Enact (ACT) - 2023 Q1 - Quarterly Report

Part I. Financial Information This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2023, along with market risk disclosures and controls Item 1. Financial Statements This section presents Enact Holdings, Inc.'s unaudited condensed consolidated financial statements for Q1 2023, including balance sheets, income statements, comprehensive income, changes in equity, cash flows, and detailed explanatory notes Condensed Consolidated Balance Sheets This table provides a snapshot of the company's financial position, detailing assets, liabilities, and equity as of March 31, 2023, and December 31, 2022 | Metric | March 31, 2023 (Thousands) | December 31, 2022 (Thousands) | Change (Thousands) | % Change | | :-------------------------------- | :-------------------------- | :--------------------------- | :----------------- | :------- | | Total investments | $4,931,812 | $4,887,807 | $44,005 | 0.90% | | Cash and cash equivalents | $621,621 | $513,775 | $107,846 | 21.00% | | Total assets | $5,842,231 | $5,709,149 | $133,082 | 2.33% | | Loss reserves | $501,427 | $519,008 | $(17,581) | -3.39% | | Total liabilities | $1,545,610 | $1,608,241 | $(62,631) | -3.89% | | Total equity | $4,296,621 | $4,100,908 | $195,713 | 4.77% | Condensed Consolidated Statements of Income This table presents the company's financial performance, including revenues, expenses, and net income, for the three months ended March 31, 2023, and 2022 | Metric | Three months ended March 31, 2023 (Thousands) | Three months ended March 31, 2022 (Thousands) | Change (Thousands) | % Change | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | :----------------- | :------- | | Premiums | $235,108 | $234,279 | $829 | 0.35% | | Net investment income | $45,341 | $35,146 | $10,195 | 29.01% | | Total revenues | $280,939 | $269,588 | $11,351 | 4.21% | | Losses incurred | $(10,984) | $(10,446) | $(538) | 5.15% | | Total losses and expenses | $56,426 | $59,682 | $(3,256) | -5.46% | | Income before income taxes | $224,513 | $209,906 | $14,607 | 6.96% | | Net income | $175,988 | $164,630 | $11,358 | 6.90% | | Basic EPS | $1.08 | $1.01 | $0.07 | 6.93% | | Diluted EPS | $1.08 | $1.01 | $0.07 | 6.93% | Condensed Consolidated Statements of Comprehensive Income This table details the company's comprehensive income, including net income and other comprehensive income components, for the three months ended March 31, 2023, and 2022 | Metric | Three months ended March 31, 2023 (Thousands) | Three months ended March 31, 2022 (Thousands) | Change (Thousands) | | :-------------------------------------------------- | :------------------------------------------ | :------------------------------------------ | :----------------- | | Net income | $175,988 | $164,630 | $11,358 | | Net unrealized gains (losses) on securities | $62,510 | $(224,300) | $286,810 | | Total comprehensive income (loss) | $238,490 | $(59,641) | $298,131 | Condensed Consolidated Statements of Changes in Equity This table outlines the changes in the company's total equity, including net income, other comprehensive income, share repurchases, and dividends, from December 31, 2022, to March 31, 2023 | Metric | December 31, 2022 (Thousands) | March 31, 2023 (Thousands) | Change (Thousands) | | :-------------------------------- | :-------------------------- | :------------------------- | :----------------- | | Total equity (beginning balance) | $4,100,908 | $4,100,908 | - | | Net income | - | $175,988 | $175,988 | | Other comprehensive loss, net of taxes | - | $62,502 | $62,502 | | Repurchase of common stock | - | $(22,200) | $(22,200) | | Dividends | - | $(22,756) | $(22,756) | | Total equity (ending balance) | $4,100,908 | $4,296,621 | $195,713 | Condensed Consolidated Statements of Cash Flows This table summarizes the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2023, and 2022 | Metric | Three months ended March 31, 2023 (Thousands) | Three months ended March 31, 2022 (Thousands) | Change (Thousands) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | :----------------- | | Net cash provided by operating activities | $119,339 | $160,829 | $(41,490) | | Net cash provided by (used in) investing activities | $33,463 | $(146,497) | $179,960 | | Net cash used in financing activities | $(44,956) | $0 | $(44,956) | | Net increase in cash and cash equivalents | $107,846 | $14,332 | $93,514 | | Cash and cash equivalents at end of period | $621,621 | $440,160 | $181,461 | Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations of the company's business, accounting policies, and specific financial statement line items (1) Nature of business, organization structure and basis of presentation This note describes Enact Holdings, Inc.'s core business as residential mortgage guaranty insurance and its operating structure through EMICO - Enact Holdings, Inc. (EHI) is engaged in residential mortgage guaranty insurance, protecting lenders and investors against losses from mortgage nonpayment, primarily offering primary mortgage insurance for low down payment loans and performing fee-based contract underwriting services[26][27] - EHI operates through its primary insurance subsidiary, Enact Mortgage Insurance Corporation (EMICO), which is approved by Fannie Mae and Freddie Mac (GSEs)[27] (2) Accounting changes This note confirms no significant new accounting pronouncements were adopted or are expected to materially impact the financial statements - The company has not adopted any new accounting pronouncements in 2023, and there are no significant new accounting pronouncements impacting its financial statements that are not yet adopted[32] (3) Investments This note provides detailed information on the company's investment portfolio, including income sources, gains/losses, and contractual maturities Net Investment Income Sources | Source | Three months ended March 31, 2023 (Thousands) | Three months ended March 31, 2022 (Thousands) | Change (Thousands) | % Change | | :-------------------------------------- | :------------------------------------------ | :------------------------------------------ | :----------------- | :------- | | Fixed maturity securities available-for-sale | $41,375 | $36,534 | $4,841 | 13.25% | | Cash, cash equivalents and short-term investments | $5,620 | $10 | $5,610 | 56100.00%| | Gross investment income before expenses and fees | $46,995 | $36,544 | $10,451 | 28.60% | | Investment expenses and fees | $(1,654) | $(1,398) | $(256) | 18.31% | | Net investment income | $45,341 | $35,146 | $10,195 | 29.01% | Net Investment Gains (Losses) | Metric | Three months ended March 31, 2023 (Thousands) | Three months ended March 31, 2022 (Thousands) | Change (Thousands) | | :-------------------------------------------------- | :------------------------------------------ | :------------------------------------------ | :----------------- | | Net realized gains (losses) | $(122) | $(512) | $390 | | Net change in allowance for credit losses | $0 | $173 | $(173) | | Net investment gains (losses) | $(122) | $(339) | $217 | Net Unrealized Investment Gains (Losses) in AOCI | Metric | March 31, 2023 (Thousands) | December 31, 2022 (Thousands) | Change (Thousands) | | :------------------------------------ | :------------------------- | :---------------------------- | :----------------- | | Net unrealized gains (losses) on investment securities | $(407,456) | $(486,943) | $79,487 | | Income taxes | $87,070 | $104,047 | $(16,977) | | Net unrealized investment gains (losses) | $(320,386) | $(382,896) | $62,510 | - The change in net unrealized gains (losses) on available-for-sale securities reported in AOCI was a gain of $62.5 million for the three months ended March 31, 2023, compared to a loss of $224.3 million in the prior year, primarily due to unrealized gains on investment securities[38] - As of March 31, 2023, the company's total fixed maturity securities available-for-sale had a fair value of $4.93 billion, with gross unrealized losses of $414.1 million, primarily due to changes in interest rates and market volatility, not credit losses[40][43] - The majority of fixed maturity securities with unrealized losses (over $370 million) have been in a continuous unrealized loss position for 12 months or more, but the company expects to recover amortized cost and does not intend to sell them prematurely[42][44] Contractual Maturities of Fixed Maturity Securities (March 31, 2023) | Maturity Period | Amortized cost (Thousands) | Fair value (Thousands) | | :-------------------------- | :------------------------- | :--------------------- | | Due one year or less | $187,395 | $185,488 | | Due after one year through five years | $2,323,642 | $2,186,748 | | Due after five years through ten years | $1,386,185 | $1,218,687 | | Due after ten years | $232,482 | $203,044 | | Residential mortgage-backed | $10,448 | $10,344 | | Other asset-backed | $1,196,902 | $1,125,316 | | Total | $5,337,054 | $4,929,627 | - As of March 31, 2023, finance and insurance (33%), technology and communications (13%), consumer—non-cyclical (12%), and utilities (10%) were the largest industry group concentrations in the corporate fixed maturity securities portfolio[48] (4) Fair value This note explains the methodologies used to estimate the fair value of financial instruments and provides a breakdown of measurements by level - The company's fixed maturity securities and short-term investments are carried at fair value, estimated using third-party pricing services, internal models, and/or broker quotes, primarily employing market or income approaches[52][53] - Approximately 89% of the investment portfolio was priced using third-party pricing services as of March 31, 2023, generally classified as Level 2, utilizing publicly available data inputs[58] - Level 3 measurements, representing significant unobservable inputs, accounted for $291.4 million of fixed maturity securities as of March 31, 2023, down from $319.3 million at December 31, 2022[76] Fair Value Measurements by Level (March 31, 2023) | Asset Class | Total (Thousands) | Level 1 (Thousands) | Level 2 (Thousands) | Level 3 (Thousands) | | :-------------------------- | :---------------- | :------------------ | :------------------ | :------------------ | | U.S. government, agencies and GSEs | $42,709 | $0 | $42,709 | $0 | | State and political subdivisions | $431,778 | $0 | $431,778 | $0 | | Non-U.S. government | $9,493 | $0 | $9,493 | $0 | | U.S. corporate | $2,679,485 | $0 | $2,463,155 | $216,330 | | Non-U.S. corporate | $630,502 | $0 | $556,371 | $74,131 | | Residential mortgage-backed | $10,344 | $0 | $10,344 | $0 | | Other asset-backed | $1,125,316 | $0 | $1,124,332 | $984 | | Total fixed maturity securities | $4,929,627 | $0 | $4,638,182 | $291,445 | | Short-term investments | $2,185 | $0 | $2,185 | $0 | | Total | $4,931,812 | $0 | $4,640,367 | $291,445 | Long-term Borrowings Fair Value | Metric | March 31, 2023 (Thousands) | December 31, 2022 (Thousands) | | :------------------ | :------------------------- | :---------------------------- | | Carrying amount | $743,460 | $742,830 | | Fair value | $733,298 | $739,020 | (5) Loss reserves This note details the activity and composition of the company's loss reserves, including incurred losses and favorable adjustments Loss Reserves Activity | Metric | Three months ended March 31, 2023 (Thousands) | Three months ended March 31, 2022 (Thousands) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Loss reserves, beginning balance | $519,008 | $641,325 | | Losses and LAE incurred (current accident year) | $60,298 | $41,274 | | Losses and LAE incurred (prior accident years) | $(71,329) | $(51,707) | | Total incurred | $(11,031) | $(10,433) | | Total paid | $(6,653) | $(5,617) | | Loss reserves, ending balance | $501,427 | $625,279 | - For Q1 2023, the company recorded favorable adjustments of $70 million on prior accident year reserves, primarily due to better-than-expected cure performance of COVID-19 related delinquencies from 2020 and 2021[95] - Losses and LAE incurred for the current accident year were $60 million, mainly from new delinquencies[95] (6) Reinsurance This note outlines the effects of reinsurance on premiums and describes recent reinsurance transactions Effects of Reinsurance on Premiums | Metric | Three months ended March 31, 2023 (Thousands) | Three months ended March 31, 2022 (Thousands) | | :------------------ | :------------------------------------------ | :------------------------------------------ | | Net premiums written | $221,071 | $224,371 | | Net premiums earned | $235,108 | $234,279 | - The decrease in unearned premiums for Q1 2023, leading to higher earned premiums than written, was primarily due to policy cancellations in the single premium mortgage insurance product[96] - On March 8, 2023, the company executed a new excess-of-loss reinsurance transaction providing up to $180 million of coverage for the 2023 book year, effective January 1, 2023[100] (7) Borrowings This note provides information on the company's long-term debt and revolving credit facility Long-term Borrowings | Metric | March 31, 2023 (Thousands) | December 31, 2022 (Thousands) | | :------------------------ | :------------------------- | :---------------------------- | | 6.5% Senior Notes, due 2025 | $750,000 | $750,000 | | Deferred borrowing charges | $(6,540) | $(7,170) | | Total | $743,460 | $742,830 | - The company has a five-year, unsecured revolving credit facility of $200 million, undrawn as of March 31, 2023, and is in compliance with all associated covenants[103][104] (8) Income taxes This note details the company's provision for income taxes and effective tax rate - The provision for income taxes is computed using a separate return with benefits-for-loss method, resulting in an effective tax rate of 21.6% for both Q1 2023 and Q1 2022, consistent with the U.S. corporate federal income tax rate[105][162] (9) Related party transactions This note discloses transactions and balances with related parties, primarily Genworth Related Party Transactions with Genworth | Metric | Three months ended March 31, 2023 (Thousands) | Three months ended March 31, 2022 (Thousands) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Costs incurred for administrative/operating services | $4,700 | $7,800 | | Investment expenses paid to Genworth | $1,600 | $1,400 | | Charges to Genworth for IT/administrative services | $100 | $200 | Related Party Balances with Genworth | Metric | March 31, 2023 (Thousands) | December 31, 2022 (Thousands) | | :------------------------ | :------------------------- | :---------------------------- | | Amounts payable to Genworth | $8,910 | $9,291 | | Amounts receivable from Genworth | $153 | $167 | (10) Net income per common share This note presents the basic and diluted net income per common share for the periods presented Net Income Per Common Share | Metric | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Net income available to EHI common stockholders | $175,988 (Thousands) | $164,630 (Thousands) | | Basic EPS | $1.08 | $1.01 | | Diluted EPS | $1.08 | $1.01 | | Weighted average common shares outstanding (Basic) | 162,442 (Thousands) | 162,841 (Thousands) | | Weighted average common shares outstanding (Diluted) | 163,179 (Thousands) | 163,054 (Thousands) | (11) Changes in accumulated other comprehensive income This note details the changes in accumulated other comprehensive income, including unrealized investment gains/losses and reclassifications Roll Forward of Accumulated Other Comprehensive Income (Q1 2023) | Metric | Net unrealized investment gains (losses) (Thousands) | Foreign currency translation (Thousands) | Total (Thousands) | | :------------------------------------------ | :--------------------------------------------------- | :--------------------------------------- | :---------------- | | Balance as of January 1, 2023, net of tax | $(382,896) | $152 | $(382,744) | | Other comprehensive income (loss) before reclassifications | $62,414 | $(8) | $62,406 | | Amounts reclassified from other comprehensive income (loss) | $96 | $0 | $96 | | Total other comprehensive income (loss) | $62,510 | $(8) | $62,502 | | Balance as of March 31, 2023, net of tax | $(320,386) | $144 | $(320,242) | Effect of Reclassifications on Income Statement | Affected line item in the condensed consolidated statements of income | Three months ended March 31, 2023 (Thousands) | Three months ended March 31, 2022 (Thousands) | | :------------------------------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net investment gains (losses) | $(122) | $(512) | | Provision for income taxes | $26 | $108 | (12) Stockholders' equity This note provides information on share repurchase programs and dividend payments - The Board approved a $75 million share repurchase program on November 1, 2022. During Q1 2023, the company repurchased 916,776 shares for $22.2 million at an average price of $24.19 per share, with $51.3 million remaining available[115][117] - The company paid a quarterly cash dividend of $0.14 per share in Q1 2023 and announced an increase to $0.16 per share for the next quarterly dividend in June 2023[118] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, key factors, economic trends, operational results, investment portfolio, liquidity, and capital resources for Q1 2023 Key Factors Affecting Our Results This section confirms no material changes to the key factors affecting the company's results beyond those discussed in the trends and conditions - There have been no material changes to the factors affecting the company's results compared to those disclosed in the Annual Report, other than the impact of trends and conditions discussed in the subsequent section[122] Trends and Conditions This section discusses macroeconomic conditions, housing market dynamics, regulatory changes, and their impact on the company's business and capital position - The U.S. economy experienced continued volatility in Q1 2023 due to inflationary pressure, geopolitical environment, and banking sector distress, though the housing market has not been directly permeated[123] - Inflationary pressures lessened but remained elevated (CPI 5.0% YoY in March), with the Federal Reserve continuing aggressive interest rate increases (25 basis points in May and March 2023), leading to increased market volatility[124] - Mortgage origination activity remained slow due to rising mortgage rates, impacting the refinance market, while housing affordability is challenged by higher rates and elevated home prices, though national housing prices stabilized in Q1 2023 after declining in late 2022[125] - The unemployment rate was 3.5% as of March 31, 2023, consistent with Q4 2022, with unemployed Americans and long-term unemployed remaining relatively in line with pre-COVID-19 levels[126] - Total delinquencies decreased in Q1 2023 as cures outpaced new delinquencies, with the new delinquency rate at 1.0%, and approximately 1.4% of active primary policies were in forbearance, with 34% of those delinquent[128] - The GSEs' COVID-19 related policies, including forbearance, remain in effect, and new loss mitigation programs were announced in March 2023, potentially extending foreclosure timelines[127] - Regulatory changes by FHFA and FHA, including targeted changes to GSE guarantee fee pricing and a 30-basis point reduction in FHA annual insurance premiums, are expected to have a limited net impact on the private mortgage insurance market[132][134][135][136] - The company's market share is influenced by pricing competitiveness and selective participation in forward commitment transactions, with new insurance written (NIW) decreasing 30% in Q1 2023 due to lower originations[137][138] - Primary persistency rate increased to 85% in Q1 2023 (from 76% in Q1 2022) due to lower refinance activity, offsetting the decline in NIW and leading to a $4.3 billion increase in primary insurance in-force (IIF)[138] - EMICO's risk-to-capital ratio was approximately 12.7:1 as of March 31, 2023, remaining below the NCDOI's maximum of 25:1[145] - GSE Restrictions on capital, which required EMICO to maintain higher PMIERs minimums and EHI to retain $300 million from senior notes, were lifted as of December 31, 2022, enhancing financial flexibility[149][150] - PMIERs sufficiency was 164% ($2,098 million above requirements) as of March 31, 2023, relatively flat from December 31, 2022, benefiting from a 0.30 multiplier for certain non-performing loans[151] - EMICO received credit rating upgrades from S&P Global Ratings (BBB to BBB+), Moody's (Baa1 to A3), and Fitch (BBB+ to A-), reflecting strong performance and capital adequacy[152] - The company initiated a quarterly dividend program in April 2022, paying $0.14 per share in Q1 2023, and increased the next quarterly dividend to $0.16 per share, supported by EMICO distributions[155] Results of Operations and Key Metrics This section analyzes the company's financial performance, including revenues, expenses, and key operational metrics Revenues This section details the drivers behind the company's revenue changes, including investment income and premiums - Total revenues increased by 4% to $280.9 million in Q1 2023, driven by a 29% increase in net investment income due to higher yields and average invested assets, partially offset by lower income from bond calls[158][159] - Premiums increased slightly due to insurance in-force growth, partially offset by the lapse of older, higher-priced policies and a decrease in single premium cancellations[159] Losses and expenses This section explains the changes in losses incurred and operating expenses, highlighting reserve adjustments and delinquency impacts - Losses incurred decreased in Q1 2023 due to a $70 million reserve release on prior years' delinquencies, primarily from favorable cure performance on COVID-19 related delinquencies from 2020 and 2021[160] - Current period primary delinquencies (9,599 loans) contributed $58 million of loss expense in Q1 2023, compared to $39 million from 8,724 delinquencies in Q1 2022[160][161] - Acquisition and operating expenses, net of deferrals, decreased due to declines in corporate overhead and variable costs, leading to a slight decrease in the expense ratio[161] Provision for income taxes This section discusses the company's effective tax rate and its consistency with federal income tax rates - The effective tax rate remained consistent at 21.6% for both Q1 2023 and Q1 2022, aligning with the U.S. corporate federal income tax rate[162] Use of Non-GAAP Financial Measures This section explains the use of adjusted operating income as a non-GAAP measure for evaluating core operating trends and peer comparisons - The company uses 'adjusted operating income' (a non-GAAP measure) to evaluate core operating trends and enable peer comparisons, excluding net investment gains/losses and infrequent non-operating items[162][163][164] Reconciliation of Net Income to Adjusted Operating Income | Metric | Three months ended March 31, 2023 (Thousands) | Three months ended March 31, 2022 (Thousands) | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | | Net income | $175,988 | $164,630 | | Net investment (gains) losses | $122 | $339 | | Costs associated with reorganization | $(583) | $222 | | Taxes on adjustments | $97 | $(118) | | Adjusted operating income | $175,624 | $165,073 | - Adjusted operating income increased in Q1 2023 compared to Q1 2022, primarily due to higher investment income and lower expenses[165] Key Metrics This section provides an overview of critical operational metrics, including new insurance written, insurance in-force, and delinquency rates New insurance written ("NIW") This section details the volume and composition of new insurance written, categorized by mortgage type and FICO score Selected Operating Performance Measures | Metric | March 31, 2023 | March 31, 2022 | | :-------------------------- | :------------- | :------------- | | New insurance written | $13,154M | $18,823M | | Primary insurance in-force | $252,516M | $231,853M | | Primary risk in-force | $64,106M | $58,295M | | Persistency rate | 85% | 76% | | Policies in-force (count) | 965,544 | 941,689 | | Delinquent loans (count) | 18,633 | 22,571 | | Delinquency rate | 1.93% | 2.40% | - NIW decreased 30% to $13.2 billion in Q1 2023 compared to Q1 2022, primarily due to lower originations driven by elevated mortgage rates[138][167] Primary NIW by Underlying Mortgage Type | Mortgage Type | Q1 2023 (Millions) | Q1 2023 (%) | Q1 2022 (Millions) | Q1 2022 (%) | | :------------ | :----------------- | :---------- | :----------------- | :---------- | | Purchases | $12,761 | 97% | $17,326 | 92% | | Refinances | $393 | 3% | $1,497 | 8% | | Total | $13,154 | 100% | $18,823 | 100% | Primary NIW by FICO Score (Q1 2023 vs Q1 2022) | FICO Score | Q1 2023 (Millions) | Q1 2023 (%) | Q1 2022 (Millions) | Q1 2022 (%) | | :--------- | :----------------- | :---------- | :----------------- | :---------- | | Over 760 | $6,004 | 46% | $8,359 | 45% | | 740-759 | $2,268 | 17% | $3,085 | 16% | | 720-739 | $1,817 | 14% | $2,515 | 13% | | 700-719 | $1,296 | 10% | $1,952 | 10% | | 680-699 | $954 | 7% | $1,316 | 7% | | 660-679 | $517 | 4% | $931 | 5% | | 640-659 | $229 | 2% | $486 | 3% | | 620-639 | $65 | 0% | $173 | 1% | | <620 | $4 | 0% | $6 | 0% | | Total | $13,154 | 100% | $18,823 | 100% | - The company observed an increase in concentrations of loans with higher Debt-to-Income (DTI) ratios, aligning with market trends where rising mortgage rates and home price appreciation pressure affordability[171] Insurance in-force ("IIF") and Risk in-force ("RIF") This section provides an analysis of the company's insurance and risk in-force, segmented by origination type and policy year - Primary IIF increased to $252.5 billion as of March 31, 2023, from $248.3 billion at December 31, 2022, driven by NIW and higher persistency (85% in Q1 2023 vs. 76% in Q1 2022) due to higher interest rates and a low refinance market[172] Primary IIF and RIF by Origination (March 31, 2023) | Metric | IIF (Millions) | IIF (%) | RIF (Millions) | RIF (%) | | :------------- | :------------- | :------ | :------------- | :------ | | Purchases | $214,339 | 85% | $55,870 | 87% | | Refinances | $38,177 | 15% | $8,236 | 13% | | Total | $252,516 | 100% | $64,106 | 100% | Primary RIF by Policy Year (March 31, 2023) | Policy Year | RIF (Millions) | RIF (%) | | :---------- | :------------- | :------ | | 2008 and prior | $1,643 | 3% | | 2009 to 2015 | $1,238 | 2% | | 2016 | $1,538 | 2% | | 2017 | $1,632 | 3% | | 2018 | $1,672 | 3% | | 2019 | $3,989 | 6% | | 2020 | $13,484 | 21% | | 2021 | $19,917 | 31% | | 2022 | $15,647 | 24% | | 2023 | $3,346 | 5% | | Total | $64,106 | 100% | - As of March 31, 2023, policy years 2016 and newer represented approximately 95% of primary RIF and 68% of total direct primary case reserves, indicating a shift in loss reserves to newer book years[193] Delinquent loans and claims This section presents data on delinquent loans, including roll-forward activity, aged status, and geographic distribution Primary Loans in Default Roll Forward | Metric | Three months ended March 31, 2023 (Loan count) | Three months ended March 31, 2022 (Loan count) | | :-------------------------------- | :------------------------------------------- | :------------------------------------------- | | Number of delinquencies, beginning of period | 19,943 | 24,820 | | New defaults | 9,599 | 8,724 | | Cures | (10,771) | (10,860) | | Claims paid | (126) | (107) | | Rescissions and claim denials | (12) | (6) | | Number of delinquencies, end of period | 18,633 | 22,571 | - The total number of primary delinquencies decreased from 19,943 at December 31, 2022, to 18,633 at March 31, 2023, with cures outpacing new defaults[180] Primary Delinquencies by Aged Missed Payment Status (March 31, 2023) | Payments in default | Delinquencies (Count) | Direct primary case reserves (Millions) | Risk in-force (Millions) | Reserves as % of risk in-force | | :------------------ | :-------------------- | :-------------------------------------- | :----------------------- | :----------------------------- | | 3 payments or less | 7,876 | $67 | $462 | 14% | | 4-11 payments | 6,714 | $182 | $423 | 43% | | 12 payments or more | 4,043 | $213 | $220 | 97% | | Total | 18,633 | $462 | $1,105 | 42% | - Reserves as a percentage of RIF remained flat at 42% compared to December 31, 2022, but decreased from 47% at March 31, 2022. The number of long-term delinquencies (12+ payments) remains elevated due to COVID-19 forbearance and foreclosure delays[181][184] Primary Delinquency Rates for Top 10 States by RIF (March 31, 2023) | State | Percent of RIF | Percent of direct primary case reserves | Delinquency rate | | :------------- | :------------- | :-------------------------------------- | :--------------- | | California | 12% | 11% | 1.99% | | Texas | 8% | 7% | 1.92% | | Florida | 8% | 8% | 2.24% | | New York | 5% | 13% | 2.82% | | Illinois | 5% | 6% | 2.51% | | Arizona | 4% | 2% | 1.68% | | Michigan | 4% | 3% | 1.72% | | North Carolina | 3% | 2% | 1.48% | | Georgia | 3% | 3% | 2.19% | | Washington | 3% | 3% | 1.64% | | All other states | 45% | 42% | 1.79% | | Total | 100% | 100% | 1.93% | Investment Portfolio This section describes the company's investment strategy, portfolio composition, and key characteristics like duration and yield - The investment portfolio, managed by the Enact Investment Committee and Genworth, aims to meet policyholder obligations, preserve capital, generate income, maximize statutory capital, and increase shareholder value[194] - The investment strategy focuses on diversification across highly rated fixed income securities, active yield enhancement, and continuous monitoring of quality, duration, and liquidity, while restricting investments correlated to the residential mortgage market[195] Fixed Maturity Securities Available-for-Sale (Fair Value) | Asset Class | March 31, 2023 (Thousands) | March 31, 2023 (%) | December 31, 2022 (Thousands) | December 31, 2022 (%) | | :-------------------------- | :------------------------- | :----------------- | :---------------------------- | :-------------------- | | U.S. government, agencies and GSEs | $42,709 | 1% | $44,769 | 1% | | State and political subdivisions | $431,778 | 9% | $419,856 | 9% | | Non-U.S. government | $9,493 | 0% | $9,349 | 0% | | U.S. corporate | $2,679,485 | 54% | $2,646,863 | 54% | | Non-U.S. corporate | $630,502 | 13% | $652,844 | 13% | | Residential mortgage-backed | $10,344 | 0% | $11,043 | 0% | | Other asset-backed | $1,125,316 | 23% | $1,100,036 | 23% | | Total | $4,929,627 | 100% | $4,884,760 | 100% | - As of both March 31, 2023, and December 31, 2022, 98% of the investment portfolio was rated investment grade[198] Investment Portfolio Duration and Yield | Metric | March 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------- | :---------------- | | Duration (in years) | 3.6 | 3.6 | | Pre-tax yield (% of average investment portfolio assets) | 3.2% | 3.1% | Liquidity and Capital Resources This section discusses the company's cash flows, capital structure, dividend restrictions, risk-to-capital ratio, and overall liquidity position Cash Flows This section summarizes the company's cash flow activities from operations, investing, and financing Consolidated Cash Flows Summary | Metric | Three months ended March 31, 2023 (Thousands) | Three months ended March 31, 2022 (Thousands) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net cash provided by operating activities | $119,339 | $160,829 | | Net cash provided by (used in) investing activities | $33,463 | $(146,497) | | Net cash used in financing activities | $(44,956) | $0 | | Net increase in cash and cash equivalents | $107,846 | $14,332 | - Net cash from operating activities decreased due to timing of tax payments and lower unearned premium declines. Investing activities provided cash due to maturities and sales outpacing purchases. Financing activities included $22.8 million in dividends and $22.2 million in share repurchases in Q1 2023[201][202] Capital Resources and Financing Activities This section outlines the company's debt obligations and available credit facilities - The company has $750 million of 6.5% Senior Notes due in 2025 and an undrawn $200 million revolving credit facility, with compliance maintained for all financial covenants[203][204] Restrictions on the Payment of Dividends This section details the regulatory and contractual limitations on the company's ability to pay dividends - Regulated insurance subsidiaries' ability to pay dividends is restricted by North Carolina insurance laws, requiring notice and potential approval from the Commissioner, with capacity to pay $264 million from unassigned surplus as of March 31, 2023[205][206] - Minimum policyholder surplus (estimated at $300 million) and PMIERs compliance are key considerations for dividend strategies. EMICO completed a $158 million distribution in April 2023 to support capital return and financial flexibility[207][208][210] - The revolving credit agreement also imposes restrictions on EHI's cash dividends, requiring compliance with financial covenants and absence of default[212][213] Risk-to-Capital Ratio This section defines and presents the company's risk-to-capital ratio for its insurance subsidiaries - The Risk-to-Capital (RTC) ratio is calculated as net RIF divided by policyholders' surplus plus statutory contingency reserve, with a maximum permitted ratio of 25:1 in most states[215][216] Combined Insurance Subsidiaries RTC Ratio | Metric | March 31, 2023 (Millions) | December 31, 2022 (Millions) | | :-------------------------- | :-------------------------- | :--------------------------- | | Statutory policyholders' surplus | $1,193 | $1,136 | | Contingency reserves | $3,679 | $3,551 | | Combined statutory capital | $4,872 | $4,687 | | Adjusted RIF | $61,546 | $60,061 | | Combined risk-to-capital ratio | 12.6 | 12.8 | EMICO RTC Ratio | Metric | March 31, 2023 (Millions) | December 31, 2022 (Millions) | | :-------------------------- | :-------------------------- | :--------------------------- | | Statutory policyholders' surplus | $1,141 | $1,084 | | Contingency reserves | $3,675 | $3,548 | | EMICO statutory capital | $4,816 | $4,632 | | Adjusted RIF | $61,123 | $59,663 | | EMICO risk-to-capital ratio | 12.7 | 12.9 | Liquidity This section describes the company's liquidity position, including cash, investments, and credit facilities - As of March 31, 2023, the company maintained $622 million in cash and cash equivalents (up from $514 million at Dec 31, 2022) and held significant investment-grade fixed maturity securities and short-term investments for liquidity[218] - The $200 million revolving credit facility remained undrawn, providing additional liquidity. Operating cash flows from insurance premiums and net investment income are the primary sources of liquidity[218][219] Financial Strength Ratings This section lists the financial strength ratings and outlooks for the company's primary insurance subsidiary EMICO Financial Strength Ratings | Agency | Rating | Outlook | Action | Date of Rating | | :---------------------- | :----- | :------ | :------- | :------------- | | Moody's Investor Service, Inc. | A3 | Stable | Upgrade | March 1, 2023 | | Fitch Ratings, Inc. | A- | Stable | Upgrade | April 25, 2023 | | S&P Global Ratings | BBB+ | Stable | Upgrade | February 16, 2023 | Contractual Obligations and Commitments This section confirms no material changes to contractual obligations or off-balance sheet arrangements - No material additions or changes to contractual obligations or off-balance sheet arrangements were reported compared to the prior year, other than potential future adjustments to loss reserves due to macroeconomic uncertainty and COVID-19 related forbearance/foreclosure delays[221] Critical Accounting Estimates This section states that there were no significant changes in critical accounting estimates from the prior Annual Report - There were no significant changes in critical accounting estimates from those discussed in the Annual Report as of the filing date[222] New Accounting Standards This section refers to the notes to the financial statements for details on new accounting standards - Refer to Note 2 in the unaudited condensed consolidated financial statements for a discussion of recently adopted and not yet adopted accounting standards[223] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's market risk exposure from its investment portfolio, focusing on sensitivity to interest rates, credit quality, concentration, and prepayment risks - The investment portfolio is exposed to market risks, particularly sensitive to U.S. market fluctuations, including changes in interest rates, the term structure of interest rates, credit quality, concentration risk, and prepayment risk[225][226] - Market risk is managed through defined investment policy guidelines and oversight. As of March 31, 2023, the effective duration of available-for-sale investments was 3.6 years, implying a 3.6% change in fair value for a 100 basis point yield curve shift[225][227] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2023[229] - There have been no material changes in internal control over financial reporting during the quarter ended March 31, 2023[230] Part II. Other Information This part provides additional information, including legal proceedings, risk factors, recent sales of unregistered securities, other disclosures, and a list of exhibits Item 1. Legal Proceedings This section states that the company is not currently subject to any material legal proceedings - The company is not subject to any pending material legal proceedings[235] Item 1A. Risk Factors This section confirms that there have been no material changes to the risk factors 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-K[236] Item 2. Recent Sales of Unregistered Securities This section provides details on the company's share repurchase activities during the first quarter of 2023 Issuer Purchases of Equity Securities (Q1 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet be Purchased under Plans or Programs (Thousands) | | :------------------------ | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :--------------------------------------------------------------------------------------------- | | January 1 - January 31, 2023 | 253,689 | $24.13 | 253,689 | $67,347 | | February 1 - February 28, 2023 | 440,339 | $24.35 | 440,339 | $56,627 | | March 1 - March 31, 2023 | 222,748 | $23.94 | 222,748 | $51,294 | | Total | 916,776 | $24.19 | 916,776 | $51,294 | - The company repurchased 916,776 shares for an average price of $24.19 per share during Q1 2023 under its $75 million share repurchase program, with $51.3 million remaining available as of March 31, 2023[237] - Subsequent to quarter end, an additional 353,416 shares were purchased through April 30, 2023, at an average price of $23.73[237] Item 5. Other Information This section discloses a voluntary update regarding the amendment and restatement of the Master Agreement with Genworth Financial, Inc - The Master Agreement with Genworth Financial, Inc. was amended and restated on March 20, 2023, removing Genworth's approval of EHI's annual operating plan clause[238] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including various agreements, certifications, and XBRL documents - The exhibits include the Amended and Restated Master Agreement, certifications of principal executive and financial officers, and Inline XBRL documents[240]