 of the fair value hierarchy. We use one primary pricing service to provide individual security pricing based on observable market data and receive one quote per security. To ensure securities are appropriately classified in the fair value hierarchy, we review the pricing techniques and methodologies of the independent pricing service and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded. U.S. agency securities, U.S. agency mortgage-backed securities, municipal debt securities, non-U.S. government securities, and corporate debt securities are valued by our primary vendor using recently executed transactions and proprietary models based on observable inputs, such as interest rate spreads, yield curves and credit risk. Residential and commercial mortgage securities and asset-backed securities are valued by our primary vendor using proprietary models based on observable inputs, such as interest rate spreads, prepayment speeds and credit risk. As part of our evaluation of investment prices provided by our primary pricing service, we obtained and reviewed their pricing methodologies which include a description of how each security type is evaluated and priced. We review the reasonableness of prices received from our primary pricing service by comparison to prices obtained from additional pricing sources. We have not made any adjustments to the prices obtained from our primary pricing service.
Assets and Liabilities Measured at Fair Value
All assets measured at fair value are categorized in the table below based upon the lowest level of significant input to the valuations. All fair value measurements at the reporting date were on a recurring basis.
| December 31, 2025 (In thousands) | Quoted Prices in Active Markets for Identical Instruments (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||||||||||||
| Recurring fair value measurements | ||||||||||||||||||||||||||
| Financial Assets: | ||||||||||||||||||||||||||
| U.S. Treasury securities | $ | 369,712 | $ | — | $ | — | $ | 369,712 | ||||||||||||||||||
| U.S. agency mortgage-backed securities | — | 1,174,895 | — | 1,174,895 | ||||||||||||||||||||||
| Municipal debt securities | — | 610,411 | — | 610,411 | ||||||||||||||||||||||
| Non-U.S. government securities | — | 56,024 | — | 56,024 | ||||||||||||||||||||||
| Corporate debt securities | — | 1,980,080 | — | 1,980,080 | ||||||||||||||||||||||
| Residential and commercial mortgage securities | — | 464,105 | — | 464,105 | ||||||||||||||||||||||
| Asset-backed securities | — | 800,366 | — | 800,366 | ||||||||||||||||||||||
| Money market funds | 648,492 | — | — | 648,492 | ||||||||||||||||||||||
| Total assets at fair value (1) (2) | $ | 1,018,204 | $ | 5,085,881 | $ | — | $ | 6,104,085 | ||||||||||||||||||
| December 31, 2024 (In thousands) | Quoted Prices in Active Markets for Identical Instruments (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||||||||||||
| Recurring fair value measurements | ||||||||||||||||||||||||||
| Financial Assets: | ||||||||||||||||||||||||||
| U.S. Treasury securities | $ | 547,290 | $ | — | $ | — | $ | 547,290 | ||||||||||||||||||
| U.S. agency mortgage-backed securities | — | 1,125,436 | — | 1,125,436 | ||||||||||||||||||||||
| Municipal debt securities | — | 583,501 | — | 583,501 | ||||||||||||||||||||||
| Non-U.S. government securities | — | 69,798 | — | 69,798 | ||||||||||||||||||||||
| Corporate debt securities | — | 1,783,046 | — | 1,783,046 | ||||||||||||||||||||||
| Residential and commercial mortgage securities | — | 478,086 | — | 478,086 | ||||||||||||||||||||||
| Asset-backed securities | — | 631,959 | — | 631,959 | ||||||||||||||||||||||
| Money market funds | 657,605 | — | — | 657,605 | ||||||||||||||||||||||
Total assets at fair value (1) (2) | $ | 1,204,895 | $ | 4,671,826 | $ | — | $ | 5,876,721 | ||||||||||||||||||
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(1)Does not include the fair value of embedded derivatives, which we have accounted for separately as freestanding derivatives and included in other assets or other accrued liabilities in our consolidated balance sheet. See Note 5 for more information.
(2)Does not include certain other invested assets that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient, as applicable accounting standards do not provide for classification within the fair value hierarchy.
Assets and Liabilities Not Carried at Fair Value
Our Senior Notes are carried at amortized cost, net of issuance costs, on our condensed consolidated balance sheets. As of December 31, 2025 and 2024, the carrying amount was $495.3 million and $494.0 million, respectively, and the estimated fair value was $522.6 million and $510.8 million, respectively. The fair value of our Senior Notes is estimated based on quoted market prices.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 18, 2026 | Showing above |
| 2024 | Feb 19, 2025 | |
| 2023 | Feb 16, 2024 | |
| 2022 | Feb 17, 2023 | |
| 2021 | Feb 16, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Feb 18, 2020 | |
| 2018 | Feb 19, 2019 | |
| 2017 | Feb 20, 2018 | |
| 2016 | Feb 16, 2017 | |
| 2015 | Feb 29, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.