XML 37 R20.htm IDEA: XBRL DOCUMENT v3.25.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
For the year ended December 31, 2024, the statutory income tax rates of the countries where the Company does business are 21% in the United States and 0.0% in Bermuda. The statutory income tax rate of each country is applied against the taxable income from each country to calculate the income tax expense.
Income tax expense which is generated in the U.S. consists of the following components for the years ended December 31:
(In thousands)202420232022
Current$93,914 $139,859 $98,666 
Deferred32,174 (13,246)58,168 
Total income tax expense$126,088 $126,613 $156,834 
For the year ended December 31, 2024, pre-tax income attributable to Bermuda and U.S. operations was $277.0 million and $578.5 million, respectively, as compared to $268.8 million and $554.2 million, respectively, for the year ended December 31, 2023 and $282.5 million and $705.6 million, respectively, for the year ended December 31, 2022.
Income tax expense is different from that which would be obtained by applying the applicable statutory income tax rates to income before taxes by jurisdiction as of December 31, 2024 (i.e. U.S. 21%; Bermuda 0.0%). The reconciliation of the difference between income tax expense and the expected tax provision at the weighted average tax rate was as follows for the years ended December 31:
202420232022
($ in thousands)$% of pretax
income		$% of pretax
income		$% of pretax
income
Tax provision at weighted average statutory rates
$121,227 14.2 %$116,389 14.1 %$148,176 15.0 %
State taxes, net of federal benefit4,478 0.5 4,872 0.6 6,306 0.6 
Non-deductible expenses3,542 0.4 4,501 0.5 4,041 0.4 
Tax exempt interest, net of proration(1,357)(0.2)(1,551)(0.2)(1,463)(0.1)
Excess tax (benefit) deficit from stock-based compensation(668)(0.1)145 — 75 — 
Other(1,134)(0.1)2,257 0.4 (301)0.0 
Total income tax expense$126,088 14.7 %$126,613 15.4 %$156,834 15.9 %

We provide deferred taxes to reflect the estimated future tax effects of the differences between the financial statement and tax bases of assets and liabilities using currently enacted tax laws. The net deferred tax liability was comprised of the following at December 31:
(In thousands)20242023
Deferred tax assets$81,769 $75,864 
Deferred tax liabilities(474,197)(438,617)
Net deferred tax liability$(392,428)$(362,753)

Our net deferred tax liability presented above and on our consolidated balance sheet relates to deferred tax items recognized within the U.S. In addition, we have recorded a deferred tax asset within Bermuda's jurisdiction related to unrealized losses on investment for sale securities in the amount of $5.3 million as of December 31, 2024, which is included in Other Assets in our consolidated balance sheet.
The components of the net deferred tax liability were as follows at December 31:
(In thousands)20242023
Contingency reserves$(459,555)$(425,360)
Unrealized (gain) loss on investments47,725 45,226 
Unearned premium reserve12,318 11,978 
Investments in limited partnerships(12,918)(11,258)
Accrued expenses7,521 6,404 
Fixed assets5,445 4,433 
Unearned ceding commissions1,610 2,066 
Change in fair market value of derivatives2,436 1,972 
Deferred policy acquisition costs(1,450)(1,779)
Nonvested shares2,807 1,938 
Loss reserves1,295 1,033 
Start-up expenditures, net722 884 
Impairments on available-for-sale investment securities— 38 
Prepaid expenses(255)(220)
Other
(129)(108)
Net deferred tax liability$(392,428)$(362,753)
As a mortgage guaranty insurer, we are eligible for a tax deduction, subject to certain limitations, under Section 832(e) of the Internal Revenue Code ("IRC") for amounts required by state law or regulation to be set aside in statutory contingency reserves. The deduction is allowed only to the extent that we purchase T&L Bonds in an amount equal to the tax benefit derived from deducting any portion of our statutory contingency reserves. During the year ended December 31, 2024, we had net purchases of T&L Bonds in the amount of $19.0 million and had net purchases of T&L Bonds in the amount of $52.2 million during the year ended December 31, 2023. As of December 31, 2024 and 2023, we held $489.6 million and $470.6 million of T&L Bonds, respectively.
In evaluating our ability to realize the benefit of our deferred tax assets, we consider the relevant impact of all available positive and negative evidence including our past operating results and our forecasts of future taxable income. For the year ended December 31, 2024, the Company had unrealized losses attributable to its available-for-sale investment securities that if sold would result in capital losses. Accordingly, management considered the ability and intent to hold such available-for-sale securities until recovery. At December 31, 2024 and 2023, after weighing all the evidence, management concluded that it was more likely than not that our ordinary and capital deferred tax assets would be realized.
Under current Bermuda law, our parent company, Essent Group, and its Bermuda subsidiary, Essent Re, are not required to pay any taxes on income and capital gains as of December 31, 2024. On December 27, 2023, the Government of Bermuda enacted the Corporate Income Tax Act 2023 ("CIT"). Starting January 1, 2025, the CIT will result in a new 15% corporate income tax on in-scope entities that are resident in Bermuda or that have a Bermuda permanent establishment, without regard to any assurances that had previously been given pursuant to the Exempted Undertakings Tax Protection Act 1966. The CIT also includes various transitional provisions and elections that we are in the process of evaluating. In particular, we believe that, based on their current structure and operations, our Bermuda companies will be eligible to elect a five-year “limited international presence” exemption under the CIT. We intend to make this election within the timeframe required under Bermuda law, and therefore do not expect the CIT to have a material impact on Essent's effective tax rate until we no longer meet the exemption criteria, or January 1, 2030, the fifth anniversary of the inception date of the tax, whichever may occur sooner. The exemption criteria are subject to interpretation of existing Bermuda law, as well any related new regulations that may be issued by the Government of Bermuda. No assurances can be made that we will continue meeting such criteria for the entire five-year period.
Essent Holdings and its subsidiaries are subject to income taxes imposed by U.S. law and file a U.S. Consolidated Income Tax Return. Should Essent Holdings pay a dividend to its parent company, Essent Irish Intermediate Holdings Limited, withholding taxes at a rate of 5% under the U.S./Ireland tax treaty would likely apply assuming the Company avails itself of Treaty benefits under the U.S./Ireland tax treaty. Absent treaty benefits, the withholding rate on outbound dividends would be 30%. Currently, however, no withholding taxes are accrued with respect to such unremitted earnings as management has no
intention of remitting these earnings. Similarly, no foreign income taxes have been provided on the unremitted earnings of the Company's U.S. subsidiaries as management has neither the intention of remitting these earnings, nor would any Ireland tax be due, as any Irish tax would be expected to be fully offset by credit for taxes paid to the U.S. An estimate of the cumulative amount of U.S. earnings that would be subject to withholding tax, if distributed outside of the U.S., is approximately $4.5 billion. The associated withholding tax liability under the U.S./Ireland tax treaty would be approximately $226.8 million.
Essent is not subject to income taxation other than as stated above. There can be no assurance that there will not be changes in applicable laws, regulations, or treaties which might require Essent to change the way it operates or becomes subject to taxation.
At December 31, 2024 and 2023, the Company had no unrecognized tax benefits. As of December 31, 2024, the U.S. federal income tax returns for the tax years 2020 through 2023 remain subject to examination. The Company has not recorded any uncertain tax positions as of December 31, 2024 or December 31, 2023.