Enact Reports Fourth Quarter and Full Year 2023 Results
- Strong GAAP net income of $157 million for the fourth quarter and $666 million for the full year
- Record primary insurance in-force of $263 billion, a 6% increase from the previous year
- Returned over $300 million to shareholders in 2023
- Persistency rate increased to 86%
- PMIERs Sufficiency was 161%
- Positive ratings from S&P Global Ratings
- New insurance written (NIW) decreased by 27% from the previous quarter
- Net premiums earned were down 1% sequentially
Insights
Reviewing the reported financials, Enact Holdings, Inc. has presented a robust fiscal position with a full-year GAAP Net Income of $666 million and an Adjusted Operating Income of $676 million. The slight decline in Net Income from the previous year does not raise significant concerns, given the company's strategic capital returns to shareholders, exceeding $300 million in 2023. Such shareholder-friendly activities typically bolster investor confidence and can have a positive impact on stock valuation. However, the reported decrease in new insurance written (NIW) by 31% year-over-year may be indicative of market contraction or increased competition, which warrants further scrutiny on future growth prospects.
The company's Return on Equity (ROE) figures, while showing a slight decrease quarter-over-quarter, remain strong, indicating efficient management of equity capital. The capital and liquidity section of the report highlights a strategic approach to risk management through reinsurance deals, which might be seen as a proactive measure to safeguard against potential future claims volatility. The upgrade in financial strength ratings by S&P is a positive signal to the market, likely to enhance the company's reputation and borrowing conditions.
From a market perspective, Enact's performance in the fourth quarter demonstrates resilience in a challenging economic environment. The company's record primary insurance in-force (IIF) suggests a robust demand for its products, despite a decrease in new insurance written. This could be a reflection of the company's strong market position and customer retention capabilities, as evidenced by an elevated persistency rate of 86%. However, the decline in NIW does raise questions about the company's market share and competitive dynamics, particularly in the context of a shrinking private mortgage insurance market.
The company's efforts to invest in its platform and extend its reach, including international reinsurance deals and participation in GSE credit risk transfer deals, point towards a strategic diversification that could mitigate risks associated with market fluctuations. These actions, along with the reported PMIERs sufficiency, provide a reassuring picture of the company's risk management and long-term stability, which are critical factors for investors considering the potential impact of economic downturns on the mortgage insurance sector.
An economist's perspective highlights the influence of macroeconomic factors on Enact's performance. The company's increased net investment income, attributed to rising interest rates, suggests a favorable investment income environment that could continue to benefit the company's financials if the interest rate trend persists. Additionally, the stable loss ratio and controlled operating expenses reflect well on the company's operational efficiency in an inflationary context, which could otherwise erode profit margins.
Looking at the broader economic landscape, the elevated mortgage rates and their impact on Enact's persistency rates suggest that the current interest rate environment may be creating barriers to refinancing, thereby affecting the mortgage insurance market size and dynamics. This situation may continue to influence Enact's NIW volumes in the short to medium term. Nevertheless, the company's capital management strategies, such as share repurchases and dividends, indicate a strong financial position that could weather potential economic headwinds.
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Fourth quarter GAAP Net Income of
Full year GAAP Net Income of
Fourth quarter Adjusted Operating Income of
Full year Adjusted Operating Income of
Fourth quarter Return on Equity of
Full year Return on Equity of
Record Primary insurance in-force of
PMIERs Sufficiency of
Returned over
Book Value Per Share of
RALEIGH, N.C., Feb. 06, 2024 (GLOBE NEWSWIRE) -- Enact Holdings, Inc. (Nasdaq: ACT) today announced financial results for the fourth quarter of 2023.
“Our fourth quarter performance completed a very strong year for Enact,” said Rohit Gupta, President and CEO of Enact. “We ended 2023 with record insurance in-force as we continued to grow our core business, extend our platform, strengthen our balance sheet, and drive expense discipline. Further, we delivered on our commitment to return
Key Financial Highlights
| (In millions, except per share data or otherwise noted) | 4Q23 | 3Q23 | 4Q22 | 2023 | 2022 | ||||
| Net Income (loss) | |||||||||
| Diluted Net Income (loss) per share | |||||||||
| Adjusted Operating Income (loss) | |||||||||
| Adj. Diluted Operating Income (loss) per share | |||||||||
| NIW ($B) | |||||||||
| Primary IIF ($B) | |||||||||
| Primary Persistency Rate | 85 | % | 80 | % | |||||
| Net Premiums Earned | |||||||||
| Losses Incurred | ) | ||||||||
| Loss Ratio | 3 | % | (10 | )% | |||||
| Operating Expenses | |||||||||
| Expense Ratio | 23 | % | 25 | % | |||||
| Net Investment Income | |||||||||
| Net Investment gains (losses) | ) | ) | |||||||
| Return on Equity | 15.2 | % | 17.2 | % | |||||
| Adjusted Operating Return on Equity | 15.5 | % | 17.3 | % | |||||
| PMIERs Sufficiency ($) | |||||||||
| PMIERs Sufficiency (%) | |||||||||
Fourth Quarter 2023 Financial and Operating Highlights
- Net income was
$157 million , or$0.98 per diluted share, compared with$164 million , or$1.02 per diluted share, for the third quarter of 2023 and$144 million , or$0.88 per diluted share, for the fourth quarter of 2022. Adjusted operating income was$158 million , or$0.98 per diluted share, compared with$164 million , or$1.02 per diluted share, for the third quarter of 2023 and$147 million , or$0.90 per diluted share, for the fourth quarter of 2022. - New insurance written (NIW) was
$10 billion , down27% from$14 billion in the third quarter of 2023 and down31% from the prior year primarily driven by a smaller estimated private mortgage insurance market. NIW for the current quarter was comprised of98% monthly premium policies and97% purchase originations. - Primary insurance in-force was a record
$263 billion , up from$262 billion in the third quarter of 2023 and up6% from$248 billion in the fourth quarter of 2022. - Persistency was
86% , up from84% in the third quarter of 2023 and flat as compared to the fourth quarter of 2022. Persistency has remained elevated, driven by high mortgage rates. Approximately4% of the mortgages in our portfolio had rates at least 50 basis points above the prevailing market rate. - Net premiums earned were
$240 million , down1% from$243 million in the third quarter of 2023 and up3% from$233 million in the fourth quarter of 2022. Net premiums decreased sequentially primarily as a result of an increase in ceded premiums. The year-over-year increase was driven by insurance in-force growth, partially offset by higher ceded premiums and the lapse of older, higher priced policies. Losses incurred for the fourth quarter of 2023 were$24 million and the loss ratio was10% , compared to$18 million and7% , respectively, in the third quarter of 2023 and$18 million and8% , respectively, in the fourth quarter of 2022. The sequential and year over year increases in losses and loss ratio were driven by higher current period delinquencies, primarily driven by sequential seasonal trends and the normal loss development of new, large books. Additionally, favorable cure performance from 2022 and earlier delinquencies remained above our expectations, which resulted in a$53 million reserve release in the quarter as compared to reserve releases of$55 million and$42 million in the third quarter of 2023 and fourth quarter of 2022, respectively. - The delinquency rate at quarter end was
2.10% , compared to1.97% as of September 30, 2023, and2.08% as of December 31, 2022. - Operating expenses in the current quarter were
$59 million and the expense ratio was25% , compared to$55 million and23% , respectively, in the third quarter of 2023 and$63 million and27% , respectively in the fourth quarter of 2022. The sequential increase was driven by timing of premium tax expense recognition and incentive-based compensation while the year-over-year decrease was driven in part by the impact of our cost reduction initiatives, including the impact from our previously announced renegotiated shared services agreement with Genworth and our voluntary separation program executed in the fourth quarter of 2022. - Net investment income was
$56 million , up from$55 million in the third quarter of 2023 and$45 million in the fourth quarter of 2022, driven by rising interest rates year-over-year and higher average invested assets sequentially and year-over-year. - Net investment loss was up approximately
$1 million from the third quarter of 2023 and flat versus the same period in the prior year. - Annualized return on equity for the fourth quarter of 2023 was
13.8% and annualized adjusted operating return on equity was13.9% . This compares to third quarter 2023 results of14.9% and14.9% , respectively, and to fourth quarter 2022 results of14.0% and14.4% , respectively.
Capital and Liquidity
- We returned over
$300 million to shareholders in 2023 inclusive of quarterly dividends, the fourth quarter special cash dividend of$113 million and share repurchases in 2023. - During the quarter, EMICO contributed
$250 million to Enact Re, which will support an increase to the previously announced affiliate quota share, as well as new insurance written and new business opportunities primarily consisting of GSE credit risk transfer. - Enact Re continues to write high-quality and attractive GSE risk share business, and we have participated in all 7 of the GSE deals that have come to market since its launch.
- We secured
$248 million of fully collateralized excess of loss reinsurance coverage through the issuance of an insurance-linked note (“ILN”) transaction with Triangle Re 2023-1 Ltd. (“Triangle Re 2023-1”). This ILN transaction provides coverage on a portfolio of existing seasoned mortgage insurance policies written from July 1, 2022 through June 30, 2023. - During the fourth quarter of 2023, we increased our ceding percentage of our previously announced quota share on the 2023 book year by three percentage points with a new highly rated reinsurance partner, we now cede approximately
16% of a portion of NIW written from January 1, 2023, through December 31, 2023. - EMICO completed a distribution of approximately
$185 million that will primarily be used to support our ability to return capital and bolster financial flexibility. - PMIERs sufficiency was
161% and$1,887 million above the PMIERs requirements, compared to162% and$2,017 million above the PMIERs requirements in the third quarter of 2023. - Enact Holdings, Inc. held
$152 million of cash and$304 million of invested assets as of December 31, 2023. Combined cash and invested assets increased$43 million from the prior quarter, primarily due to EMICO’s distribution to EHI that will be used to support our ability to return capital to shareholders and bolster financial flexibility partially offset by common and special dividends in the fourth quarter.
Recent Events
- Share repurchases totaled
$18 million in the quarter and$88 million in 2023. Additionally, we made$4 million in repurchases in January under our share repurchase program,$82 million remains on the previously announced$100 million program. - In January, Enact Re executed its first international reinsurance deal with a leading mortgage insurance provider in Australia.
- In January, we announced a quota share reinsurance transaction with a panel of reinsurers that will cede approximately
21% of expected new insurance written for the 2024 book year which provides approximately$2.7 billion of ceded RIF. Enact will receive a ceding commission equal to20% of ceded premiums, as well as a profit commission of up to55% of ceded premiums, reduced by any losses ceded under the agreement. - In January, S&P Global Ratings (“S&P”) upgraded the Insurer Financial Strength rating for EMICO to A- from BBB+. S&P also upgraded the Issuer Credit Rating for EHI to BBB- from BB+. The outlook for both ratings is stable.
- In February, we executed an excess of loss reinsurance transaction with a panel of highly rated reinsurers, which provides up to
$255 million of reinsurance coverage on a portion of current and expected new insurance written for the 2024 book year, effective January 1, 2024. - In February, we increased our previously announced Enact Re affiliate quota share from
7.5% to12.5% of a portion of our in-force business from EMICO.
Conference Call and Financial Supplement Information
This press release, the fourth quarter 2023 financial supplement and earnings presentation are now posted on the Company’s website, https://ir.enactmi.com. Investors are encouraged to review these materials.
Enact will discuss fourth quarter financial results in a conference call tomorrow, Wednesday, February 7, 2024, at 8:00 a.m. (Eastern). Participants interested in joining the call’s live question and answer session are required to pre-register by clicking here to obtain your dial-in number and unique PIN. It is recommended to join at least 15 minutes in advance, although you may register ahead of the call and dial in at any time during the call. If you wish to join the call but do not plan to ask questions, a live webcast of the event will be available on our website, https://ir.enactmi.com/news-and-events/events.
The webcast also will be archived on the Company’s website for one year.
About Enact
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 uncertainty around Covid-19 and the effects of government and other measures seeking to contain its spread; supply chain constraints; inflation; increases in interest rates; 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; future adverse rating agency actions, including with respect to rating downgrades or potential downgrades or being put on review for potential downgrade, all of which could have adverse implications; 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 Annual Report on Form 10-K and other filings with the Securities and Exchange Commission, may cause our actual results to differ from those expressed in forward-looking statements. In addition, the potential for future dividend payments and other forms of returning capital to shareholders, including share repurchases, will be determined in consultation with the Board of Directors, and after considering economic and regulatory factors, current risks to the Company, and subsidiary performance. Although Enact believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, the Company 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.
GAAP/Non-GAAP Disclosure Discussion
This communication includes the non-GAAP financial measures entitled “adjusted operating income (loss)”, “adjusted operating income (loss) per share," and “adjusted operating return on equity." Adjusted operating income (loss) per share is derived from adjusted operating income (loss). The chief operating decision maker evaluates performance and allocates resources on the basis of adjusted operating income (loss). The Enact Holdings, Inc. (the “Company”) defines adjusted operating income (loss) as net income (loss) excluding the after-tax effects of net investment gains (losses), restructuring costs and infrequent or unusual non-operating items. The Company excludes net investment gains (losses) and infrequent or unusual non-operating items because the company does not consider them to be related to the operating performance of the Company and other activities. The recognition of realized investment gains or losses can vary significantly across periods as the activity is highly discretionary based on the timing of individual securities sales due to such factors as market opportunities or exposure management. Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these realized gains and losses. We do not view them to be indicative of our fundamental operating activities. Therefore, these items are excluded from our calculation of adjusted operating income. In addition, adjusted operating income (loss) per share is derived from adjusted operating income (loss) divided by shares outstanding. Adjusted operating return on equity is calculated as annualized adjusted operating income for the period indicated divided by the average of current period and prior periods’ ending total stockholders’ equity.
While some of these items may be significant components of net income (loss) in accordance with U.S. GAAP, the Company believes that adjusted operating income (loss) and measures that are derived from or incorporate adjusted operating income (loss), including adjusted operating income (loss) per share on a basic and diluted basis and adjusted operating return on equity, are appropriate measures that are useful to investors because they identify the income (loss) attributable to the ongoing operations of the business. Management also uses adjusted operating income (loss) as a basis for determining awards and compensation for senior management and to evaluate performance on a basis comparable to that used by analysts. Adjusted operating income (loss) and adjusted operating income (loss) per share on a basic and diluted basis are not substitutes for net income (loss) available to the Company’s common stockholders or net income (loss) available to the Company’s common stockholders per share on a basic and diluted basis determined in accordance with U.S. GAAP. In addition, the company’s definition of adjusted operating income (loss) may differ from the definitions used by other companies.
Adjustments to reconcile net income (loss) available to the Company’s common stockholders to adjusted operating income (loss) assume a
The tables at the end of this press release provide a reconciliation of net income (loss) to adjusted operating income (loss) and U.S. GAAP return on equity to adjusted operating return on equity for the three months and twelve months ending December 31, 2023 and 2022, as well as for the three months ended September 30, 2023.
Exhibit A: Consolidated Statements of Income (amounts in thousands, except per share amounts)
| 4Q23 | 3Q23 | 4Q22 | 2023 | 2022 | ||||||
| REVENUES: | ||||||||||
| Premiums | ||||||||||
| Net investment income | 56,161 | 54,952 | 44,896 | 207,369 | 155,311 | |||||
| Net investment gains (losses) | (876 | ) | (23 | ) | (1,274 | ) | (14,022 | ) | (2,036 | ) |
| Other income | 804 | 760 | 483 | 3,264 | 2,309 | |||||
| Total revenues | 296,190 | 299,035 | 276,842 | 1,153,686 | 1,095,046 | |||||
| LOSSES AND EXPENSES: | ||||||||||
| Losses incurred | 24,372 | 17,847 | 18,097 | 27,165 | (94,221 | ) | ||||
| Acquisition and operating expenses, net of deferrals | 56,560 | 52,339 | 59,955 | 212,491 | 226,941 | |||||
| Amortization of deferred acquisition costs and intangibles | 2,566 | 2,803 | 2,747 | 10,654 | 12,405 | |||||
| Interest expense | 12,948 | 12,941 | 13,258 | 51,867 | 51,699 | |||||
| Total losses and expenses | 96,446 | 85,930 | 94,057 | 302,177 | 196,824 | |||||
| INCOME BEFORE INCOME TAXES | 199,744 | 213,105 | 182,785 | 851,509 | 898,222 | |||||
| Provision for income taxes (1) | 42,436 | 48,910 | 38,979 | 185,998 | 194,065 | |||||
| NET INCOME | ||||||||||
| Net investment (gains) losses | 876 | 23 | 1,274 | 14,022 | 2,036 | |||||
| Costs associated with reorganization | 408 | 3 | 3,291 | (131 | ) | 3,461 | ||||
| Taxes on adjustments | (270 | ) | (5 | ) | (959 | ) | (2,917 | ) | (1,155 | ) |
| Adjusted Operating Income | ||||||||||
| Loss ratio (2) | 10 | % | 7 | % | 8 | % | 3 | % | (10 | )% |
| Expense ratio (3) | 25 | % | 23 | % | 27 | % | 23 | % | 25 | % |
| Earnings Per Share Data: | ||||||||||
| Net Income per share | ||||||||||
| Basic | ||||||||||
| Diluted | ||||||||||
| Adj operating income per share | ||||||||||
| Basic | ||||||||||
| Diluted | ||||||||||
| Weighted-average common shares outstanding | ||||||||||
| Basic | 159,655 | 160,066 | 162,824 | 160,870 | 162,838 | |||||
| Diluted | 160,895 | 161,146 | 163,520 | 161,847 | 163,294 | |||||
| (1) Provision for income taxes for the three-month period ended September 30, 2023, included adjustments of |
| (2) The ratio of losses incurred to net earned premiums. |
| (3) The ratio of acquisition and operating expenses, net of deferrals, and amortization of deferred acquisition costs and intangibles to net earned premiums. Expenses associated with strategic transaction preparations and restructuring costs did not impact the expense ratio for the three-month periods ended December 31, 2023 and September 30, 2023, and increased the expense ratio by one percentage point in for the three-month period ended December 31, 2022. Expenses associated with strategic transaction preparations and restructuring costs did not impact the expense ratio for the years ended December 31, 2023 and 2022. |
Exhibit B: Consolidated Balance Sheets (amounts in thousands, except per share amounts)
| Assets | 4Q23 | 3Q23 | 4Q22 | ||||||
| Investments: | |||||||||
| Fixed maturity securities available-for-sale, at fair value | |||||||||
| Short term investments | 20,219 | 18,173 | 3,047 | ||||||
| Total investments | 5,286,360 | 5,008,865 | 4,887,807 | ||||||
| Cash and cash equivalents | 615,683 | 677,990 | 513,775 | ||||||
| Accrued investment income | 41,559 | 42,051 | 35,844 | ||||||
| Deferred acquisition costs | 25,006 | 25,572 | 26,121 | ||||||
| Premiums receivable | 45,070 | 44,310 | 41,738 | ||||||
| Other assets | 88,306 | 82,196 | 76,391 | ||||||
| Deferred tax asset | 88,489 | 119,704 | 127,473 | ||||||
| Total assets | |||||||||
| Liabilities and Shareholders' Equity | |||||||||
| Liabilities: | |||||||||
| Loss reserves | |||||||||
| Unearned premiums | 149,330 | 161,580 | 202,717 | ||||||
| Other liabilities | 145,189 | 136,057 | 143,686 | ||||||
| Long-term borrowings | 745,416 | 744,752 | 742,830 | ||||||
| Total liabilities | 1,558,126 | 1,543,482 | 1,608,241 | ||||||
| Equity: | |||||||||
| Common stock | 1,593 | 1,600 | 1,628 | ||||||
| Additional paid-in capital | 2,310,891 | 2,322,622 | 2,382,068 | ||||||
| Accumulated other comprehensive income | (230,400 | ) | (400,349 | ) | (382,744 | ) | |||
| Retained earnings | 2,550,263 | 2,533,333 | 2,099,956 | ||||||
| Total equity | 4,632,347 | 4,457,206 | 4,100,908 | ||||||
| Total liabilities and equity | |||||||||
| Book value per share | |||||||||
| Book value per share excluding AOCI | |||||||||
| U.S. GAAP ROE (1) | 13.8 | % | 14.9 | % | 14.0 | % | |||
| Net investment (gains) losses | 0.1 | % | 0.0 | % | 0.1 | % | |||
| Costs associated with reorganization | 0.0 | % | 0.0 | % | 0.3 | % | |||
| Taxes on adjustments | 0.0 | % | 0.0 | % | (0.1 | )% | |||
| Adjusted Operating ROE(2) | 13.9 | % | 14.9 | % | 14.4 | % | |||
| Debt to Capital Ratio | 14 | % | 14 | % | 15 | % | |||
| (1) Calculated as annualized net income for the period indicated divided by the average of current period and prior periods’ ending total stockholders’ equity |
| (2) Calculated as annualized adjusted operating income for the period indicated divided by the average of current period and prior periods’ ending total stockholders’ equity |
FAQ
What was Enact Holdings, Inc.'s (ACT) GAAP net income for the fourth quarter?
What was the company's primary insurance in-force for 2023?
What was the company's PMIERs Sufficiency for the fourth quarter?
Did Enact Holdings, Inc. receive any positive ratings from S&P Global Ratings?
