Enact Provides Update on Capital Position Under New PMIERs Available Asset Guidelines

Rhea-AI Summary

Enact Holdings, Inc. (Nasdaq: ACT) addressed updated Private Mortgage Insurer Eligibility Requirements (PMIERs) released by Fannie Mae, Freddie Mac, and FHFA. The new guidelines will be phased in from March 31, 2025, to September 30, 2026. As of June 30, 2024, Enact had 169% of required assets under current PMIERs, about $2.1 billion above mandated thresholds. Under new standards, Enact estimates its PMIERs sufficiency ratio would be approximately 153%, exceeding requirements by $1.6 billion. After portfolio adjustments, sufficiency is projected at 160% or $1.8 billion above required assets. Enact expects to maintain compliance and does not anticipate material impacts on its PMIERs sufficiency ratio, investment portfolio yield, or capital allocation priorities, including its goal of returning $300-350 million to shareholders in 2024.

Positive

• Enact maintains a strong capital position with 169% of required assets under current PMIERs
• Estimated 153% sufficiency ratio under new PMIERs standards, exceeding requirements by $1.6 billion
• Projected 160% sufficiency after portfolio adjustments, $1.8 billion above required assets
• Company expects to maintain compliance with revised PMIERs standards
• No anticipated material impact on PMIERs sufficiency ratio or investment portfolio yield
• Capital allocation priorities, including $300-350 million shareholder returns in 2024, remain unchanged

Negative

• Exclusion of certain high-quality NAIC 1 and NAIC 2 designated bonds in the updated PMIERs framework
• Reduction in PMIERs sufficiency ratio from 169% to 153% under new standards

Insights

Financial Analyst

The updated PMIERs guidelines represent a significant shift in the regulatory landscape for private mortgage insurers. While Enact's current PMIERs sufficiency ratio of 169% is robust, the projected decrease to 153% under the new framework is noteworthy. However, the company's proactive portfolio repositioning is encouraging, potentially boosting the ratio to 160%.

The exclusion of certain high-quality bonds from the available assets calculation is a key change. This could prompt a sector-wide reassessment of investment strategies. Enact's assertion that these changes won't materially impact its portfolio yield or capital allocation plans, including the $300-350 million shareholder return target for 2024, is positive for investors. The phased implementation until September 2026 provides ample time for adjustment, mitigating immediate concerns.

Risk Management Expert

The new PMIERs framework signifies a strengthened risk-based capital approach for the mortgage insurance industry. Enact's projected $1.6 billion excess over requirements, even under the new guidelines, indicates a strong capital position. However, the reduction in the sufficiency ratio from 169% to 153% warrants attention.

The company's diversified, high-quality fixed income portfolio provides a buffer against severe stress. This is important given the evolving economic landscape. The phased implementation allows for gradual adaptation, reducing potential shocks to the system. Investors should monitor how Enact and peers navigate this transition, as it could reveal competitive advantages in risk management and capital efficiency.

Market Research Analyst

The updated PMIERs guidelines could reshape the competitive landscape in the private mortgage insurance sector. Enact's ability to maintain a strong capital position while adhering to its shareholder return commitments is a positive signal. The projected 160% sufficiency ratio after portfolio adjustments demonstrates adaptability.

However, investors should be aware that these changes might impact industry-wide pricing and risk appetite. Companies with more efficient capital management and diverse investment strategies could gain an edge. The exclusion of certain high-quality bonds from available assets calculations may drive a shift in investment strategies across the sector. This could potentially affect returns and risk profiles industry-wide, making it important to monitor how different players adapt to these new regulatory parameters.

RALEIGH, N.C., Aug. 21, 2024 (GLOBE NEWSWIRE) -- Enact Holdings, Inc. (Nasdaq: ACT) (Enact), a leading provider of private mortgage insurance through its insurance subsidiaries, today addressed the updated Private Mortgage Insurer Eligibility Requirements (PMIERs) released by Fannie Mae and Freddie Mac (the GSEs), and the Federal Housing Finance Administration (FHFA) on August 21, 2024 which will be phased-in between March 31, 2025 and September 30, 2026.

“The changes to the PMIERs requirements, which were developed in collaboration with the GSEs and FHFA, will further strengthen the risk-based capital framework for the private mortgage insurance industry. Enact remains well positioned for continued prudent capital sufficiency in excess of these requirements while continuing to execute on our capital allocation strategy,” said Rohit Gupta, President and CEO of Enact. “Going forward, we remain committed to playing our important role of helping individuals responsibly achieve the dream of homeownership.”

As of June 30, 2024, Enact had approximately 169% of the required assets under the current PMIERs framework, representing approximately $2.1 billion above the mandated thresholds.

If the new PMIERs standards had been in effect on June 30, 2024, Enact estimates its PMIERs sufficiency ratio would have been approximately 153%, with available assets exceeding the new requirements by approximately $1.6 billion. The difference is primarily due to the exclusion of certain high-quality NAIC 1 and NAIC 2 designated bonds in the updated PMIERs framework.

The ultimate impact of the PMIERs changes will be influenced by investment portfolio maturities, dispositions, reinvestments, and overall business and economic performance between today and September 2026. To further demonstrate the impact of these changes, restating our PMIERs sufficiency as of June 30, 2024, to reflect portfolio repositioning completed in August 2024 and scheduled portfolio maturities through March 2025, results in sufficiency of approximately 160% or $1.8 billion above required assets.

Our investment portfolio is diversified, with high-quality fixed income assets providing ample liquidity under severe stress. Enact fully expects to maintain compliance with the revised PMIERs standards going forward and believes the impact of the new standards will be immaterial to its current or future PMIERs sufficiency ratio and investment portfolio yield. Additionally, Enact does not expect these revised PMIERs standards to affect its current or future capital allocation priorities, including its goal of returning between $300 million to $350 million to shareholders in 2024.

FHFA’s announcement can be found here which includes links to the GSEs PMIERs requirements.

About Enact Holdings, Inc.
Enact (Nasdaq: ACT), operating principally through its wholly-owned subsidiary Enact Mortgage Insurance Corporation since 1981, is a leading U.S. private mortgage insurance provider committed to helping more people achieve the dream of homeownership. Building on a deep understanding of lenders' businesses and a legacy of financial strength, we partner with lenders to bring best-in class service, leading underwriting expertise, and extensive risk and capital management to the mortgage process, helping to put more people in homes and keep them there. By empowering customers and their borrowers, Enact seeks to positively impact the lives of those in the communities in which it serves in a sustainable way. Enact is headquartered in Raleigh, North Carolina.

Safe Harbor Statement
This communication contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements may address, among other things, our expected financial and operational results, the related assumptions underlying our expected results, and the quotations of management. These forward-looking statements are distinguished by use of words such as “will,” “may,” “would,” “anticipate,” “expect,” “believe,” “designed,” “plan,” “predict,” “project,” “target,” “could,” “should,” or “intend,” the negative of these terms, and similar references to future periods. These views involve risks and uncertainties that are difficult to predict and, accordingly, our actual results may differ materially from the results discussed in our forward-looking statements. Our forward-looking statements contained herein speak only as of the date of this press release. Factors or events that we cannot predict, including risks related to an economic downturn or recession in the United States and in other countries around the world; changes in political, business, regulatory, and economic conditions; changes in or to Fannie Mae and Freddie Mac (the “GSEs”), whether through Federal legislation, restructurings or a shift in business practices; failure to continue to meet the mortgage insurer eligibility requirements of the GSEs; competition for customers; lenders or investors seeking alternatives to private mortgage insurance; an increase in the number of loans insured through Federal government mortgage insurance programs, including those offered by the Federal Housing Administration; and other factors described in the risk factors contained in our 2023 Annual Report on Form 10-K and other filings with the SEC, may cause our actual results to differ from those expressed in forward-looking statements. Although Enact believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, Enact can give no assurance that its expectations will be achieved and it undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events, or otherwise, except as required by applicable law.

FAQ

What is Enact's PMIERs sufficiency ratio as of June 30, 2024?

Enact's PMIERs sufficiency ratio as of June 30, 2024, was approximately 169% under the current framework, representing about $2.1 billion above the mandated thresholds.

How will the new PMIERs standards affect Enact's (ACT) sufficiency ratio?

Under the new PMIERs standards, Enact estimates its sufficiency ratio would be approximately 153%, with available assets exceeding the new requirements by about $1.6 billion.

When will the updated PMIERs guidelines be implemented for Enact (ACT)?

The updated PMIERs guidelines will be phased in between March 31, 2025, and September 30, 2026.

Will the new PMIERs standards affect Enact's (ACT) capital allocation priorities?

Enact does not expect the revised PMIERs standards to affect its current or future capital allocation priorities, including its goal of returning $300-350 million to shareholders in 2024.

What is Enact's (ACT) projected PMIERs sufficiency after portfolio adjustments?

After portfolio repositioning and scheduled maturities through March 2025, Enact projects a PMIERs sufficiency of approximately 160% or $1.8 billion above required assets.