10-Q: Enact Holdings Reports Q3 Net Income Decline Amid Rising Losses

Enact Holdings, Inc. reported a 10% decrease in net income for Q3 2025, driven by a significant increase in losses incurred, despite growth in net investment income and new insurance written.

Summary

• Net income for the three months ended September 30, 2025, decreased by 10% to $163.5 million, down from $180.7 million in the prior year period.
• Losses incurred surged by 195% to $35.9 million for Q3 2025, compared to $12.2 million in Q3 2024, primarily due to less favorable reserve development and increased new delinquencies.
• Net investment income increased by 12% to $68.6 million for Q3 2025, driven by higher yields and average invested assets.
• New insurance written (NIW) for the third quarter of 2025 grew by 3% to $14.0 billion, compared to $13.6 billion in Q3 2024.
• The primary persistency rate remained stable at 83% for both Q3 2025 and Q3 2024, higher than historical averages.
• The number of delinquent loans increased to 23,382 as of September 30, 2025, up from 21,027 as of September 30, 2024, leading to a higher delinquency rate of 2.45% from 2.17%.
• The company's estimated risk-to-capital ratio for its combined mortgage insurance subsidiaries improved to 10.3:1 as of September 30, 2025, from 10.5:1 as of December 31, 2024.
• PMIERs sufficiency ratio was 162% ($1,904 million above requirements) as of September 30, 2025, a slight decrease from 165% ($1,961 million above requirements) as of June 30, 2025.
• A new share repurchase program of up to $350 million was authorized on April 30, 2025, with $187.8 million remaining as of September 30, 2025.
• The quarterly dividend was increased to $0.21 per common share, paid in June and September 2025.

Sentiment

Score: 4

Explanation: While the company demonstrates strong capital management, positive rating actions, and a commitment to shareholder returns, the significant increase in losses incurred and delinquent loans, coupled with a decline in net income, indicates operational challenges and a worsening risk profile in the short term. The macroeconomic uncertainty further dampens the outlook.

Positives

• Net investment income increased by 12% to $68.6 million for the three months ended September 30, 2025, due to higher yields and average invested assets.
• New insurance written (NIW) increased by 3% to $14.0 billion in Q3 2025, indicating continued business growth.
• The primary persistency rate remained strong at 83%, reflecting a stable in-force policy base.
• The estimated risk-to-capital ratio improved to 10.3:1, remaining well below the NCDOI's maximum of 25:1.
• The company maintains a strong PMIERs sufficiency ratio of 162%, with $1,904 million above required assets.
• Fitch upgraded EMICO's long-term financial strength and issuer credit ratings from Ato A on January 17, 2025.
• Moody's upgraded EMICO's insurance financial strength rating from A3 to A2 on August 6, 2025.
• A new five-year, $435 million unsecured revolving credit facility was established, replacing a smaller facility, enhancing financial flexibility and remaining undrawn.
• The company increased its quarterly dividend to $0.21 per common share and authorized a new $350 million share repurchase program, demonstrating commitment to shareholder returns.
• Acquisition and operating expenses, net of deferrals, decreased by 5% for the three months ended September 30, 2025.

Negatives

• Net income decreased by 10% to $163.5 million for the three months ended September 30, 2025, compared to $180.7 million in the prior year.
• Losses incurred significantly increased by 195% to $35.9 million in Q3 2025, up from $12.2 million in Q3 2024, leading to a higher loss ratio of 15% (vs. 5%).
• Favorable reserve adjustments were lower in Q3 2025 ($45 million) compared to Q3 2024 ($65 million).
• The number of delinquent loans increased to 23,382 as of September 30, 2025, from 21,027 a year prior, resulting in a higher delinquency rate of 2.45%.
• Net investment losses worsened to $(2.8) million in Q3 2025 from $(1.2) million in Q3 2024.
• Basic and diluted net income per common share decreased for both the three-month and nine-month periods ended September 30, 2025.
• The PMIERs sufficiency ratio slightly decreased from 165% to 162% quarter-over-quarter.

Risks

• Inability to continue to maintain the private mortgage insurer eligibility requirements (PMIERs) or 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, which could lead to significant future increases to reserves.
• 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 capital returns will be guided by a capital prioritization framework focusing on supporting policyholders, growing the mortgage insurance business, funding new opportunities, and returning capital to shareholders. The company anticipates holding capital sufficiency well in excess of updated PMIERs requirements, expecting no material impact from these updates. The U.S. mortgage origination market is expected to remain relatively slow due to elevated mortgage rates, though affordability pressures have eased slightly. The full impact of FHFA's acceptance of VantageScore 4.0 for GSE mortgages remains uncertain.

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. mortgage insurance industry continues to navigate a volatile macroeconomic environment characterized by changing economic policies, inflationary pressures, and geopolitical tensions. Elevated mortgage rates have contributed to a slow mortgage origination market, impacting new business volumes. While housing affordability has shown slight improvement due to declining mortgage rates and slower home price growth, the industry faces ongoing regulatory changes, such as the FHFA's acceptance of VantageScore 4.0, which introduces uncertainty. Competition remains high, requiring companies like Enact to maintain competitive pricing and underwriting standards while managing risk. The overall trend suggests a cautious but stable outlook for well-capitalized players in the sector, with a focus on risk management and efficient capital deployment.

Comparison to Industry Standards

• The company's estimated risk-to-capital ratio of 10.2:1 is significantly below the North Carolina Department of Insurance's maximum permitted ratio of 25:1, indicating a strong capital position relative to regulatory standards.
• The PMIERs sufficiency ratio of 162% demonstrates a substantial buffer above the requirements set by Fannie Mae and Freddie Mac, positioning the company favorably against industry peers in terms of GSE eligibility.
• Recent credit rating upgrades from Fitch (Ato A) and Moody's (A3 to A2), along with affirmations from S&P Global Ratings (A-) and A.M. Best (Awith Positive Outlook), suggest a strong financial health and risk profile compared to industry benchmarks.

Corporate Governance

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 reimbursement of administrative and operating expenses, including information technology, finance, human resources, and employee benefit administration. Costs incurred for these services were $2.3 million for Q3 2025 and $7.0 million for the nine months ended September 30, 2025.
• Genworth manages the investment portfolios of the company's insurance subsidiaries, charging a fee. Total investment expenses paid to Genworth were $2.1 million for Q3 2025 and $5.7 million for the nine months ended September 30, 2025.
• Employees participate in certain benefit plans and share-based compensation plans sponsored by Genworth.
• Cash dividends of $25.1 million were paid to Genworth in Q3 2025, and $73.4 million for the nine months ended September 30, 2025.
• The company paid Genworth $85.3 million related to shares repurchased in Q3 2025, and $206.7 million for the nine months ended September 30, 2025, to maintain Genworth's ownership interest.
• A tax sharing agreement is in place with Genworth, with intercompany balances settled at least annually.

Stakeholder Impact

• Shareholders: Impacted by decreased net income, increased quarterly dividends, and ongoing share repurchase programs aimed at returning capital and driving shareholder value.
• Policyholders: Benefited from strong capital ratios (risk-to-capital, PMIERs sufficiency) and reinsurance agreements, ensuring the company's ability to meet obligations.
• Employees: Affected by stock-based compensation plans and potential impacts from restructuring activities (severance expenses in 2024).
• Customers (Lenders/Investors): Provided with mortgage insurance products and contract underwriting services, with the company maintaining competitive pricing and underwriting standards.
• Creditors: The company's compliance with debt covenants and the establishment of a new revolving credit facility demonstrate financial stability and access to liquidity.

Next Steps

• Continue to monitor and manage the quality of new business through pricing and underwriting guidelines.
• Evaluate the impact of the FHFA's acceptance of VantageScore 4.0 for GSE mortgages once implementation details are released.
• Opportunistically execute the remaining $187.8 million under the $350 million share repurchase program.
• Quarterly review and approval of future dividend payments by the Board of Directors and Genworth.
• Monitor compliance with updated PMIERs requirements phasing in between March 31, 2025, and September 30, 2026.
• Evaluate opportunities to further increase financial flexibility, including raising additional capital, restructuring debt, or pursuing reinsurance/credit risk transfer transactions.

Key Dates

Recommendation

While Enact Holdings demonstrates strong capital management, positive credit rating upgrades, and a commitment to shareholder returns through dividends and share repurchases, the significant increase in losses incurred and delinquent loans, leading to a 10% decline in net income for the quarter, presents a notable concern. The macroeconomic environment, with elevated inflation and a slow mortgage origination market, adds to the uncertainty. The company's ability to manage these rising losses and delinquencies will be key. Given the mixed signals – strong capital and shareholder returns versus deteriorating loss experience – a 'hold' recommendation is appropriate for seasoned investors to observe if the negative trends in losses and delinquencies stabilize or reverse in future periods.

Keywords

Mortgage Insurance, SEC Filing, Financial Results, Q3 2025, Enact Holdings, ACT, Loss Reserves, Delinquency Rates, Net Income, Share Repurchase, Dividends, Reinsurance, PMIERs, Credit Ratings, Housing Market, Investment Income