10-Q: Enact Holdings Reports Q2 Profit Decline Amid Higher Loss Reserves, Boosts Shareholder Returns

Enact Holdings, a leading mortgage insurer, reported a decrease in net income for the second quarter and first half of 2025, primarily due to less favorable reserve development, while maintaining strong capital levels and increasing shareholder returns through dividends and share repurchases.

Summary

• Net income for the three months ended June 30, 2025, decreased by 9% to $167.8 million, compared to $183.7 million in the same period of 2024.
• Net income for the six months ended June 30, 2025, decreased by 3% to $333.6 million, compared to $344.7 million in the same period of 2024.
• Losses incurred significantly increased to $25.3 million in Q2 2025 from a favorable $(16.8) million in Q2 2024, primarily due to a smaller reserve release of $48 million in 2025 compared to $77 million in 2024.
• For the six months, losses incurred rose to $55.8 million in 2025 from $2.7 million in 2024, with a reserve release of $95 million in 2025 versus $131 million in 2024.
• Net investment income increased by 10% to $65.9 million in Q2 2025 and 10% to $128.9 million for the six months, driven by higher yields and average invested assets.
• Acquisition and operating expenses, net of deferrals, decreased by 6% in Q2 2025 to $50.6 million and 4% for the six months to $100.7 million, partly due to lower severance expenses.
• The loss ratio for Q2 2025 was 10%, up from (7)% in Q2 2024, and for the six months was 11%, up from 1% in 2024.
• The expense ratio improved to 22% in Q2 2025 from 23% in Q2 2024, and to 21% for the six months from 23% in 2024.
• New insurance written (NIW) for Q2 2025 was $13.3 billion, a 3% decrease from $13.6 billion in Q2 2024.
• Primary insurance in-force (IIF) increased to $269.8 billion as of June 30, 2025, from $266.1 billion as of June 30, 2024.
• The number of delinquent loans increased to 22,118 as of June 30, 2025, from 19,051 as of June 30, 2024, resulting in a delinquency rate of 2.32% compared to 1.96%.
• The estimated risk-to-capital ratio for EMICO improved to 10.3:1 as of June 30, 2025, from 10.5:1 as of December 31, 2024, remaining well below the 25:1 maximum.
• The PMIERs sufficiency ratio remained strong at 165% as of June 30, 2025, with $1,961 million above requirements.
• The company completed its $250 million share repurchase program in Q2 2025 and authorized a new $350 million program on April 30, 2025, with $292.9 million remaining available as of June 30, 2025.
• The quarterly dividend was increased to $0.21 per common share, paid in June 2025, up from $0.185 in Q1 2025.

Sentiment

Score: 6

Explanation: While net income and loss ratios worsened due to less favorable reserve releases and increased delinquencies, the company demonstrates strong capital management, including a healthy risk-to-capital ratio and PMIERs sufficiency. It also actively returns capital to shareholders through increased dividends and significant share repurchases. Net investment income growth is a positive. The overall financial health remains robust despite a challenging macroeconomic environment and a dip in reported profitability metrics.

Positives

• Net investment income increased by 10% for both the three and six months ended June 30, 2025, driven by higher yields and average invested assets.
• Acquisition and operating expenses decreased by 6% in Q2 2025 and 4% for the six months, contributing to an improved expense ratio.
• The expense ratio decreased to 22% in Q2 2025 from 23% in Q2 2024, and to 21% for the six months from 23% in 2024.
• The estimated risk-to-capital ratio for EMICO improved to 10.3:1 as of June 30, 2025, from 10.5:1 as of December 31, 2024, indicating stronger capital efficiency.
• The PMIERs sufficiency ratio remains robust at 165% as of June 30, 2025, with $1,961 million in available assets above requirements.
• Fitch upgraded EMICO's long-term financial strength and issuer credit ratings from Ato A on January 17, 2025.
• The company completed its $250 million share repurchase program in Q2 2025 and authorized a new $350 million program, demonstrating commitment to shareholder returns.
• The quarterly dividend was increased to $0.21 per common share, paid in June 2025, signaling confidence in future performance and capital availability.
• Primary insurance in-force (IIF) increased to $269.8 billion as of June 30, 2025, from $266.1 billion as of June 30, 2024, indicating portfolio growth.
• The investment portfolio is highly rated, with 99% rated investment grade as of June 30, 2025.

Negatives

• Net income decreased by 9% for the three months and 3% for the six months ended June 30, 2025, compared to the prior year periods.
• Losses incurred significantly increased to $25.3 million in Q2 2025 from a favorable $(16.8) million in Q2 2024, primarily due to less favorable reserve development.
• The loss ratio worsened to 10% in Q2 2025 from (7)% in Q2 2024, and to 11% for the six months from 1% in 2024.
• New insurance written (NIW) decreased by 3% to $13.3 billion in Q2 2025 compared to Q2 2024.
• The number of delinquent loans increased to 22,118 as of June 30, 2025, from 19,051 as of June 30, 2024, leading to a higher delinquency rate of 2.32% (up from 1.96%).
• The net earned premium rate slightly decreased to 0.35% for both the three and six months ended June 30, 2025, from 0.36% in the prior year periods.
• Housing affordability has deteriorated due to elevated mortgage rates and home price appreciation outpacing median family income.
• Mortgage origination activity remained slow in Q2 2025 due to elevated mortgage rates and sustained low housing supply.

Risks

• Inability to continue to maintain the private mortgage insurer eligibility requirements (PMIERs) or any other restrictions imposed by Fannie Mae and Freddie Mac (GSEs).
• Deterioration in economic conditions, a decline in home prices, or a severe recession, including from the impact of tariffs and other government economic policies.
• Uncertainty around the time loans remain in delinquent inventory, including effects of forbearance programs and foreclosure timing.
• Uncertainty of loss reserve estimates or inaccuracies in models.
• Competition for customers or the loss of a significant customer.
• Changes to the charters or practices of the GSEs, including actions or decisions to decrease or discontinue the use of mortgage insurance.
• Lenders or investors seeking alternatives to private mortgage insurance.
• Failure of risk management or loss mitigation strategies.
• Risks related to emerging and changing technologies, including artificial intelligence.
• Fluctuations in interest rates.
• Limited availability of capital and the need to seek additional capital on unfavorable terms.
• Limited availability of reinsurance.
• Adverse actions by rating agencies.
• Competition with government-owned enterprises and GSEs.
• Failure to manage the risk in the investment portfolio.
• Disruption in the servicing of mortgages covered by insurance policies or poor servicer performance.
• Unanticipated claims arising under and risks associated with delegated underwriting or contract underwriting programs.
• Inadequacy of premiums charged to compensate for incurred losses.
• Decrease in the volume of Low-Down Payment Loan originations.
• Failure to protect confidential customer information.
• Adverse changes in regulatory requirements.
• Inability to maintain sufficient regulatory capital.
• Risks relating to the continuing relationship with Genworth Financial, Inc.
• Changes in tax laws.
• Litigation, regulatory investigations, or other actions.
• Inability to attract and retain key employees.
• Failure or any compromise of the security of computer systems, disaster recovery systems, business continuity plans, and failures to safeguard or breaches of confidential information.
• Occurrence of natural or man-made disasters or public health emergencies, including pandemics and disasters caused or exacerbated by climate change.

Future Outlook

The company expects its new insurance written, characterized by a strong credit profile and attractive pricing, to positively contribute to future profitability and return on equity. Future dividend payments are subject to quarterly review and approval by the Board of Directors and Genworth, and will be targeted for payment in the third month of each quarter. The company intends to continue using future EMICO dividends and distributions to support its ability to return capital to shareholders and bolster financial flexibility. The company continually evaluates opportunities to further increase financial flexibility, including through raising additional capital, restructuring or refinancing outstanding debt, or pursuing other options such as reinsurance or credit risk transfer transactions. The company expects to hold capital sufficiency well in excess of the updated PMIERs requirements, which are phasing in between March 31, 2025, and September 30, 2026.

Management Comments

• "We see the market and underwriting conditions, including the pricing environment, as being within our risk-adjusted return appetite enabling us to write new business at attractive returns."
• "Ultimately, we expect our new insurance written with its strong credit profile and attractive pricing to positively contribute to our future profitability and return on equity."
• "Returning capital to shareholders, balanced with our growth and risk management priorities, remains a priority as we look to drive shareholder value through time."
• "Future return of capital will be shaped by our capital prioritization framework, which sets the following priorities: supporting our existing policyholders, growing our mortgage insurance business, funding attractive new business opportunities and returning capital to shareholders."

Industry Context

The U.S. private mortgage insurance industry is highly competitive, with market share influenced by pricing competitiveness and selective participation in forward commitment transactions. The macroeconomic environment is characterized by elevated inflation (CPI at 2.7% year-over-year in June 2025), low unemployment (4.1% in June 2025), and continued earnings growth. However, the U.S. economy has experienced significant volatility and uncertainty since April 2025 due to changing economic policies, including new tariffs and geopolitical tensions, which could impact housing markets. Mortgage origination activity remained slow in Q2 2025 due to elevated mortgage rates and sustained low housing supply. Housing affordability has deteriorated as mortgage rates and home price appreciation outpaced median family income, and national house price growth has slowed. Regulatory developments include the FHFA's announcement in July 2025 to implement the acceptance of VantageScore 4.0 for mortgages delivered to Fannie Mae and Freddie Mac, with implementation details and timelines yet to be released.

Comparison to Industry Standards

• The company's EMICO estimated risk-to-capital ratio of 10.3:1 as of June 30, 2025, is well below the North Carolina Department of Insurance's maximum permitted ratio of 25:1, indicating strong regulatory capital compliance.
• The PMIERs sufficiency ratio of 165% as of June 30, 2025, demonstrates that the company holds substantial assets ($1,961 million) in excess of the requirements set by government-sponsored enterprises (Fannie Mae and Freddie Mac), positioning it favorably against industry eligibility standards.
• The company's credit ratings from major agencies (Fitch A, S&P A, Moody's A3, A.M. Best A-) are investment grade, reflecting a strong financial position relative to industry peers.

Legal Proceedings

• The company is not subject to any pending material legal proceedings.

Related Party Transactions

• The company has various agreements with Genworth Financial, Inc. for administrative and operating expenses, incurring costs of $2.4 million for Q2 2025 and $4.7 million for H1 2025.
• Investment portfolios of insurance subsidiaries are primarily managed by Genworth, with fees paid to Genworth totaling $1.8 million for Q2 2025 and $3.6 million for H1 2025.
• Employees participate in certain benefit plans and share-based compensation plans sponsored by Genworth.
• Cash dividends of $25.5 million were paid to Genworth in Q2 2025 and $48.3 million in H1 2025.
• The company paid Genworth $68.4 million in Q2 2025 and $121.4 million in H1 2025 related to shares repurchased as part of the share repurchase program.
• A tax sharing agreement is in place with Genworth for a single U.S. consolidated income tax return filing, with intercompany balances settled at least annually.
• Amounts payable to Genworth were $9.9 million as of June 30, 2025, and amounts receivable from Genworth were $0.2 million.

Stakeholder Impact

• Shareholders: Impacted by decreased net income, but positively affected by increased quarterly dividends and ongoing share repurchase programs, signaling management's commitment to capital returns.
• Policyholders: The company's strong capital position, as evidenced by its PMIERs sufficiency ratio (165%) and risk-to-capital ratio (10.3:1), enhances its ability to meet policyholder obligations.
• Employees: Severance expenses in 2024 indicate past restructuring activities, while participation in Genworth-sponsored benefit plans continues.
• Customers (Lenders/Investors): The company's continued compliance with PMIERs and competitive pricing strategies are crucial for maintaining relationships and facilitating low-down payment mortgage originations.
• Creditors: The company's long-term borrowings remain stable, and it is in compliance with all covenants of its revolving credit facility, indicating sound financial management relative to its debt obligations.

Next Steps

• Future dividend payments are subject to quarterly review and approval by the Board of Directors and Genworth, targeted for payment in the third month of each quarter.
• The company intends to continue using future EMICO dividends and distributions to support its ability to return capital to shareholders and bolster financial flexibility.
• The company will continue to evaluate opportunities to increase financial flexibility, including through raising additional capital, restructuring or refinancing outstanding debt, or pursuing other options such as reinsurance or credit risk transfer transactions.
• The company expects to hold capital sufficiency well in excess of the updated PMIERs requirements, which are phasing in between March 31, 2025, and September 30, 2026.
• The FHFA will implement the acceptance of VantageScore 4.0 for mortgages delivered to Fannie Mae and Freddie Mac, with implementation details and timelines yet to be released, which may impact the business.

Key Dates

Recommendation

While the company reported a decline in net income and an increase in its loss ratio for the quarter and six-month period, primarily due to less favorable reserve development compared to exceptionally strong prior periods, its underlying financial health remains robust. Key strengths include a very strong capital position (165% PMIERs sufficiency and 10.3:1 risk-to-capital ratio), recent credit rating upgrades, and a clear commitment to shareholder returns through increased dividends and an active share repurchase program. The increase in delinquencies is a watch item, reflecting broader housing market challenges, but the company's strong reserves and risk management framework appear adequate. Given the mixed financial performance headlines but solid fundamentals and capital allocation strategy, a 'Hold' recommendation is appropriate for investors seeking stability and consistent capital returns in a competitive and uncertain macroeconomic environment.

Keywords

Mortgage Insurance, Private Mortgage Insurance, Financial Services, Insurance, SEC Filing, 10-Q, Financial Results, Capital Management, Share Repurchase, Dividends, Loss Reserves, Delinquencies, PMIERs, Risk-to-Capital Ratio, Investment Portfolio, Housing Market, Economic Conditions