Enact (US:ACT)2024-11-07 22:06Part I. Financial Information Financial Statements This section presents Enact Holdings, Inc.'s unaudited condensed consolidated financial statements for periods ended September 30, 2024, including Balance Sheets, Statements of Income, Comprehensive Income, Changes in Equity, and Cash Flows, along with detailed notes on accounting policies, investments, loss reserves, reinsurance, and debt Condensed Consolidated Balance Sheet Highlights | (Amounts in thousands) | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $6,597,046 | $6,190,473 | | Total Investments | $5,653,949 | $5,286,360 | | Cash and cash equivalents | $673,363 | $615,683 | | Total Liabilities | $1,560,801 | $1,558,126 | | Loss reserves | $510,401 | $518,191 | | Long-term borrowings | $742,706 | $745,416 | | Total Equity | $5,036,245 | $4,632,347 | Condensed Consolidated Statements of Income Highlights | (Amounts in thousands, except per share) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $309,588 | $299,035 | $899,998 | $857,496 | | Premiums | $249,055 | $243,346 | $734,369 | $716,974 | | Losses incurred | $12,164 | $17,847 | $14,844 | $2,793 | | Net Income | $180,669 | $164,195 | $525,330 | $508,203 | | Diluted EPS | $1.15 | $1.02 | $3.31 | $3.13 | Condensed Consolidated Statements of Cash Flows Highlights | (Amounts in thousands) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $520,132 | $441,982 | | Net cash used in investing activities | ($183,613) | ($133,983) | | Net cash used in financing activities | ($278,839) | ($143,784) | | Net increase in cash and cash equivalents | $57,680 | $164,215 | Note 1: Business and Basis of Presentation Enact Holdings, Inc., a Genworth subsidiary, primarily provides residential mortgage guaranty insurance to protect lenders from low-down-payment loan losses, facilitating secondary market sales through EMICO and Enact Re Ltd - The company's core business is providing primary mortgage insurance for prime-based, individually underwritten residential mortgage loans, enabling borrowers to buy homes with less than a 20% down payment25 - The business operates through its primary insurance subsidiary, Enact Mortgage Insurance Corporation (EMICO), which is an approved insurer for Fannie Mae and Freddie Mac27 - The company also offers mortgage-related insurance and reinsurance through its Bermuda-based subsidiary, Enact Re Ltd., which reinsures EMICO's business and participates in GSE risk sharing27 Note 5: Loss Reserves Total loss reserves slightly decreased to $510.4 million as of September 30, 2024, from $518.2 million at year-end 2023, with favorable prior-year adjustments of $196 million offset by $212 million in current-year losses incurred Loss Reserve Activity (Nine Months Ended Sep 30) | (Amounts in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net loss reserves, beginning balance | $516,221 | $518,330 | | Losses incurred related to current accident year | $211,665 | $198,732 | | Losses incurred related to prior accident years | ($200,457) | ($195,898) | | Total incurred | $11,208 | $2,834 | | Total paid | ($21,559) | ($21,155) | | Net loss reserves, ending balance | $505,870 | $500,009 | - Favorable reserve adjustments of $196 million were recorded in the first nine months of 2024, primarily due to better-than-expected cure performance on delinquencies from 2023 and prior years88 Note 6: Reinsurance The company uses reinsurance, including XOL and QS agreements, to manage risk and meet regulatory needs, holding $580 million in Triangle Re ILNs and $1.12 billion from XOL agreements as of September 30, 2024, with a new 2024 QS agreement ceding 21.225% of eligible new business Reinsurance Premiums (Nine Months Ended Sep 30, 2024) | (Amounts in thousands) | Amount | | :--- | :--- | | Direct Premiums Written | $777,148 | | Assumed Premiums Written | $11,813 | | Ceded Premiums Written | ($82,540) | | Net Premiums Written | $706,421 | | Net Premiums Earned | $734,369 | - The company has multiple excess-of-loss (XOL) reinsurance agreements in place, providing a total of $1.12 billion in current reinsurance coverage as of September 30, 202497 - A new quota share reinsurance agreement (QS 2024-1) was established, ceding 21.225% of new insurance written from January 1, 2024, through December 31, 202499 Note 7: Borrowings In May 2024, the company issued $750 million of 6.25% Senior Notes due 2029 to redeem its $750 million 6.5% Senior Notes due 2025, incurring a $10.9 million loss on extinguishment, while its $200 million revolving credit facility remained undrawn - Issued $750 million of 6.25% Senior Notes due 2029 in May 2024100 - Redeemed all $750 million of the 6.5% Senior Notes due 2025 in June 2024, incurring a $10.9 million loss on debt extinguishment103 - The company maintains a $200 million revolving credit facility that was undrawn as of September 30, 2024104105 Note 12: Stockholders' Equity The company authorized a new $250 million share repurchase program on May 1, 2024, repurchasing 2.1 million shares for $71.3 million in Q3 2024, with $166.8 million remaining, and increased quarterly cash dividends to $0.185 per share - A new share repurchase program was authorized on May 1, 2024, for up to $250 million of common stock121 Share Repurchase Activity (Q3 2024) | Period | Shares Purchased | Average Price | Total Cost (approx.) | | :--- | :--- | :--- | :--- | | Q3 2024 | 2,096,329 | $34.04 | $71.3 million | - Quarterly cash dividends paid per share were $0.185 in Q2 and Q3 2024, an increase from $0.16 in Q1 2024125 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance amid lingering inflation and elevated mortgage rates, highlighting strong financial results from insurance-in-force growth and favorable loss development, capital management strategies, and operational metrics, while maintaining a robust capital position exceeding regulatory requirements Trends and Conditions Q3 2024 saw economic uncertainty with elevated mortgage rates impacting origination, but the company expects to exceed new PMIERs requirements, and despite a 6% YoY NIW decrease, high persistency drove insurance-in-force growth and an improved 5% loss ratio - The macroeconomic environment is characterized by improving but still challenging inflation, with the Federal Reserve decreasing interest rates by 50 basis points in September 2024129130131 - Updated PMIERs requirements will be phased in from March 2025 to September 2026138 - New Insurance Written (NIW) for Q3 2024 was $13.6 billion, a 6% decrease YoY140 - The loss ratio for Q3 2024 was 5%, down from 7% in Q3 2023, benefiting from a $65 million reserve release due to favorable cure performance142 Results of Operations For Q3 2024, net income rose 10% YoY to $180.7 million due to higher premiums, investment income, and lower losses, improving the loss ratio to 5%, while nine-month net income increased 3% to $525.3 million, with adjusted operating income showing core operational growth Q3 2024 vs Q3 2023 Performance | (Amounts in thousands) | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $309,588 | $299,035 | 4% | | Losses Incurred | $12,164 | $17,847 | (32)% | | Net Income | $180,669 | $164,195 | 10% | | Loss Ratio | 5% | 7% | - | Reconciliation to Adjusted Operating Income (Q3) | (Amounts in thousands) | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Net Income | $180,669 | $164,195 | | Adjustments (net of tax) | $1,652 | $21 | | Adjusted Operating Income | $182,321 | $164,216 | Key Metrics Key operational metrics show Q3 2024 New Insurance Written (NIW) decreased 6% YoY to $13.6 billion, yet primary insurance-in-force grew to $268.0 billion with an 83% persistency rate, while the delinquency rate slightly increased to 2.17% and NIW credit quality remained high Selected Operating Metrics (Q3) | Metric | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | New insurance written | $13,591 million | $14,391 million | | Primary insurance in-force | $268,003 million | $262,014 million | | Persistency rate | 83% | 84% | | Delinquency rate | 2.17% | 1.97% | - New Insurance Written (NIW) for the nine months ended Sep 30, 2024, was $37.7 billion, an 11% decrease from the same period in 2023, primarily impacted by the size of the mortgage insurance market184 - The number of delinquent loans increased to 21,027 at the end of Q3 2024 from 19,241 a year prior, driven by 34,820 new defaults in the first nine months of 2024211 Investment Portfolio The company's $5.7 billion investment portfolio as of September 30, 2024, primarily comprises highly rated fixed maturity securities, focusing on capital preservation, income generation, and liquidity, with 99% investment grade, 51% in U.S. corporate bonds, an effective duration of 3.9 years, and a 3.9% pre-tax yield Investment Portfolio Composition (Fair Value) | Security Type | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | U.S. corporate | 51% | 52% | | Other asset-backed | 22% | 23% | | Non-U.S. corporate | 13% | 13% | | State and political subdivisions | 8% | 8% | | U.S. government, agencies and GSEs | 5% | 4% | | Total | $5,652 million | $5,266 million | - 99% of the investment portfolio was rated investment grade as of September 30, 2024231 Portfolio Duration and Yield | Metric | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Duration (in years) | 3.9 | 3.5 | | Pre-tax yield | 3.9% | 3.6% | Liquidity and Capital Resources The company maintains strong liquidity and capital, with $673 million in cash as of September 30, 2024, having refinanced debt in 2024, and its insurance subsidiaries possess $223 million dividend capacity, while EMICO's risk-to-capital ratio is 10.4:1 and PMIERs sufficiency is 173% - As of September 30, 2024, EMICO's risk-to-capital ratio was 10.4:1, significantly below the regulatory maximum of 25:1146255 - The company's PMIERs sufficiency ratio was 173% as of September 30, 2024, representing available assets of $2,190 million above the required amount147 - The ability of insurance subsidiaries to pay dividends is restricted by North Carolina law242 Quantitative and Qualitative Disclosures About Market Risk The company's investment portfolio is exposed to interest rate, credit, and concentration risks, managed through diversification and a buy-and-hold strategy, with an effective duration of 3.9 years as of September 30, 2024, indicating a 3.9% fair value change for a 100-basis-point interest rate shift - The primary market risks monitored are changes in interest rates, credit quality of investments, concentration risk, and prepayment risk265266267 - As of September 30, 2024, the effective duration of the company's investments available-for-sale was 3.9 years269 - A 100 basis point instantaneous parallel shift in the yield curve would result in a change of 3.9% in the fair value of the company's investments available-for-sale269 Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2024, with no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2024271 - There were no material changes in internal control over financial reporting during the third quarter of 2024272 Part II. Other Information Legal Proceedings The company reports that it is not currently subject to any pending material legal proceedings - As of the filing date, Enact Holdings, Inc. is not subject to any pending material legal proceedings274 Risk Factors This section states that there have been no material changes from the risk factors that were previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K275 Issuer Purchases of Equity Securities On May 1, 2024, the company authorized a new $250 million share repurchase program, repurchasing approximately 2.1 million shares for $34.04 average price in Q3 2024, with $166.8 million remaining available - A new share repurchase program was authorized on May 1, 2024, allowing for the repurchase of up to $250 million of EHI's common stock276 Share Repurchases in Q3 2024 | Period | Total Shares Purchased | Average Price Paid | Approx. Value Remaining Under Program (End of Period) | | :--- | :--- | :--- | :--- | | Jul 2024 | 406,945 | $31.02 | $225,545 thousand | | Aug 2024 | 862,209 | $33.59 | $196,588 thousand | | Sep 2024 | 827,175 | $36.00 | $166,806 thousand | | Total Q3 | 2,096,329 | $34.04 | $166,806 thousand | Other Information The company reports that during the quarter ended September 30, 2024, no director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No director or Section 16 officer adopted or terminated any "Rule 10b5-1 trading arrangements" or "non-Rule 10b5-1 trading arrangements" during Q3 2024280 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, as well as Inline XBRL data files - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101 series)282