Enact (ACT) - 2022 Q4 - Annual Report

Part I Business Overview Enact is a leading U.S. private mortgage insurer, protecting lenders from low down payment loan losses through rigorous underwriting and CRT - Enact Holdings, Inc. is a leading private mortgage insurance company in the U.S. housing finance market since 1981, operating in all 50 states and D.C.[9] - The company's principal business is writing and assuming residential mortgage guaranty insurance, covering a portion of unpaid principal balance of Low Down Payment Loans to protect lenders and investors[10] Key Financial and Operational Data (2020-2022) | Metric | 2022 | 2021 | 2020 | | :----------------------- | :--------- | :--------- | :--------- | | New Insurance Written (NIW) | $66.5 billion | $97.0 billion | $99.9 billion | | Net Income | $704 million | $547 million | $370 million | | Adjusted Operating Income | $709 million | $551 million | $373 million | | PMIERs Sufficiency Ratio | 165% | - | - | | Insured Portfolio Covered by CRT | ~89% | - | - | - The company's strategy focuses on differentiating from competitors, maintaining strong capital levels and earnings, and delivering attractive risk-adjusted returns through robust underwriting, stress testing, and a diversified Credit Risk Transfer (CRT) program[17] Overview Enact Holdings, Inc. is a leading private mortgage insurance company in the U.S. housing finance market since 1981 - Enact Holdings, Inc. is a leading private mortgage insurance company in the U.S. housing finance market since 1981, operating in all 50 states and D.C.[9] - The company's principal business is writing and assuming residential mortgage guaranty insurance, covering a portion of unpaid principal balance of Low Down Payment Loans to protect lenders and investors[10] Key Financial and Operational Data (2020-2022) | Metric | 2022 | 2021 | 2020 | | :----------------------- | :--------- | :--------- | :--------- | | New Insurance Written (NIW) | $66.5 billion | $97.0 billion | $99.9 billion | | Net Income | $704 million | $547 million | $370 million | | Adjusted Operating Income | $709 million | $551 million | $373 million | | PMIERs Sufficiency Ratio | 165% | - | - | | Insured Portfolio Covered by CRT | ~89% | - | - | Corporate Information Enact Holdings, Inc. became publicly traded in September 2021 and operates primarily through its subsidiary, EMICO - Enact Holdings, Inc. (EHI) was a wholly owned subsidiary of Genworth Financial, Inc. until its initial public offering (IPO) on September 20, 2021[13] - The IPO involved the issuance and sale of 13,310,400 shares of common stock at $19.00 per share, with Genworth Holdings retaining all net proceeds[15] - The company operates primarily through Enact Mortgage Insurance Corporation (EMICO), an approved insurer by Fannie Mae and Freddie Mac, which was renamed from Genworth Mortgage Insurance Corporation in February 2022[16] Our Strategy The company's strategy focuses on differentiating from competitors, maintaining strong capital, and delivering attractive risk-adjusted returns - Differentiate Enact from competitors by delivering best-in-class underwriting and investing in efficiencies and decision-making - Maintain strong capital levels and earnings profile through robust underwriting, stress testing, conservative leverage, and a diversified Credit Risk Transfer (CRT) program - Deliver attractive risk-adjusted returns by writing profitable new business, leveraging proprietary risk assessment tools, and maximizing stockholder value through disciplined capital allocation[17] Our Industry The U.S. mortgage market involves private and government-sponsored participants, with private mortgage insurance facilitating secondary market sales United States Mortgage Market The U.S. residential mortgage market is one of the largest globally, involving primary and secondary market participants - The U.S. residential mortgage market is one of the largest globally, involving private and government-sponsored participants in both primary (originations) and secondary (mortgage-backed securities) markets[19] GSEs Fannie Mae and Freddie Mac (GSEs) require credit enhancement for Low Down Payment Loans, often through private mortgage insurance - Fannie Mae and Freddie Mac (GSEs) are major secondary mortgage market participants, requiring credit enhancement for Low Down Payment Loans, typically satisfied by private mortgage insurance[20] - GSEs maintain Private Mortgage Insurer Eligibility Requirements (PMIERs) for qualified insurers, which significantly influences the private mortgage insurance industry[20] Private Mortgage Insurance Private mortgage insurance facilitates secondary market sales for Low Down Payment Loans, expanding financing access for homeowners - Private mortgage insurance facilitates secondary market sales for Low Down Payment Loans, increasing lending capacity and expanding financing access for homeowners, especially first-time buyers[21] - Mortgage insurance utilization is significantly higher for purchase originations than for refinances due to the higher prevalence of Low Down Payment Loans in purchases[24] Competition Competition in the mortgage insurance industry comes from government agencies and other private insurers, based on pricing and service - Primary competitors include government agencies (FHA, VA) and other private mortgage insurers (Arch Capital, Essent, MGIC, NMI, Radian) - Competition is based on pricing, underwriting guidelines, customer relationships, service levels, financial strength, and technology - Government agencies often have less restrictive guidelines and flat pricing, attracting borrowers with lower FICO scores, while private insurers compete for higher FICO score borrowers[25][26][27] - Enact has maintained a 12.0% to 19.2% quarterly market share of private mortgage insurance by per annum NIW since 2012[27] Our Products and Services Enact primarily offers primary mortgage insurance, with minor pool mortgage insurance and contract underwriting services Primary Mortgage Insurance Substantially all of Enact's policies are primary mortgage insurance, protecting individual loans at specified coverage percentages - Substantially all of Enact's policies are primary mortgage insurance, providing protection on individual loans at specified coverage percentages, typically 6% to 35% of the underlying primary insurance in-force (IIF)[31][32] - Premiums are generally calculated as a percentage of the original principal balance and can be paid monthly, as a single upfront payment, annually, or split - Coverage may be cancelled by the insured at any time or automatically terminated by lenders under certain LTV conditions (e.g., 78% LTV under HOPA)[33][34] Pool Mortgage Insurance Pool mortgage insurance covers a finite set of individual loans, often with deductibles, for additional credit enhancement - Pool mortgage insurance covers a finite set of individual loans, often with deductibles or stop-loss provisions, and is typically used for additional credit enhancement in secondary market transactions[35] - Currently, Enact has an insignificant amount of pool IIF, representing less than 0.2% of total risk in-force (RIF)[36] Contract Underwriting Services Enact provides fee-based contract underwriting services, offering outsourced capacity and indemnifying against material underwriting errors - Enact provides fee-based contract underwriting services, offering outsourced capacity to customers and indemnifying them against losses from material errors in underwriting decisions, subject to contractual limitations[37] Our Mortgage Insurance Portfolio The majority of Enact's in-force exposures are primary insurance, with a diverse portfolio across states and MSAs - The majority of Enact's in-force exposures and all new insurance written (NIW) are primary insurance, with legacy books originated prior to 2009 representing 3% of primary IIF and RIF as of December 31, 2022[38][39] - Weighted average LTV of IIF as of December 31, 2022: 93% - Weighted average LTV of NIW in 2022 and 2021: 92% - Weighted average FICO score of IIF as of December 31, 2022: 743 - Weighted average FICO score of NIW in 2022: 748; in 2021: 746[40] - The portfolio is diverse, with the largest state concentration in California (12% of primary RIF) and the largest MSA/MD in Chicago-Naperville, IL (3% of primary RIF) as of December 31, 2022[41] Customers and Sales & Marketing Enact serves approximately 1,800 diversified mortgage lenders, focusing on strong customer relationships and technology - Enact serves approximately 1,800 diversified mortgage lenders across the U.S., with the largest customer accounting for 18% of NIW in 2022 and the top five for 30%[43] - Sales and marketing efforts focus on building strong customer relationships through a dedicated sales force, digital marketing, and consulting services, supported by technology for easy quoting and ordering[45][46][49] - In 2019, Enact launched EMIC-NC to insure residential mortgage loans not intended for GSE sale, providing greater flexibility and strategic optionality[47] Risk Management and Operations Enact maintains a robust enterprise risk management framework, proprietary modeling, and rigorous policy acquisition processes Risk Management and Oversight Enact maintains a robust enterprise risk management framework, overseen by the Board's Risk Committee - Enact maintains a robust enterprise risk management framework, overseen by the Board's Risk Committee, covering credit, market, insurance, housing, operational, and IT risks[50][51] Modeling and Analytics A proprietary risk modeling platform evaluates returns and volatility, informing risk appetite, credit policy, and pricing - Proprietary risk modeling platform evaluates returns and volatility, assessing default probability, loss severity, prepayment, and expected volatility on each insured loan, informing risk appetite, credit policy, pricing, and CRT strategy[53] Policy Acquisition and Quality Assurance Customer qualification and policy acquisition follow strict guidelines, with independent quality assurance reviews - Customer qualification involves reviewing business and financial profiles, while policy acquisition requires loans to meet underwriting and eligibility guidelines, screened by a rules engine[54][55] - An independent quality assurance function conducts pre- and post-closing underwriting reviews to identify adverse trends and ensure high-quality loan production[57] - Portfolio management involves regular monitoring of characteristics, performance, and concentrations across various metrics, with stress testing to identify risks[58] Business Continuity A robust business continuity program is regularly updated and tested, ensuring continuous service through remote work capabilities - A robust business continuity program, led by a crisis management leader, is updated and tested regularly, with all employees equipped for remote work to ensure continuous service[59] Underwriting Underwriting guidelines require verified borrower capacity and collateral valuation, largely consistent with GSEs' automated systems - Underwriting guidelines require verified borrower capacity and willingness to pay, and well-supported collateral valuation, largely consistent with GSEs' automated systems[60][61] - Enact uses a proprietary mortgage insurance underwriting system, significantly increasing underwriter productivity and allowing customized turn times[62][63] - Non-Delegated Underwriting: Enact individually underwrites each application using its system and dispersed staff - Delegated Underwriting: Eligible lenders underwrite based on Enact's guidelines, with Enact performing quality assurance reviews. In 2022 and 2021, delegated underwriting accounted for approximately 71% and 65% of NIW by loan count, respectively[65][66][67] Pricing Pricing is highly competitive, utilizing a proprietary risk-based engine to evaluate returns and volatility under capital frameworks - Pricing is highly competitive, with Enact using a proprietary risk-based pricing engine to evaluate returns and volatility under PMIERs and internal economic capital frameworks, allowing dynamic price adjustments[68][69] Credit Risk Transfer Enact's CRT strategy reduces loss volatility and provides capital relief through traditional reinsurance and ILN transactions - Enact's CRT strategy reduces loss volatility and provides capital relief under PMIERs and state insurance capital requirements, enhancing return profile[70][71] - CRT program distributes risk through traditional reinsurance (XOL coverage with highly rated reinsurers) and insurance-linked note (ILN) transactions with capital markets investors - Since 2015, Enact executed $4.6 billion in CRT transactions, covering approximately 89% of RIF as of December 31, 2022 - CRT program provided an estimated aggregate of $1.6 billion of PMIERs capital credit and $1.8 billion of loss coverage as of December 31, 2022[72][73][74] Delinquencies, Loss Management and Claims Delinquencies are affected by economic factors, with loss mitigation efforts aiming to cure them and manage claims - Delinquencies are affected by factors like housing price appreciation/depreciation, unemployment, and interest rates, with loss mitigation efforts aiming to cure delinquencies and keep borrowers in their homes[75][77] - Claims result from uncured delinquencies, with factors like LTV, property values, and employment levels affecting frequency and severity. Enact settled over half of 2022 and 2021 claims via third-party sale or acquisition options due to home price appreciation[78][80] - Enact reviews loan and servicing files for claim validity, with the ability to reduce or deny claims for non-compliance or rescind coverage for fraud/material misrepresentation, though rescission rights are limited by master policies[81][83] Technology and Cybersecurity Enact invests in technology for operational excellence and customer experience, supported by a multi-layered cybersecurity program - Enact invests in technology for operational excellence and customer experience, including a proprietary underwriting platform, lender/servicer integration, and risk modeling - Ongoing enhancements focus on policy administration, pricing efficiency, customer integration, and leveraging AI/machine learning for risk and portfolio management - A multi-layered cybersecurity program, based on NIST 800-53, includes risk assessments, penetration testing, vulnerability scanning, and regular employee training, overseen by the Risk Committee of the Board[85][86][87][88][89] Ratings Financial strength ratings are crucial for competitive positioning, with EMICO rated 'BBB+' by S&P and Fitch, and 'Baa1' by Moody's - Financial strength ratings are crucial for competitive positioning and public confidence. As of February 28, 2023, EMICO was rated 'BBB+' by S&P, 'Baa1' by Moody's, and 'BBB+' by Fitch[90] Investment Portfolio The investment portfolio, primarily fixed maturity assets, focuses on capital preservation, income generation, and liquidity - The investment portfolios of insurance subsidiaries are directed by the Enact Investment Committee, with Genworth as investment manager, while EHI's portfolio is managed by a third-party[91][94] - As of December 31, 2022, the fair value of the investment portfolio was $4.9 billion in fixed maturity assets (98% investment grade) and $514 million in cash/cash equivalents[94] - Primary objectives are capital preservation, investment income generation, and liquidity maintenance, with strategies emphasizing fixed income, low volatility, and highly liquid assets[94] Human Capital Management and Employees Enact employs 496 full-time employees, focusing on competitive compensation, professional development, and diversity - Enact employs 496 full-time employees in the U.S. (58% women, 25% people of color) as of December 31, 2022, with 46% in Raleigh and 54% in the field[96] - Focus areas include competitive compensation and benefits, professional development, diversity & inclusion initiatives, and civic engagement - The company successfully implemented a hybrid work model in March 2022 after operating remotely from March 2020 due to COVID-19[97][99][100][101][102] Regulation Enact's insurance operations are extensively regulated by state laws, federal acts, and GSE requirements General Insurance Regulation Enact's insurance operations are extensively regulated by state insurance laws, primarily to protect insureds - Enact's insurance operations are extensively regulated by state insurance laws, governing financial condition, business conduct, licensing, policy forms, and rates, primarily to protect insureds[103][106] Insurance Holding Company Regulation Certain insurance subsidiaries are subject to the Insurance Holding Company Act, regulating intercompany operations and dividends - Certain insurance subsidiaries are subject to the Insurance Holding Company Act in North Carolina, requiring reports on intercompany operations and transactions, and regulatory approval for certain transactions and changes of control[108][109][111] - Dividend payments from insurance subsidiaries to the holding company are regulated by domiciliary states, requiring notice and/or approval, with 'extraordinary' dividends having specific thresholds[112][113] NAIC and Examinations The NAIC promulgates model insurance laws and accounting guidance, and state departments conduct periodic examinations - The NAIC promulgates model insurance laws and accounting guidance (SAP) for states, and its changes can affect statutory capital and surplus[114] - The ORSA Model Act requires annual assessment of risk management and solvency, and state insurance departments conduct periodic examinations of insurers' books and practices[115][117] Accounting Principles and Market Conduct Statutory Accounting Principles (SAP) monitor insurer solvency, while state laws govern market conduct activities - Statutory Accounting Principles (SAP) are used by state regulators to monitor insurer solvency, differing from U.S. GAAP in asset/liability valuation[118] - State insurance laws govern market conduct activities, including disclosure, advertising, and claims handling, enforced through market conduct examinations[119] Capital and Surplus Requirements Mortgage guaranty insurers face state capital requirements and must establish a statutory contingency reserve - Mortgage guaranty insurers are not subject to NAIC's RBC but some states impose capital requirements, such as a maximum RTC ratio of 25:1[122] - The NAIC is considering revisions to the Mortgage Guaranty Insurance Model Act and developing a group capital calculation (GCC) tool for insurance holding company systems[124][125] - Insurance subsidiaries must establish a statutory contingency reserve (at least 50% of net earned premiums annually for 10 years) to provide for losses during economic declines, limiting dividend payments until released[127] Dodd-Frank Act and QM Rule The Dodd-Frank Act introduced extensive changes, including ATR and QM rules, often requiring private mortgage insurance - The Dodd-Frank Act introduced extensive changes to financial services regulation, including the ability-to-repay (ATR) requirement and Qualified Mortgage (QM) rules, which often require private mortgage insurance[130][131] - The CFPB amended the QM Rule, and GSEs now acquire loans meeting the new price-based (APOR) definition, with little expected impact on Enact as previous QM Patch loans are expected to still qualify[131] - SEC adopted rules for recovery of erroneously awarded compensation (clawback policies) and pay versus performance disclosure, effective for fiscal years ending after December 16, 2022[132][134] Agency Qualification Requirements (PMIERs) GSEs impose PMIERs, setting operational and financial requirements for mortgage insurers to be eligible to insure loans - GSEs impose PMIERs, setting operational and financial requirements for mortgage insurers to be eligible to insure loans purchased by GSEs, including 'Available Assets' meeting 'Minimum Required Assets'[135][136] PMIERs Financial Requirements (2021-2022) | Metric | December 31, 2022 | December 31, 2021 | | :-------------------------- | :------------------ | :------------------ | | Estimated Available Assets | $5,206 million | $5,077 million | | Net Required Assets | $3,156 million | $3,074 million | | Sufficiency Ratio | 165% | 165% | | Sufficiency Above Requirements | $2,050 million | $2,003 million | - GSE Restrictions, imposed in September 2020, require EMICO to maintain higher PMIERs Minimum Required Assets (120% in 2022, 125% thereafter) and EHI to retain specific liquidity until certain GSE Conditions are met[143] - EHI maintained requisite ratings for two consecutive quarters prior to end of 2022, and Genworth believes it achieved financial metrics, expecting GSE Restrictions to be lifted upon confirmation[144] Other Federal Regulations (RESPA, HOPA, FCRA, Fair Housing Act, Mortgage Servicing, Basel III, Privacy) Various federal and state laws regulate mortgage services, consumer protection, and data privacy - RESPA prohibits payments for settlement service referrals and regulates fees - HOPA mandates automatic termination or cancellation of private mortgage insurance under certain LTV conditions - FCRA imposes restrictions on credit report use and requires adverse action notices - The Fair Housing Act prohibits discrimination in residential real estate transactions - CFPB Servicing Rules establish requirements for handling defaulted loans and loss mitigation, including foreclosure prohibitions - The CARES Act provided mortgage forbearance options during COVID-19, potentially delaying foreclosures - Basel III revisions, if implemented as drafted, could discourage mortgage insurance use by not lowering LTV ratios for capital purposes - Federal and state laws (e.g., GLB Act, FCRA, NYDFS cybersecurity regulation, CCPA) require protection of consumer financial information and data privacy, with increasing regulatory scrutiny on cybersecurity risks[149][150][151][152][153][157][165][167][168][169][170][171][173][174][175] Available Information Enact's SEC filings and corporate governance documents are available on its website and the SEC's website - Enact's SEC filings (10-K, 10-Q, 8-K) and corporate governance documents are available on its website (www.enactmi.com) and the SEC's website (www.sec.gov)[176](index=176&type=chunk)[178] Risk Factors This section outlines significant risks that could materially affect Enact's business, operations, or financial condition - Inability to meet PMIERs, GSE Restrictions, or additional GSE requirements could lead to ineligibility to write new insurance on GSE-acquired loans - Deterioration in economic conditions, severe recession, or decline in home prices (driven by inflation) may adversely affect loss experience - COVID-19 has and could continue to adversely impact business, results of operations, and financial condition - Inaccurate models or variability in loss development compared to estimates could materially affect business - Competition within the mortgage insurance industry could result in market share loss, lower premiums, or wider credit guidelines - Changes to GSE charters or practices, including reduced use of mortgage insurance, could adversely affect business - Inability to maintain sufficient regulatory capital could lead to business restrictions or impact financial strength ratings - Risks related to the continuing relationship with Parent (Genworth), including significant influence and potential adverse effects from Parent's issues - Changes in tax laws could materially affect business, cash flows, and financial condition - Cybersecurity failures or data breaches could damage reputation and adversely affect business[181][182][183][184][185] Unresolved Staff Comments There are no unresolved staff comments from the SEC - The company has no unresolved staff comments[375] Properties Enact leases its headquarters in Raleigh, North Carolina, and a second office in Washington, D.C. - Headquarters: Raleigh, North Carolina (approx. 130,000 sq ft), lease expires December 31, 2027 - Second office: Washington, D.C. (approx. 2,022 sq ft), lease expires April 2026 - Current facilities are considered adequate for needs, with suitable additional space expected to be available if required[376] Legal Proceedings Enact Holdings, Inc. is not currently subject to any pending material legal proceedings - The company is not subject to any pending material legal proceedings[377] Mine Safety Disclosures This item is not applicable to Enact Holdings, Inc - Mine Safety Disclosures are not applicable[377] Part II Market for Common Equity, Stockholder Matters and Issuer Purchases Enact's common stock is listed on Nasdaq, with a share repurchase program and quarterly cash dividends initiated - Enact's common stock is listed on the Nasdaq Stock Market under the symbol 'ACT'. As of February 24, 2023, there were 7 registered holders of record[383] Issuer Purchases of Equity Securities (Q4 2022) | Period | Total Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet be Purchased | | :-------------------------- | :----------------------- | :--------------------------- | :---------------------------------------------------------- | | November 1 - November 30, 2022 | 40,073 | $24.20 | $74,030 | | December 1 - December 31, 2022 | 23,498 | $23.94 | $73,468 | | Total | 63,571 | $24.10 | $73,468 | - On November 1, 2022, the Company authorized a share repurchase program of up to $75 million, with no expiration date[384] - Initiated a quarterly cash dividend program in Q1 2022, paying $0.14 per share in Q2, Q3, and Q4 2022 - Paid a special cash dividend of $1.12 per share in Q4 2022[388] Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Enact's financial condition and results, covering business overview, key factors, and accounting estimates Overview of Business Enact is a leading private mortgage insurance company providing credit protection, generating revenue through premiums and investment income - Enact is a leading private mortgage insurance company providing credit protection to mortgage lenders for Low Down Payment Loans, generating revenue through premiums and investment income[391][392][393] - The company utilizes a Credit Risk Transfer (CRT) program to de-risk its operating model, spread loss risk, and provide capital relief, ceding a portion of premiums to reinsurers and ILN investors[393] - Profits are generated from premiums and investment income, less losses, operating expenses, interest, and taxes. Incurred losses are estimates of future claims on delinquent loans, influenced by macroeconomic conditions and borrower credit quality[394] Key Factors Affecting Our Results Results are influenced by mortgage origination, market penetration, competition, seasonality, and credit quality - Mortgage Origination Volume: Driven by economic growth, unemployment, interest rates, home affordability, and legislative/regulatory actions - Penetration: Influenced by competitiveness against government agencies (FHA, VA), portfolio lenders, and capital market transactions - Competition and Market Share: Highly competitive, based on pricing, underwriting, customer relationships, financial strength, and technology. Enact uses a proprietary risk-based pricing engine - Seasonality: Purchase originations typically peak in Q2/Q3, while refinancing is interest-rate driven. Delinquency performance is generally favorable in Q1/Q2 - New Insurance Written (NIW): Increases IIF and premiums, affected by market size, penetration, and market share - Pricing: Strategy to set premium rates commensurate with underlying risk, using a flexible, granular, and analytical proprietary platform - Insurance In-Force (IIF): Primary driver of future earned premiums; affected by NIW and persistency rate - Persistency Rate and Business Mix: Higher persistency increases IIF and monthly premiums; lower persistency (due to prepayments/refinancing) reduces IIF. Single premium policies become more profitable with lower persistency - Credit Quality: Improved over time due to analytics, controls, and QM Rule, with strong FICO scores for NIW - Net Investment Income: Determined by invested assets and average portfolio yield - Net Investment Gains (Losses): Varies significantly based on market opportunities and capital profile - Losses Incurred: Current payments and changes in estimated future claims from delinquent loans, influenced by economic conditions, housing values, credit characteristics, and reinsurance - Credit Risk Transfer (CRT): Reduces volatility and provides capital relief by transferring risk to third parties[396][397][398][399][400][401][403][405][406][407][408][409][411][412][413][414][415][416][417] Seasonality of NIW, Cures, and New Delinquencies (2021-2022) | Metric (Amounts in millions) | Mar 31, 2021 | Jun 30, 2021 | Sep 30, 2021 | Dec 31, 2021 | Mar 31, 2022 | Jun 30, 2022 | Sep 30, 2022 | Dec 31, 2022 | | :------------------------- | :----------- | :----------- | :----------- | :----------- | :----------- | :----------- | :----------- | :----------- | | NIW | $24,934 | $26,657 | $23,972 | $21,441 | $18,823 | $17,448 | $15,069 | $15,145 | | % Change | (7.7)% | 6.9% | (10.1)% | (10.6)% | (12.2)% | (7.3)% | (13.6)% | 0.5% | | Cure Counts | 13,478 | 14,473 | 11,746 | 11,929 | 10,860 | 10,806 | 9,588 | 9,024 | | % Change | (18.6)% | 7.4% | (18.8)% | 1.6% | (9.0)% | (0.5)% | (11.3)% | (5.9)% | | New Delinquency Count | 10,053 | 6,862 | 7,427 | 8,282 | 8,724 | 7,847 | 9,121 | 10,304 | | % Change | (15.7)% | (31.7)% | 8.2% | 11.5% | 5.3% | (10.1)% | 16.2% | 13.0% | Weighted Average Mortgage Interest Rate on Outstanding Primary IIF (as of Dec 31, 2022) | Policy Year | Weighted Average Rate | | :---------------- | :-------------------- | | 2008 and prior | 5.70 % | | 2009 to 2014 | 4.45 % | | 2015 | 4.20 % | | 2016 | 3.91 % | | 2017 | 4.28 % | | 2018 | 4.81 % | | 2019 | 4.24 % | | 2020 | 3.26 % | | 2021 | 3.10 % | | 2022 | 4.88 % | | Total portfolio | 3.84 % | Critical Accounting Estimates Key estimates include loss reserves, investment valuation, allowance for credit losses, and revenue recognition, subject to significant judgment - Loss Reserves: Estimated for reported and IBNR defaults based on claim rates and severity using actuarial techniques. Subject to significant judgment and uncertainty from internal and external factors (e.g., home prices, unemployment, government policies) - Investments Valuation: Fixed maturity securities are valued at fair value using industry-standard pricing methodologies and market observable inputs. Subject to changes in interest rates, macroeconomic conditions, and credit spreads - Allowance for Credit Losses on Available-For-Sale Securities: Evaluated for unrealized losses to determine if they are credit-related, with an allowance recorded if expected cash flows are less than amortized cost. No allowance recorded as of December 31, 2022 - Revenue Recognition: Recurring premiums recognized pro-rata; single/annual premiums deferred and earned over policy life. Subject to variations in cancellation rates and projected losses[419][420][421][422][423][424][425][426][427][429][431][432][433] Loss Reserves (2021-2022) | Metric | December 31, 2022 | December 31, 2021 | | :---------------- | :------------------ | :------------------ | | Loss Reserves | $519 million | $641 million | | Decrease | $122 million | - | Trends and Conditions Economic volatility, mortgage market decline, unemployment, and regulatory changes significantly impact Enact's performance and outlook - Economic Volatility: Continued high inflation, geopolitical uncertainty, and supply chain disruption in 2022. Federal Reserve's aggressive interest rate hikes to combat inflation led to increased market volatility and higher rates - Mortgage Market Decline: Mortgage origination activity declined in 2022 due to rising rates, impacting refinance and purchase markets. Housing affordability challenged by high rates and elevated home prices - Unemployment: Declined to 3.5% in December 2022, in line with pre-COVID-19 levels - Forbearance Plans: Servicer-reported forbearances generally declined, with ~1.5% of active primary policies in forbearance as of Dec 31, 2022. Uncertainty remains regarding resolution of COVID-19 related delinquencies - Delinquencies: Total delinquencies decreased in 2022 as cures outpaced new delinquencies. Annual new delinquency rate for 2022 was 3.8%, slightly up from 2021 but in line with historical pre-COVID-19 levels - FHFA Initiatives: Focused on increasing homeownership accessibility and affordability, including Equitable Housing Finance Plans and changes to guarantee fee pricing. New upfront fees for high-balance and second-home loans effective April 2022. FHFA announced additional updates to upfront fee structure and recalibration of pricing matrix effective May 2023 - FHA Premium Reduction: Department of Housing and Urban Development announced a 30-basis point reduction of FHA annual insurance premium, expected to negatively impact the private mortgage insurance market, partially offset by FHFA pricing changes - Market Share: Enact manages new business quality through pricing and underwriting, seeing market conditions within its risk-adjusted return appetite - New Insurance Written (NIW): Decreased 31% in 2022 to $66.5 billion, primarily due to a smaller private mortgage insurance market impacted by rising interest rates - Persistency Rate: Primary persistency rate increased to 80% in 2022 (from 62% in 2021) due to the rising rate environment, slowing earned premium recognition from single premium policies and DAC amortization - Net Earned Premiums: Declined in 2022 due to lapse of older, higher-priced policies and fewer single premium cancellations, partially offset by IIF growth - Loss Ratio: (10%) in 2022 vs. 13% in 2021, largely from favorable reserve adjustments related to COVID-19 delinquencies. Reserve strengthening of $46 million on Q4 2022 new delinquencies due to economic uncertainty - Risk-to-Capital Ratio: EMICO's RTC ratio was 12.9:1 as of Dec 31, 2022 (vs. 12.3:1 in 2021), remaining below NCDOI's maximum of 25:1 - PMIERs Compliance: Met all reporting requirements. Sufficiency ratio of 165% as of Dec 31, 2022 and 2021, above GSE Restrictions (120% in 2022). PMIERs required assets benefited from a 0.30 multiplier for certain non-performing loans - GSE Restrictions: EHI maintained requisite ratings and Genworth believes it achieved financial metrics for two consecutive quarters, expecting GSE Restrictions to be lifted upon confirmation - Reinsurance Transactions: Executed XOL reinsurance transactions in 2022 for current and expected NIW and existing policies, providing coverage - Revolving Credit Facility: Entered into a five-year, unsecured $200 million facility in June 2022, undrawn as of Dec 31, 2022, for working capital and general corporate purposes - Capital Return: Approved a quarterly cash dividend program in April 2022 ($0.14/share) and a special cash dividend ($1.12/share) in Q4 2022. Initiated a $75 million share repurchase program in Q4 2022[435][436][437][438][439][440][443][444][445][446][447][448][449][450][451][452][453][454][455][456][457][458][459][460][461][462][463][464][465][466][467][468][469][470][471][472][473][474] Results of Operations and Key Metrics This section details consolidated financial results, including revenues, expenses, net income, and key operational metrics Consolidated Results of Operations (2020-2022) | Metric (Amounts in thousands) | 2022 | 2021 | 2020 | 2022 vs. 2021 Change (%) | 2021 vs. 2020 Change (%) | | :--------------------------------------- | :--------- | :--------- | :--------- | :----------------------- | :----------------------- | | Revenues: | | | | | | | Premiums | $939,462 | $974,949 | $971,365 | (4)% | — % | | Net investment income | $155,311 | $141,189 | $132,843 | 10 % | 6 % | | Net investment gains (losses) | $(2,036) | $(2,124) | $(3,324) | (4)% | (36)% | | Other income | $2,309 | $3,841 | $5,575 | (40)% | (31)% | | Total revenues | $1,095,046 | $1,117,855 | $1,106,459 | (2)% | 1 % | | Losses and expenses: | | | | | | | Losses incurred | $(94,221) | $125,473 | $379,834 | (175)% | (67)% | | Acquisition and operating expenses, net of deferrals | $226,941 | $231,453 | $215,024 | (2)% | 8 % | | Amortization of deferred acquisition costs and intangibles | $12,405 | $14,704 | $20,939 | (16)% | (30)% | | Interest expense | $51,699 | $51,009 | $18,244 | 1 % | 180 % | | Total losses and expenses | $196,824 | $422,639 | $634,041 | (53)% | (33)% | | Income before income taxes | $898,222 | $695,216 | $472,418 | 29 % | 47 % | | Provision for income taxes | $194,065 | $148,531 | $101,997 | 31 % | 46 % | | Net income | $704,157 | $546,685 | $370,421 | 29 % | 48 % | | Loss ratio | (10)% | 13 % | 39 % | | | | Expense ratio | 25 % | 25 % | 24 % | | | - Premiums decreased in 2022 due to lapse of older, higher-priced policies and lower single premium cancellations, partially offset by higher IIF - Net investment income increased by 10% in 2022 due to higher investment yields from interest rate increases and higher average invested assets - Losses incurred decreased significantly by 175% in 2022, primarily from favorable reserve adjustments related to COVID-19 delinquencies from prior years - Adjusted operating income increased in 2022 due to larger favorable reserve adjustments - NIW decreased 31% in 2022 to $66.5 billion due to a smaller private mortgage insurance market from rising mortgage rates - Primary persistency rate increased to 80% in 2022 (from 62% in 2021) due to the rising rate environment - Primary IIF grew by 10% in 2022 to $248.3 billion, driven by increased persistency despite slower NIW production - Delinquent loans count decreased to 19,943 in 2022 from 24,820 in 2021, with the delinquency rate falling to 2.08% from 2.65% - Average primary mortgage insurance claim severity was 94% in 2022, down from 103% in 2021, impacted by low claim volumes and home price appreciation[477][478][479][487][490][493][494][506][511] Liquidity and Capital Resources Enact's liquidity and capital are managed through cash flows, debt, dividends, share repurchases, and regulatory compliance Consolidated Cash Flows (2020-2022) | Metric (Amounts in thousands) | 2022 | 2021 | 2020 | | :--------------------------------------- | :--------- | :--------- | :--------- | | Net cash provided by (used in) operating activities | $560,510 | $572,110 | $704,350 | | Net cash provided by (used in) investing activities | $(220,255) | $(398,782) | $(1,136,912) | | Net cash provided by (used in) financing activities | $(252,308) | $(200,294) | $300,298 | | Net increase (decrease) in cash and cash equivalents | $87,947 | $(26,966) | $(132,264) | - Operating cash flows decreased in 2022 due to lower premiums[533] - Investing activities resulted in cash outflows in 2022 and 2021 due to fixed maturity security purchases[534] - Financing activities in 2022 reflect dividends paid ($250.8 million) and share repurchases ($1.5 million)[535] - Issued $750 million in 6.5% Senior Notes due 2025 in August 2020. GSE Restrictions require retaining $300 million of proceeds for debt service or EMICO capital needs, with $203 million remaining as of Dec 31, 2022[536][537][538][539][540][541][542] - Entered into a $200 million unsecured revolving credit facility in June 2022, undrawn as of Dec 31, 2022, for working capital and general corporate purposes[543][544] - Insurance subsidiaries' ability to pay dividends is restricted by North Carolina insurance laws and PMIERs. As of Dec 31, 2022, capacity to pay $292 million from unassigned surplus with 30-day notice[545][546][547] - EMICO's risk-to-capital ratio was 12.9:1 as of Dec 31, 2022, below the NCDOI's maximum of 25:1[549][550] - Maintained $514 million in cash and cash equivalents as of Dec 31, 2022, and significant investment-grade fixed maturity securities for liquidity[551][552][554] Financial Strength Ratings Financial strength ratings are crucial for competitive position, with EMICO's ratings recently upgraded or affirmed by major agencies - Financial strength ratings are crucial for competitive position and public confidence. EMICO's ratings were upgraded by Moody's (to Baa1) in July 2022 and S&P (to BBB+) in February 2023, with Fitch affirming BBB+ in April 2022[555][556] EMICO Financial Strength Ratings (as of Feb 28, 2023) | Name of Agency | Rating | Outlook | Change Date of Rating | | :-------------------------- | :----- | :------ | :-------------------- | | Moody's Investor Service, Inc. | Baa1 | Stable | July 21, 2022 | | Fitch Ratings, Inc. | BBB+ | Stable | April 27, 2022 | | S&P Global Ratings | BBB+ | Stable | February 16, 2023 | Quantitative and Qualitative Disclosures About Market Risk Enact's investment portfolio is exposed to market risks, primarily interest rate risk, credit risk, and concentration risk. The company manages these risks through defined investment policy guidelines, focusing on highly rated fixed income securities and matching maturities with expected liabilities. As of December 31, 2022, the effective duration of available-for-sale investments was 3.6 years, indicating sensitivity to yield curve shifts - Market risk exposure is managed through defined investment policy guidelines, with oversight from the Board and senior management - Key market risk drivers monitored include changes to interest rate levels and term structure, market volatility/credit quality, concentration risk, and prepayment risk - Credit risk is managed by analyzing issuers, transaction structures, collateral, and diversification - Interest rate risk is mitigated by a buy-and-hold investment philosophy, matching fixed income maturities with expected liability cash flows[560][561][562] - As of December 31, 2022, the effective duration of available-for-sale investments was 3.6 years, meaning a 100 basis point shift in the yield curve would result in a 3.6% change in fair value[563] Financial Statements and Supplementary Data This section includes the audited consolidated financial statements of Enact Holdings, Inc. and its subsidiaries for the years ended December 31, 2022, 2021, and 2020, along with related notes and supplementary schedules. The financial statements are prepared in conformity with U.S. GAAP and include the Consolidated Balance Sheets, Statements of Income, Comprehensive Income, Changes in Equity, and Cash Flows, as well as the Report of Independent Registered Public Accounting Firm - Audited Consolidated Financial Statements for years ended December 31, 2022, 2021, and 2020 are included - Statements comprise Consolidated Balance Sheets, Statements of Income, Comprehensive Income, Changes in Equity, and Cash Flows - Includes Notes to Consolidated Financial Statements and Supplementary Schedules I (Summary of Investments) and II (Parent Company Only Financial Statements) - KPMG LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[565][566][568][569] - The assessment of the valuation of loss reserves was identified as a critical audit matter due to inherent uncertainty and significant management judgment in claim severity and claim rate assumptions[573] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in or disagreements with accountants on accounting and financial disclosure[825] Controls and Procedures Enact's management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2022. Management also assessed and concluded that internal control over financial reporting was effective based on the COSO framework. No material changes in internal control over financial reporting were identified during the fiscal quarter ended December 31, 2022 - Disclosure controls and procedures were evaluated and concluded to be effective as of December 31, 2022[826] - Management concluded that internal control over financial reporting was effective as of December 31, 2022, based on the COSO framework[828] - No material changes in internal control over financial reporting were identified during the fiscal quarter ended December 31, 2022[829] - KPMG LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[831] Other Information The Master Agreement between Genworth Financial, Inc. and Enact Holdings, Inc. was amended on February 23, 2023, to remove the requirement for Genworth's consent in electing, appointing, hiring, dismissing, or removing Enact's CEO - The Master Agreement between Genworth Financial, Inc. and Enact Holdings, Inc. was amended on February 23, 2023, to remove the requirement for Genworth's consent in CEO-related decisions[838] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to Enact Holdings, Inc - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable[838] Part III Directors, Executive Officers and Corporate Governance The information required for this item, pertaining to directors, executive officers, and corporate governance, is incorporated by reference from the company's definitive proxy statement, which will be filed within 120 days after the fiscal year-end - Information for this item is incorporated by reference from the definitive proxy statement[840] Executive Compensation The information required for this item, concerning executive compensation, is incorporated by reference from the company's definitive proxy statement, which will be filed within 120 days after the fiscal year-end - Information for this item is incorporated by reference from the definitive proxy statement[841] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required for this item, regarding security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the company's definitive proxy statement, which will be filed within 120 days after the fiscal year-end - Information for this item is incorporated by reference from the definitive proxy statement[842] Certain Relationships and Related Transactions, and Director Independence The information required for this item, pertaining to certain relationships and related transactions, and director independence, is incorporated by reference from the company's definitive proxy statement, which will be filed within 120 days after the fiscal year-end - Information for this item is incorporated by reference from the definitive proxy statement[843] Principal Accounting Fees and Services The information required for this item, concerning principal accounting fees and services, is incorporated by reference from the company's definitive proxy statement, which will be filed within 120 days after the fiscal year-end - Information for this item is incorporated by reference from the definitive proxy statement[844] Part IV Exhibits, Financial Statement Schedules This section lists all exhibits and financial statement schedules filed as part of the 10-K report - Lists financial statements, financial statement schedules, and various exhibits, including corporate documents, agreements, and certifications[846][847][849] Form 10–K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[850]