Q3 2025 Enact Holdings Inc Earnings Call

Speaker #3: Hello and welcome to an Acts third Quarter 2025 Earnings call . Please be advised that today's conference is being recorded . Should you need assistance , please signal a conference specialist by pressing star .

Speaker #3: Then zero on your telephone keypad. I would now like to hand the conference over to your first speaker, Daniel Kohl, Vice President of Investor Relations.

Speaker #3: You may begin .

Speaker #4: Thank you and good morning . Welcome to our third quarter earnings call . Joining me today are Rohit Gupta President and Chief Executive Officer and Dean Mitchell chief Financial Officer and Treasurer .

Speaker #4: Rohit will provide an overview of our business performance and progress against our strategy . Dean will then discuss the details of our quarterly results before turning the call back to Rohit for closing remarks .

Speaker #4: We will then take your questions . The earnings materials we issued after market close yesterday contain our financial results for the quarter , along with a comprehensive set of financial and operational metrics .

Speaker #4: These are available on the Investor Relations section of our website . Today's call is being recorded and will include the use of forward looking statements .

Speaker #4: These statements are based on current assumptions , estimates , expectations and projections . As of today's date . Additionally , they are subject to risks and uncertainties which may cause actual results to be materially different and we undertake no obligation to update or revise such statements .

Speaker #4: As a result of new information for a discussion of these risks and uncertainties , please review the cautionary language regarding forward looking statements in today's press release , as well as in our filings with the SEC , which will be our website .

Speaker #4: available on Additionally ,

Speaker #4: Please keep in mind the earnings , materials and management's prepared remarks today include certain non-GAAP measures , reconciliations of these measures to the most relevant GAAP metrics can be found in the press release .

Speaker #4: Our earnings presentation and our upcoming SEC filing on our website . With that , I'll turn the call over to Rohit .

Speaker #5: Thank you . Daniel . Good morning everyone . I am pleased to report that Anat delivered another strong quarter of performance , reflecting the continued disciplined execution of our strategy and the strength of our operating model .

Speaker #5: Our results demonstrate the strength of our business and our ongoing commitment to creating long term value for our shareholders . To that end , we are pleased to announce our updated 2025 capital Return expectation of approximately $500 million , up from prior guidance of 400 million .

Speaker #5: we entered a new 435 million revolving credit facility with favorable terms , providing additional financial flexibility with which to manage our business and execute our strategy .

Speaker #5: Dean will discuss both in more detail for the third quarter . We reported adjusted operating income of 166 million , or $1.12 per diluted share .

Speaker #5: Additionally , adjusted return on equity was 13% , while insurance and force increased 2% year over year to 272 billion , and we generated robust new insurance written of over 14 billion .

Speaker #5: We continue to navigate a dynamic macroeconomic environment where discipline and focus the US economy continues to be supported by steady consumer spending . Moderating inflation and a resilient labor market , even as hiring momentum cools on a national level .

Speaker #5: Steady wage growth , lower mortgage rates and generally stable home prices have driven modest improvements to affordability . However , given broader macro uncertainties , consumers are more cautious and many buyers are still waiting for the right conditions , leading to an increase in housing supply in certain geographies .

Speaker #5: Overall , our business remains underpinned by strong demographic tailwinds , particularly from prospective first time home buyers entering the market . We remain optimistic about the long term health of the US housing market and confident in our ability to deliver through economic cycles .

Speaker #5: Against this backdrop , our capital position and credit performance remain key strengths . During the quarter , we executed against our CRT program with a new quota share agreement that will cover new insurance .

Speaker #5: Written in 2027 . In addition , after quarter end , we closed on a new forward excess of loss agreement that will provide approximately 170 million of coverage on a portion of our 2027 book .

Speaker #5: Our Pmiers sufficiency ratio was 162% , providing significant financial flexibility and our credit and investment portfolios are in excellent shape . Our insurance In-force portfolio remains resilient , with a risk weighted average Fico score of the portfolio at 746 .

Speaker #5: The risk weighted average loan to value ratio was 93% and layered risk was 1.2% of risk . In-force . Pricing was constructive again in the quarter , and we maintained our commitment to prudent underwriting standards .

Speaker #5: Our pricing engine rate three . 60 dynamically delivers competitive risk adjusted pricing by factoring in actual and projected housing market trends at a detailed geographic level .

Speaker #5: Total Credit performance continues to be strong , and we remain well reserved for a range of scenarios . We delivered another quarter of strong expense management with expenses that were down year over year .

Speaker #5: Despite the ongoing inflationary environment . We are pleased with our disciplined cost management . Year to date , and Dean will discuss the improved expectations for the remainder of 2025 .

Speaker #5: We continued to advance against our capital allocation priorities . Support existing policyholders by maintaining a strong balance sheet in our business to drive organic growth and efficiencies .

Speaker #5: Fund attractive new business opportunities and return excess capital to shareholders . Regarding our first priority , I have already discussed our strong capital position .

Speaker #5: Underscored by robust pmars buffer as well as the ongoing execution of our CRT program and new credit facility . I'm also pleased to note that during the quarter , we received our fourth ratings upgrade from Moody's since going public in 2021 , upgrading Amex rating to A2 from A3 and Enact Holdings Inc ratings to A2 from B-a3 .

Speaker #5: While Am best moved our outlook to positive in relation to our second priority . We continue to invest in initiatives to drive growth in our core business , including pursuing opportunities to deepen our existing relationships with lenders through technology enhancements , increasing customer engagement , and improving the efficiency of our operations .

Speaker #5: In addition , an act Re continues to perform well and participate in attractive GSE single and multi-family deals while maintaining strong underwriting standards and generating attractive risk adjusted returns in remains a long term growth opportunity that is both capital and expense efficient .

Speaker #5: Finally , as it relates to capital returns during the third quarter , we returned 136 million to shareholders through share repurchases and dividends .

Speaker #5: And as I mentioned earlier , we are increasing our expected capital returns to approximately 500 million for the year . This represents our highest capital return since the IPO , while also maintaining a very strong balance sheet and investing in our future .

Speaker #5: This upward revision reflects the strength of our business model and the current levels of mortgage originations . Overall , we are pleased with our performance in the third quarter and through the first nine months of 2025 .

Speaker #5: We continue to navigate a complex and evolving environment from a position of strength supported by robust new insurance , written with excellent credit quality , a strong balance sheet and prudent expense management .

Speaker #5: As always , we are actively engaged with our lending partners . The GSE and their administration to ensure we remain well positioned to adapt to an evolving environment .

Speaker #5: With that , I will now hand it over to Dean to walk through our financial results in more detail .

Speaker #6: Thanks , Rohit . Good morning everyone . Adjusted operating income was $166 million , or $1.12 per diluted share , compared to $1.16 per diluted share in the same period last year .

Speaker #6: And $1.15 per diluted share in the second quarter of 2025 . Adjusted operating return on equity was 13% , a detailed reconciliation of GAAP net income to adjusted operating income can be found in our earnings release .

Speaker #6: Turning to revenue drivers . New insurance written was 14 billion , up 6% sequentially and up 3% year over year . Persistency was 83% in the third quarter , up one point sequentially and flat year over year .

Speaker #6: Continuing its trend above historical norms , while mortgage rates have fallen recently , our portfolio remains resilient , with 21% of mortgages having rates at least 50 basis points above Septembers average of 6.4% .

Speaker #6: Historically , persistency has varied in relation to mortgage rates , as rates continue to change . We may see persistency shift from its current level .

Speaker #6: The combination of solid new insurance written and elevated persistency drove primary insurance in of $272 billion in the third quarter , up $2 billion , or approximately 1% , from the second quarter of 2025 .

Speaker #6: And 4 billion , or approximately 2% year over year . Total net premiums earned were 245 million , flat sequentially and down modestly year over year .

Speaker #6: The year over year decrease was primarily driven by higher ceded premiums . Our base premium rate of 39.7 basis points was down one basis point sequentially aligned with our expectation for base premium rate in 2025 to approximate 2024 levels .

Speaker #6: As a reminder , our base premium rate is impacted by several factors and tends to modestly fluctuate from quarter to quarter . Our net earned premium rate was 34.9 basis points , down slightly sequentially , driven by higher ceded premiums .

Speaker #6: Investment income in the third quarter was 69 million , up 3 million , or 4% sequentially and up 8 million , or 12% year over year .

Speaker #6: Our new money investment yield continues to exceed 5% , lifting our overall portfolio book yield . As we noted in the past , while we typically hold investments to maturity , we may selectively pursue income enhancement opportunities during the quarter , we sold certain assets that will allow us to recoup , realized losses through future higher net investment income .

Speaker #6: Turning to credit , we continue to see stable credit performance across our overall portfolio . New delinquencies increased sequentially to 13,000 in the quarter , from 11,600 in the second quarter of 2025 .

Speaker #6: In line with expected seasonal trends . Our new delinquency rate continues to remain consistent with pre-pandemic levels for the quarter . At 1.4% , an increase of 20 basis points compared to 1.2% in the second quarter of 2025 and flat to the 1.4% in the third quarter of 2020 .

Speaker #6: For we assess our claims rate on a regular basis and maintained our claim rate on new delinquencies at 9% , total delinquencies in the third quarter increased sequentially to 23,400 from 22,100 .

Speaker #6: As news outpaced cures and the delinquency rate increased 20 basis points sequentially to 2.5% . Losses in the third quarter of 2025 were $36 million , and the loss ratio was 15% , compared to 25,000,010% , respectively , in the second quarter of 2025 and 12,000,000 in 5 percent , respectively .

Speaker #6: In the third quarter of 2024 . The current quarter's reserve release of 45 million from favorable cure performance and loss mitigation activities compares to a reserve release of 48,000,065 million in the second quarter of 2025 and third quarter of 2024 , respectively .

Speaker #6: Turning to our continued prudent expense management operating expenses for the third quarter of 2025 were 53 million , and the expense ratio was 22% .

Speaker #6: Consistent with the second quarter of 2025 and lower than the 56,000,000 in 20 2% , respectively . In the third quarter of 2020 .

Speaker #6: For based on our performance and fourth quarter outlook , we now forecast 2025 expenses excluding reorganization costs at approximately 219 million lower than our previous range of 220 to 225 million .

Speaker #6: Despite inflationary headwinds . We continue to operate from a strong capital and liquidity position , reinforced by our robust PMR efficiency and the successful execution of our diversified CRT program .

Speaker #6: Our PMR sufficiency was 162% , or 1.9 billion above Pmiers requirements at the end of the third quarter . During the quarter , we entered into a new forward quota share reinsurance agreement , which ceded approximately 34% of our 2027 new insurance written to a broad panel of highly rated reinsurers .

Speaker #6: Subsequent to the end of the quarter , we secured approximately $170 million of additional excess of loss reinsurance coverage for a portion of our 2027 book by a broad panel of highly rated reinsurers .

Speaker #6: These transactions demonstrate our commitment to disciplined risk management while providing certainty of coverage at favorable market terms . As of September 30th , 2025 , our third party CRT program provides 1.9 billion of Pmiers capital credit .

Speaker #6: During the quarter . Moody's upgraded the insurance financial strength rating for our flagship insurance subsidiary , Intact Mortgage Insurance Corporation , to A-2 .

Speaker #6: From A3 . Moody's also upgraded Enact Holdings Inc long term issuer rating and senior unsecured debt rating to Baa2 from three on the outlook for the ratings is stable .

Speaker #6: This marks the fourth upgrade since our IPO in 2021 for Moody's . Also am best raised our ratings outlook from stable to positive .

Speaker #6: Additionally , we entered into a new 435,000,005 year senior unsecured revolving credit facility at favorable terms , expanding our borrowing capacity , extending our maturity profile , and providing greater flexibility and liquidity to support our operations .

Speaker #6: In addition , our conservative debt to capital ratio of 12% provides additional financial flexibility . Turning now to capital allocation . During the quarter , we paid out $31 million , or $0.21 per share , through our quarterly dividend .

Speaker #6: Today , we announced our third quarter dividend of $0.21 per common share , payable December 11th . In addition , we bought 2.8 million shares for $105 million in the third quarter of 2025 through October 31st .

Speaker #6: Repurchased an additional 1.2 million shares for $42 million . As Rohit mentioned earlier , we are increasing our 2025 total capital return guidance to approximately 500 million .

Speaker #6: Recognizing our ongoing strong business performance and current mortgage origination levels . As always , the final amount and form of capital return to shareholders will depend on business performance , market conditions and regulatory approvals .

Speaker #6: Overall , we are pleased with our performance in 2025 to date and we believe we are well positioned for a strong end to the year .

Speaker #6: We remain focused on prudently managing risk , maintaining a strong balance sheet and delivering solid returns for our shareholders . With that , let me turn the call back to Rohit .

Speaker #5: Thanks , Dean . Looking ahead , while the external environment remains dynamic , our strong balance sheet embedded equity and disciplined operating approach positions us well to navigate uncertainty and capitalize on long term opportunities .

Speaker #5: I want to thank our entire team for their continued dedication and exceptional execution , their commitment to our mission of helping people responsibly achieve their dream of home ownership is what drives our success .

Speaker #5: We continue to remain focused on delivering long term value for all of our stakeholders , and we are confident in our ability to continue building on our strong history of consistent performance .

Speaker #5: Operator we are now ready for Q&A .

Speaker #3: We will now begin the question and answer session . To ask a question , you may press star , then one on your telephone keypad .

Speaker #3: If you're using a speakerphone , please pick up your handset before pressing the keys . If at any time your question has been addressed and you would like to withdraw your question , please press star then two .

Speaker #3: At this time we will pause momentarily to assemble our roster . The first question comes from Bose George with CCB . Please go ahead .

Speaker #7: Hey everyone , good morning . First , I wanted to just ask about your expectation for delinquency trends . Can you talk about where you think delinquencies will peak on portfolios as they're you know , they're fully seasoned ?

Speaker #7: Can we look at books that are that are closer to being fully seasoned , like maybe 2021 or as a way to gauge where the will season ?

Speaker #6: Yet ? Bose . Thanks for the question . You know , from a credit perspective , very much in line with what we said in our prepared remarks , credit performance remains very strong through the third quarter .

Speaker #6: It certainly supported by a lot of different factors . You know , kind of chief among them , the resilient macroeconomic environment coupled with the embedded home price appreciation across our portfolio .

Speaker #6: You know , I think from a vintage perspective , getting to that part of your question , you know , we as we disaggregate the portfolio , we really don't see any variance to expectations across

Speaker #6: variables across the portfolio . And that includes book years . Obviously , there's there's book years newer books with different mixes of risk variables , more recently , the 2022 and forward book years have a higher concentration to a purchase origination market , which tends to have higher concentration in high LTV , high DTI .

Speaker #6: But when you consider those risk attributes , mix , we really see good alignment between our actual performance and our expectations . When we onboard that business from the onset .

Speaker #6: So , you know , I think certainly credit performance is going to be very dependent on the macroeconomic environment . And if we continue to see the resiliency that we've seen to date , we would expect credit performance to to stay in that very , you know , aligned with the very strong credit performance that we've seen to date .

Speaker #7: Okay , great . And is the typical seasoning sort of four years . Five years . Is that when when they're fully seasoned ?

Speaker #6: Yeah . From a from a aging of the of the overall portfolio . We've talked about the normal loss development curve and the progression up that curve towards a plateau at around years 3 to 4 .

Speaker #6: It's not a point . It's kind of a plateauing . And that that plateau happens in , you know , between . Years three and four and maybe another 12 months thereafter .

Speaker #6: What we've seen , what we what we talked about , our expectation heading into 2025 was given the aging of that portfolio up in that 3 to 4 year time period , that we would see some slowing in the delinquency development from a year over year change perspective .

Speaker #6: And I think that's actually what we've seen . So when you look back 23 to 24 , you saw kind of mid-teens percentage change in increase in new delinquencies .

Speaker #6: This year . You see more kind of mid-single digits , five 6% change year over year . And I think that has a lot to do with the aging of the portfolio and the development or the progression of the normal loss development curve .

Speaker #7: Okay , great . And then just one clarification on the expense . The year over year increase obviously is very modest , but just in terms of the quarterly trends , in the last couple of quarters , I guess we're a little lighter than 24 .

Speaker #7: So this this year , I guess is is the for Q just a little more back end heavy , you know , versus the other quarters .

Speaker #8: Yeah . Bo's we've talked about this in the past that our expenses aren't .

Speaker #6: Level throughout a calendar year . We typically have higher variable performance based incentive comp over the last , you know , second half of a year .

Speaker #6: I think that's going to have a more meaningful impact in the last quarter of this year . But if you look back at , prior year experience as well , you see that in the third and fourth quarters of , you know , just going back to like 2024 .

Speaker #6: So , yeah , similar , similar driver and a little bit more disproportionate in the fourth quarter this year .

Speaker #7: Okay . Great . Thanks .

Speaker #3: Again , if you have a question , please press star then one the next question comes from Rick Shane with J.P. Morgan . Please go ahead .

Speaker #9: Hey guys . Thanks for taking my questions . Really a couple things . One , you know , you've provided favorable guidance on expenses .

Speaker #9: One of the questions that I think everybody's wrestling with is how technology , particularly AI , is transforming different businesses . Can you talk a little bit about what's driving your favorable expense guidance , but also longer term , how you see AI transforming your business ?

Speaker #5: Absolutely , Rick . Good morning . So I would say in terms of favorable performance of expenses , as Dean talked about it in his prepared remarks , we are always prudent in our expense management .

Speaker #5: As a company , and you have seen that play out since our IPO during 2021 , our expenses were close to 240 , I would say low $240 million range .

Speaker #5: And since that time , despite inflationary pressures , we have actually reduced our expenses close to $25 million . And last three years , we basically have our expenses trending flat in terms of total expense , dollars .

Speaker #5: So I think that's just our general mindset that when we think about our expenses , we are very mindful of the environment where we are making investments .

Speaker #5: How do we make our existing processes more efficient , whether it comes to our underwriting processes , whether running rest of the business we are making technology investments ?

Speaker #5: On an ongoing basis to harvest benefits from those investments . Now , that being said , we also make technology investments to make smarter decisions in the past , I've talked about investments in our eight , three , 60 engine , where six , seven years ago we started investments in our data .

Speaker #5: Then we started investments in machine learning . And as a result , we believe we have a very granular , risk based pricing system in rate 360 that allows us to make decisions and changes at a more granular level .

Speaker #5: And in a more agile way in the market , so we can respond to market changes . And lastly , I would say that we also spend time and investments in customer experience .

Speaker #5: So in places where we can improve customer experience and that allows us to have a bigger footprint in the market . We are proud of our customer base in terms of number of customers .

Speaker #5: We do business with on an active basis . That continues to be close to 1600 lenders in the country , as well as doing business with all top 20 originators in the country .

Speaker #5: So I would say that's our technology strategy when it comes to AI . I've said in the past that we continue to invest on that front , both for efficiency reasons and making smarter and more granular decisions .

Speaker #5: So that's basically how we see that playing out for our business .

Speaker #9: Got it . Okay . That's helpful . And then , you know , just if we can think about a little bit in terms of you've increased your return of capital allocation for the year , 25% , it's risen steadily throughout the year .

Speaker #9: You know , this was this was a strong quarter in line roughly , I think , with with at least street expectations . Is it just that you guys sort of as you move through the year and gather more information , feel more confident in terms of setting your capital return expectations , you know , it's I don't think this year is way out of whack with your expectations .

Speaker #9: And I don't think third quarter or fourth quarter outlook seems radically different . What drives a 25% increase in capital return outlook ?

Speaker #6: Yeah . Rick . Hey , it's Dean . Appreciate the question . I think you hit on a lot of the points . You know , when we set our return of capital plans at the beginning of the year , we're thinking about our expectations around business performance .

Speaker #6: We're thinking about the current and prospective macroeconomic environment . And we're thinking about the regulatory landscape to determine , you know , kind of what the appropriate level of capital return is given the intersection of those , you know , three considerations , I think as we go through the year , we both make assessments , how we're doing relative to our original expectations and to your point , we're gaining more and more confidence in those in those drivers as we progress through the year .

Speaker #6: You know , from from my perspective , the increase from 400 to 500 . And even if you go back a quarter , the increase from 350 to 500 , I think it reflects both the favorable business performance year to date and also certainly in indication of the current level of mortgage originations that are in the in the market today .

Speaker #6: I think it's really the combination of those two things that is caused us to come back and revise our return of capital guidance upwards .

Speaker #9: Got it . And so if I were to summarize that year has manifested . Potentially better than your conservative expectations . But this is really about the confidence interval on that performance narrowing to the higher end as we sort of move into fourth quarter .

Speaker #5: Yeah , Rick , I'm not sure if I would call it conservative expectations . I would just say we operate in a uncertain environment .

Speaker #5: So we always keep that in mind . You see that in our commentary , in our prepared remarks that we are running the business with a mindset that we need to be confident in our actions .

Speaker #5: And as we gain that confidence with actual performance coming through . We continue to update it along the year . So I think it's just the nature of how we actually manage the business and how we make sure that we can deliver on our promises consistently .

Speaker #9: Got it ? Fair point that uncertainty has been mitigated as we've moved through this year . In general . That's a fair point .

Speaker #9: Thank you guys .

Speaker #6: Thanks , Rick .

Speaker #5: Rick .

Speaker #3: This concludes our question and answer session . I would like to turn the conference back over to Rohit Gupta for any closing remarks .

Speaker #5: Thank you . Drew . Thank you everyone . We appreciate your interest in enact . And once again , I would like to wrap up the call by thanking all of our employees for their hard work and dedication in fulfilling our mission to help people buy a house and keep it their home .

Speaker #5: Thank you .