Enact Holdings, Inc. (Nasdaq: ACT) today announced financial
results for the first quarter of 2023.
“The first quarter marked a strong start to the year for Enact
in a dynamic environment,” said Rohit Gupta, President and CEO of
Enact. “With record insurance in force, we continued to write
profitable new business while prudently managing our risk and
driving cost efficiency. We’re well positioned with a strong
balance sheet and financial flexibility, and we remain focused on
the continued execution of our cycle-tested growth strategy as we
navigate the current market and advance our mission of helping
people achieve the dream of homeownership.”
Key Financial Highlights
(In millions, except per share data or otherwise noted) |
1Q23 |
4Q22 |
1Q22 |
Net Income (loss) |
$176 |
$144 |
$165 |
Diluted Net Income (loss) per share |
$1.08 |
$0.88 |
$1.01 |
Adjusted Operating Income (loss) |
$176 |
$147 |
$165 |
Adj. Diluted Operating Income (loss) per share |
$1.08 |
$0.90 |
$1.01 |
NIW ($B) |
$13 |
$15 |
$19 |
Primary IIF ($B) |
$253 |
$248 |
$232 |
Persistency |
85% |
86% |
76% |
Net Premiums Earned |
$235 |
$233 |
$234 |
Losses Incurred |
$(11) |
$18 |
$(10) |
Loss Ratio |
(5)% |
8% |
(4)% |
Operating Expenses |
$54 |
$63 |
$57 |
Expense Ratio |
23% |
27% |
24% |
Net Investment Income |
$45 |
$45 |
$35 |
Return on Equity |
16.8% |
14.0% |
16.2% |
Adjusted Operating Return on Equity |
16.7% |
14.4% |
16.2% |
PMIERs Sufficiency ($) |
$2,098 |
$2,050 |
$2,261 |
PMIERs Sufficiency (%) |
164% |
165% |
176% |
First Quarter 2023 Financial and Operating
Highlights
- Net income was $176 million, or $1.08 per diluted share,
compared with $144 million, or $0.88 per diluted share, for the
fourth quarter of 2022 and $165 million, or $1.01 per diluted
share, for the first quarter of 2022. The sequential increase in
net income was primarily driven by the favorable reserve release of
$70 million. The year-over-year increase in net income was
primarily driven by the increase in net investment income.
- Adjusted operating income was $176 million, or $1.08 per
diluted share, compared with $147 million, or $0.90 per diluted
share, for the fourth quarter of 2022 and $165 million, or $1.01
per diluted share, for the first quarter of 2022.
- New insurance written (NIW) was $13 billion, down 13% from $15
billion in the fourth quarter of 2022, which included a one-time
seasoned deal. Excluding this deal, NIW was down 9% sequentially
and down 30% from $19 billion in the first quarter of 2022, due to
a decline in originations as a result of elevated mortgage rates.
NIW for the current quarter was comprised of 97% monthly premium
policies and 97% purchase originations.
- Primary Insurance-In-Force was a record $253 billion, up 2%
from $248 billion in the fourth quarter of 2022 and up 9% from $232
billion in the first quarter of 2022, driven by NIW and elevated
persistency.
- Persistency was 85%, down from 86% in the fourth quarter of
2022 and up from 76% in the first quarter of 2022. Persistency has
remained elevated driven by high mortgage rates and a low
percentage of our portfolio with rates 50 basis points above
current market rates.
- Net premiums earned were $235 million, up 1% from $233 million
in the fourth quarter of 2022 and relatively flat from $234 million
in the first quarter of 2022. Net earned premium yield was down
from the fourth quarter of 2022 and the first quarter of 2022, as a
result of the continued lapse of older, higher priced policies and
lower single premium cancellations as compared to the first quarter
of 2022.
- Losses incurred for the first quarter of 2023 were $(11)
million and the loss ratio was (5)%, compared to $18 million and
8%, respectively, in the fourth quarter of 2022 and $(10) million
and (4)%, respectively, in the first quarter of 2022. The
sequential favorability was driven by a reserve release of $70
million primarily from cures on COVID related delinquencies and
compares to a net reserve release of $42 million in the fourth
quarter of 2022 and $50 million in the first quarter of 2022.
- The delinquency rate at quarter end was 1.93%, compared to
2.08% as of December 31, 2022 and 2.40% as of March 31,
2022.
- Operating expenses in the current quarter were $54 million and
the expense ratio was 23%, compared to $63 million and 27%,
respectively, in the fourth quarter of 2022 and $57 million and
24%, respectively in the first quarter of 2022. The decline in
operating expenses primarily reflects the impact of our cost
reduction initiatives, including the impact from our previously
announced renegotiated shared services agreement with Genworth and
our voluntary separation program executed in the fourth quarter of
2022.
- Net investment income was $45 million, flat from $45 million
for the fourth quarter of 2022 and up from $35 million in the first
quarter of 2022, driven by rising interest rates and higher average
invested assets.
- Annualized return on equity for the first quarter of 2023 was
16.8% and annualized adjusted operating return on equity was 16.7%.
This compares to fourth quarter 2022 results of 14.0% and 14.4%,
respectively, and to first quarter 2022 results of 16.2% and 16.2%,
respectively. The sequential increase in both return on equity and
adjusted operating return on equity were driven, in part, by the
reserve release in the current quarter.
Capital and Liquidity
- During the quarter, Fannie Mae and Freddie Mac (the “GSEs”)
confirmed that the GSE restrictions first imposed upon Enact after
issuance of the August 2020 senior notes were lifted and we are no
longer subject to the GSE conditions.
- We executed an excess of loss reinsurance transaction with a
panel of reinsurers, which provides up to $180 million of
reinsurance coverage on a portion of current and expected new
insurance written for the 2023 book year, effective January 1,
2023.
- PMIERs sufficiency was 164% and $2,098 million above the PMIERs
requirements, compared to 165% and $2,050 million above the PMIERs
requirements in the fourth quarter of 2022. PMIERs sufficiency for
the quarter was relatively flat as an increase in available assets
and current period CRT transaction were mostly offset by the
increase in required assets on NIW and the amortization of existing
reinsurance transactions.
- PMIERs sufficiency benefited from a 0.30 multiplier applied to
the risk-based required asset factor for certain non-performing
loans, which resulted in a reduction of the PMIERs required assets
by an estimated $120 million at the end of the current quarter,
compared to $132 million at the end of the fourth quarter 2022 and
$272 million at the end of the first quarter 2022. These amounts
are gross of incremental reinsurance benefits from the elimination
of the 0.30 multiplier.
- Enact Holdings, Inc. held $142 million of cash and $252 million
of invested assets as of March 31, 2023. Combined cash and
invested assets decreased $59 million from the prior quarter, due
to the semi-annual interest payment on our 2020 debt issuance, the
share buyback program and our first quarter common dividend.
- In February, S&P Global Ratings (“S&P”) upgraded the
long-term financial strength and issuer credit ratings for our
flagship insurance subsidiary, Enact Mortgage Insurance Corporation
(“EMICO”), to BBB+ from BBB. S&P also announced they raised the
long-term issuer credit rating on Enact Holdings Inc. (“EHI”) to
‘BB+’ from ‘BB’. The outlook for the ratings is stable.
- In March, Moody’s Investor Service (“Moody’s”) upgraded EMICO,
to A3 from Baa1. Moody’s also announced the upgrade of EHI’s
long-term issuer rating and senior unsecured debt rating to Baa3
from Ba1. The outlook for the ratings is stable.
Recent Events
- In April, Fitch Ratings (“Fitch”) upgraded the Insurer
Financial Strength rating for EMICO to A- from BBB+. Fitch also
upgraded Enact’s senior debt rating to BBB- which marks the second
major rating agency to assign Enact’s senior debt an investment
grade rating. The outlook for both ratings is stable.
- During the quarter, repurchases under our share repurchase
program have totaled $22 million. Through April 30, 2023,
repurchases under our share repurchase program have totaled $32
million.
- In April, EMICO completed a distribution of approximately $158
million that will primarily be used to support our ability to
return capital to shareholders and bolster financial
flexibility.
- In May, we announced that our Board of Directors had approved
an increase to our quarterly dividend from $0.14 to $0.16 per
share, payable on June 14, 2023 to common shareholders of record on
May 31, 2023.
- In April, we announced the release of our inaugural 2022
Environmental, Social, and Governance (ESG) Report covering the
calendar year 2022. The report marks a significant step forward in
Enact’s ESG journey and reflects our long-standing commitment to
operating with integrity, accountability and responsibility.
Conference Call and Financial Supplement
InformationThis press release, the first quarter 2023
financial supplement and earnings presentation are now posted on
the Company’s website, https://ir.enactmi.com. Investors are
encouraged to review these materials.
Enact will discuss first quarter financial results in a
conference call tomorrow, Thursday, May 4, 2023, at 8:00 a.m.
(Eastern). Participants interested in joining the call’s live
question and answer session are required to pre-register by
clicking here to obtain your dial-in number and
unique PIN. It is recommended to join at least 15 minutes in
advance, although you may register ahead of the call and dial in at
any time during the call. If you wish to join the call but do not
plan to ask questions, a live webcast of the event will be
available on our website,
https://ir.enactmi.com/news-and-events/events.
The webcast also will be archived on the Company’s website for
one year.
About EnactEnact (Nasdaq: ACT), operating
principally through its wholly-owned subsidiary Enact Mortgage
Insurance Corporation since 1981, is a leading U.S. private
mortgage insurance provider committed to helping more people
achieve the dream of homeownership. Building on a deep
understanding of lenders' businesses and a legacy of financial
strength, we partner with lenders to bring best-in class service,
leading underwriting expertise, and extensive risk and capital
management to the mortgage process, helping to put more people in
homes and keep them there. By empowering customers and their
borrowers, Enact seeks to positively impact the lives of those in
the communities in which it serves in a sustainable way. Enact is
headquartered in Raleigh, North Carolina.
Safe Harbor StatementThis communication
contains “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act. These
forward-looking statements may address, among other things, our
expected financial and operational results, the related assumptions
underlying our expected results, and the quotations of
management. These forward-looking statements are
distinguished by use of words such as “will,” “may,” “would,”
“anticipate,” “expect,” “believe,” “designed,” “plan,” “predict,”
“project,” “target,” “could,” “should,” or “intend,” the negative
of these terms, and similar references to future
periods. These views involve risks and uncertainties
that are difficult to predict and, accordingly, our actual results
may differ materially from the results discussed in our
forward-looking statements. Our forward-looking
statements contained herein speak only as of the date of this press
release. Factors or events that we cannot predict,
including uncertainty around Covid-19 and the effects of government
and other measures seeking to contain its spread; supply chain
constraints; inflation; increases in interest rates; risks related
to an economic downturn or recession in the United States and in
other countries around the world; changes in political, business,
regulatory, and economic conditions; future adverse rating agency
actions, including with respect to rating downgrades or potential
downgrades or being put on review for potential downgrade, all of
which could have adverse implications; changes in or to
Fannie Mae and Freddie Mac (the “GSEs”), whether through Federal
legislation, restructurings or a shift in business practices;
failure to continue to meet the mortgage insurer eligibility
requirements of the GSEs; competition for customers; lenders or
investors seeking alternatives to private mortgage insurance; an
increase in the number of loans insured through Federal government
mortgage insurance programs, including those offered by the Federal
Housing Administration; and other factors described in the risk
factors contained in our Annual Report on Form 10-K and other
filings with the Securities and Exchange Commission, may cause our
actual results to differ from those expressed in forward-looking
statements. In addition, the potential for future
dividend payments and other forms of returning capital to
shareholders, including share repurchases, will be determined in
consultation with the Board of Directors, and after considering
economic and regulatory factors, current risks to the Company, and
subsidiary performance. Although Enact believes the
expectations reflected in such forward-looking statements are based
on reasonable assumptions, the Company can give no assurance that
its expectations will be achieved and it undertakes no obligation
to update publicly any forward-looking statements as a result of
new information, future events, or otherwise, except as required by
applicable law.
GAAP/Non-GAAP Disclosure DiscussionThis
communication includes the non-GAAP financial measures entitled
“adjusted operating income (loss)”, “adjusted operating income
(loss) per share," and “adjusted operating return on
equity." Adjusted operating income (loss) per share is
derived from adjusted operating income (loss). The chief operating
decision maker evaluates performance and allocates resources on the
basis of adjusted operating income (loss). The Enact Holdings, Inc.
(the “Company”) defines adjusted operating income (loss) as net
income (loss) excluding the after-tax effects of net investment
gains (losses), restructuring costs and infrequent or unusual
non-operating items. The Company excludes net investment gains
(losses) and infrequent or unusual non-operating items because the
company does not consider them to be related to the operating
performance of the Company and other activities. The recognition of
realized investment gains or losses can vary significantly across
periods as the activity is highly discretionary based on the timing
of individual securities sales due to such factors as market
opportunities or exposure management. Trends in the profitability
of our fundamental operating activities can be more clearly
identified without the fluctuations of these realized gains and
losses. We do not view them to be indicative of our fundamental
operating activities. Therefore, these items are excluded from our
calculation of adjusted operating income. In addition, adjusted
operating income (loss) per share is derived from adjusted
operating income (loss) divided by shares outstanding. Adjusted
operating return on equity is calculated as annualized adjusted
operating income for the period indicated divided by the average of
current period and prior periods’ ending total stockholders’
equity.
While some of these items may be significant components of net
income (loss) in accordance with U.S. GAAP, the Company believes
that adjusted operating income (loss) and measures that are derived
from or incorporate adjusted operating income (loss), including
adjusted operating income (loss) per share on a basic and diluted
basis and adjusted operating return on equity, are appropriate
measures that are useful to investors because they identify the
income (loss) attributable to the ongoing operations of the
business. Management also uses adjusted operating income (loss) as
a basis for determining awards and compensation for senior
management and to evaluate performance on a basis comparable to
that used by analysts. Adjusted operating income (loss) and
adjusted operating income (loss) per share on a basic and diluted
basis are not substitutes for net income (loss) available to the
Company’s common stockholders or net income (loss) available to the
Company’s common stockholders per share on a basic and diluted
basis determined in accordance with U.S. GAAP. In addition, the
company’s definition of adjusted operating income (loss) may differ
from the definitions used by other companies.
Adjustments to reconcile net income (loss) available to the
Company’s common stockholders to adjusted operating income (loss)
assume a 21% tax rate.
The tables at the end of this press release provide a
reconciliation of net income (loss) to adjusted operating income
(loss) and U.S. GAAP return on equity to adjusted operating return
on equity for the three months ended March 31, 2023 and 2022, as
well as for the three months ended December 31, 2022.
Exhibit A: Consolidated Statements of
Income (amounts in thousands, except per share
amounts)
|
1Q23 |
4Q22 |
1Q22 |
REVENUES: |
|
|
|
Premiums |
$235,108 |
$232,737 |
$234,279 |
Net investment income |
45,341 |
44,896 |
35,146 |
Net investment gains (losses) |
(122) |
(1,274) |
(339) |
Other income |
612 |
483 |
502 |
Total revenues |
280,939 |
276,842 |
269,588 |
|
|
|
|
LOSSES AND EXPENSES: |
|
|
|
Losses incurred |
(10,984) |
18,097 |
(10,446) |
Acquisition and operating expenses, net of deferrals |
51,705 |
59,955 |
54,262 |
Amortization of deferred acquisition costs and intangibles |
2,640 |
2,747 |
3,090 |
Interest expense |
13,065 |
13,258 |
12,776 |
Total losses and expenses |
56,426 |
94,057 |
59,682 |
|
|
|
|
INCOME BEFORE INCOME TAXES |
224,513 |
182,785 |
209,906 |
Provision for income taxes |
48,525 |
38,979 |
45,276 |
NET INCOME |
$175,988 |
$143,806 |
$164,630 |
|
|
|
|
Net investment (gains) losses |
122 |
1,274 |
339 |
Costs associated with reorganization |
(583) |
3,291 |
222 |
Taxes on adjustments |
97 |
(959) |
(118) |
Adjusted Operating Income |
$175,624 |
$147,412 |
$165,073 |
|
|
|
|
Loss ratio (1) |
(5)% |
8% |
(4)% |
Expense ratio (2) |
23% |
27% |
24% |
Earnings Per Share Data: |
|
|
|
Net
Income per share |
|
|
|
Basic |
$1.08 |
$0.88 |
$1.01 |
Diluted |
$1.08 |
$0.88 |
$1.01 |
Adj
operating income per share |
|
|
|
Basic |
$1.08 |
$0.91 |
$1.01 |
Diluted |
$1.08 |
$0.90 |
$1.01 |
Weighted-average common shares outstanding |
|
|
|
Basic |
162,442 |
162,824 |
162,841 |
Diluted |
163,179 |
163,520 |
163,054 |
|
(1) The ratio of losses incurred to net earned premiums. |
(2) The ratio of acquisition and operating expenses, net of
deferrals, and amortization of deferred acquisition costs and
intangibles to net earned premiums. Expenses associated with
strategic transaction preparations and restructuring costs
decreased the expense ratio by zero percentage points for the three
months ended March 31, 2023, one percentage point for the three
months ended December 31, 2022 and zero percentage points for the
three months ended March 31, 2022. |
Exhibit B: Consolidated Balance Sheets
(amounts in thousands, except per share amounts)
Assets |
1Q23 |
4Q22 |
1Q22 |
Investments: |
|
|
|
Fixed maturity securities available-for-sale, at fair value |
$4,929,627 |
$4,884,760 |
$5,093,084 |
Short term investments |
2,185 |
3,047 |
— |
Total investments |
4,931,812 |
4,887,807 |
5,093,084 |
Cash and cash equivalents |
621,621 |
513,775 |
440,160 |
Accrued investment income |
35,945 |
35,844 |
32,565 |
Deferred acquisition costs |
25,954 |
26,121 |
27,000 |
Premiums receivable |
42,005 |
41,738 |
40,381 |
Deferred tax asset |
107,868 |
127,473 |
56,060 |
Other assets |
77,026 |
76,391 |
103,157 |
Total assets |
$5,842,231 |
$5,709,149 |
$5,792,407 |
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
Liabilities: |
|
|
|
Loss reserves |
$501,427 |
$519,008 |
$625,279 |
Unearned premiums |
188,680 |
202,717 |
236,410 |
Other liabilities |
112,043 |
143,686 |
141,125 |
Long-term borrowings |
743,460 |
742,830 |
741,004 |
Deferred tax liability |
— |
— |
— |
Total liabilities |
1,545,610 |
1,608,241 |
1,743,818 |
Equity: |
|
|
|
Common stock |
1,619 |
1,628 |
1,628 |
Additional paid-in capital |
2,362,281 |
2,382,068 |
2,374,568 |
Accumulated other comprehensive income |
(320,242) |
(382,744) |
(140,690) |
Retained earnings |
2,252,963 |
2,099,956 |
1,813,083 |
Total equity |
4,296,621 |
4,100,908 |
4,048,589 |
Total liabilities and equity |
$5,842,231 |
$5,709,149 |
$5,792,407 |
|
|
|
|
Book
value per share |
$26.53 |
$25.19 |
$24.86 |
Book
value per share excluding AOCI |
$28.51 |
$27.54 |
$25.73 |
|
|
|
|
U.S. GAAP ROE (1) |
16.8% |
14.0% |
16.2% |
Net investment (gains) losses |
0.0% |
0.1% |
0.0% |
Costs associated with reorganization |
-0.1% |
0.3% |
0.0% |
Taxes on adjustments |
0.0% |
-0.1% |
0.0% |
Adjusted Operating ROE(2) |
16.7% |
14.4% |
16.2% |
|
|
|
|
Debt to Capital Ratio |
15% |
15% |
15% |
|
|
|
|
(1)
Calculated as annualized net income for the period indicated
divided by the average of current period and prior periods’ ending
total stockholders’ equity |
(2) Calculated as annualized adjusted operating income for the
period indicated divided by the average of current period and prior
periods’ ending total stockholders’ equity |
Investor Contact
Daniel Kohl
EnactIR@enactmi.com
Media Contact
Brittany Harris-Flowers
brittany.harris-flowers@enactmi.com
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