Enact (US:ACT)2023-08-07 11:02Financial Data and Key Metrics Changes - Adjusted operating income was $178 million or $1.10 per diluted share, with a 16% adjusted operating return on equity [6][14] - GAAP net income for the quarter was $168 million or $1.04 per diluted share, compared to $1.25 per diluted share in the same period last year [14] - Insurance-in-force grew 9% year-over-year to a record $258 billion, driven by new insurance written of $15 billion [6][15] - The loss ratio in the quarter was negative 2%, with a reserve release of $63 million due to favorable cure performance [9][18] Business Line Data and Key Metrics Changes - New insurance written of $15 billion was up $2 billion or 15% sequentially but down $2 billion or 14% year-over-year [15] - Persistency remained high at 84%, down 1 percentage point sequentially and up 4 percentage points year-over-year [15] - The weighted average FICO score was 744, and the weighted average loan-to-value ratio was 93% [9] Market Data and Key Metrics Changes - The company observed increased pricing on new insurance written in the market, responding to macroeconomic uncertainty [8][9] - The investment income in the second quarter was $51 million, up 12% sequentially and 42% year-over-year [16] Company Strategy and Development Direction - The company launched Enact Re, a reinsurer aimed at expanding its franchise and accessing new business opportunities [11][12] - The capital return guidance for 2023 was increased to $300 million from $250 million, reflecting confidence in the business [10][25] - The company continues to focus on a balanced approach to capital allocation, supporting policyholders, investing in the platform, and returning capital to shareholders [10][24] Management's Comments on Operating Environment and Future Outlook - Management remains confident in the long-term outlook for housing and demand for mortgage insurance, despite macroeconomic uncertainties [7][8] - The labor market has shown resilience, and household balance sheets are healthy, which supports the company's optimistic view [7][8] - The company expects the origination market size for purchase originations to be around $1.3 trillion for the year [39] Other Important Information - PMIERs sufficiency at the end of the quarter remained robust at 162%, with $2 billion of sufficiency [10][23] - The company executed its first quota share reinsurance agreement, enhancing capital efficiency and minimizing credit risk volatility [10][21] Q&A Session Summary Question: Competitive intensity in the industry - Management stated that market share is not a strategy but an outcome of successful execution, emphasizing strong underwriting quality and credit policy [29][31] Question: Growth areas in the origination market - Management noted that first-time homebuyers are expected to drive demand, with a significant market size still anticipated despite economic uncertainties [35][39] Question: Persistency levels - Management indicated that persistency is expected to remain elevated due to the current interest rate environment, although predicting exact levels is challenging [40][42] Question: Durability of price increases - Management acknowledged that pricing power may be influenced by macroeconomic conditions, with expectations of retaining some price increases even in a normalized environment [44][73] Question: PMIERs credit - Management confirmed PMIERs credit at approximately $1.524 billion, providing clarity on capital requirements [59][60] Question: Capital return thresholds - Management indicated that capital return guidance is subject to regulatory approvals and macroeconomic conditions, with a focus on maintaining PMIERs sufficiency [63][65]