10-K: Enact Holdings Reports Strong 2024 Financial Results, Exceeds PMIERs Requirements

Enact Holdings announces solid financial performance for 2024, marked by a net income of $688 million and continued compliance with PMIERs.

Summary

• Enact Holdings, a leading private mortgage insurance company, reported a net income of $688 million for 2024, compared to $666 million in 2023 and $704 million in 2022.
• Adjusted operating income was $718 million, $676 million and $708 million for 2024, 2023 and 2022, respectively.
• New insurance written (NIW) totaled $51.0 billion in 2024, a decrease from $53.1 billion in 2023 and $66.5 billion in 2022.
• The company's strategy focuses on differentiating itself from competitors, maintaining strong capital levels, and delivering attractive risk-adjusted returns.
• Enact Re, the company's Bermuda-based subsidiary, reinsures EMICO's new and existing insurance in-force under quota share reinsurance agreements.
• The company's largest customer accounted for 20% of total NIW and 11% of total revenues for the year ended December 31, 2024.
• The company's CRT program is a material component of its strategy, distributing risk to highly rated counterparties and insurance-linked note investors.
• As of December 31, 2024, Enact had estimated available assets of $5,095 million against $3,043 million net required assets under PMIERs.
• The sufficiency ratio as of December 31, 2024, was 167%, or $2,052 million above the PMIERs requirements.
• The company expects to hold capital sufficiency well in excess of updated PMIERs requirements phasing in between March 31, 2025 and September 30, 2026.

Sentiment

Score: 7

Explanation: The document presents a balanced view with positive financial results and strategic initiatives, but also acknowledges risks and challenges. The sentiment is moderately positive.

Positives

• The company maintains a strong capital position supported by robust underwriting standards and comprehensive stress testing.
• Enact has a large and diverse customer base with enduring relationships across the mortgage origination market.
• The company's risk management framework is designed to manage volatility and protect the balance sheet.
• The company's portfolio is diverse and representative of the United States origination market.
• The company has a robust business continuity program to prepare for and manage through business interruptions.
• The company has a holistic approach to human capital management, including attracting and retaining talent with comprehensive benefits and compensation packages.

Negatives

• New insurance written (NIW) decreased from $53.1 billion in 2023 to $51.0 billion in 2024.
• The company faces intense competition in the mortgage insurance industry.
• A deterioration in economic conditions or a decline in home prices may adversely affect the company's loss experience.
• The company is exposed to various risks arising out of natural and man-made disasters or public health emergencies.

Risks

• Inability to continue meeting PMIERs requirements could restrict the company's ability to write new insurance on loans acquired by the GSEs.
• Competition within the mortgage insurance industry could result in loss of market share and lower premiums.
• Changes to the charters or practices of the GSEs could adversely affect the company's business.
• The amount of mortgage insurance written could decline if alternatives to private mortgage insurance are used.
• The company's risk management programs may not be effective in controlling or mitigating the risks it faces.
• Interest rates and changes in rates could materially adversely affect the company's business.
• The company may be unable to maintain or increase the capital needed in its business in a timely manner.
• CRT transactions may not be available, affordable, or adequate to protect the company against losses.
• Adverse rating agency actions may result in a loss of business.
• If servicers fail to adhere to appropriate servicing standards, the company's losses could increase.
• The premiums the company charges for mortgage insurance coverage may not adequately compensate it for the risks and costs associated with the coverage it provides.
• A decrease in the volume of Low Down Payment Loan originations or an increase in the volume of mortgage insurance cancellations could result in a decline in the company's revenue.
• An actual or perceived failure to protect consumer information could damage the company's reputation.
• The company's business is extensively regulated, and changes in regulation may reduce its profitability and limit its growth.
• Genworth has the ability to exert significant influence over the company and its corporate decisions.
• The terms of the company's arrangements with Genworth may be more favorable than it will be able to obtain from an unaffiliated third party.
• The company could be affected by issues impacting Genworth in a way that could materially and adversely affect its business, financial condition, liquidity and prospects.
• Genworth's continued ownership of at least 80% of the company's common stock may limit its ability to raise additional capital by issuing common stock to third parties.
• Changes in tax laws could have a material adverse effect on the company's business.
• The company is jointly and severally liable for any U.S. federal income taxes owed by the Genworth Consolidated Group for taxable periods in which it is a member of the group.
• If the company leaves the Genworth Consolidated Group, it may be required to pay more income tax in the future.
• The company is a holding company, and a large majority of its assets are the equity interests in its subsidiaries.
• The company's business could be adversely impacted from deficiencies in its disclosure controls and procedures or internal control over financial reporting.
• The company may suffer losses in connection with litigation, regulatory proceedings or other actions.
• If the company is unable to attract, on-board, retain and motivate qualified employees or senior management, its business, results of operations and financial condition may be adversely impacted.
• The company relies upon third-party vendors who may be unable or unwilling to meet their obligations to it.
• The company's computer systems may fail or be compromised, and unanticipated problems could materially adversely impact its disaster recovery systems and business continuity plans.
• Risks related to emerging and changing technology, including artificial intelligence, could impact the company's results of operations or financial condition.
• The occurrence of natural or man-made disasters or public health emergencies could materially adversely affect the company's business, results of operations and financial condition.
• The company's amended and restated certificate of incorporation contains exclusive forum provisions, which could limit its stockholders ability to choose the judicial forum for disputes with it or its directors, officers or employees.
• No assurance can be given that the company will be able to return capital to its shareholders via dividends or share repurchases in the future at current levels or at all.

Future Outlook

The company expects to hold capital sufficiency well in excess of updated PMIERs requirements phasing in between March 31, 2025 and September 30, 2026.

Industry Context

The report provides insights into the competitive landscape of the private mortgage insurance industry, highlighting key players and factors influencing market share, such as pricing, customer relationships, and financial strength ratings. It also discusses the impact of government agencies and GSEs on the industry.

Comparison to Industry Standards

• The document mentions six active private mortgage insurers, including Enact, Arch Capital Group Ltd., Essent Group Ltd., MGIC Investment Corporation, NMI Holdings, Inc. and Radian Group Inc.
• Enact has maintained between a 12.0% and 20.4% per quarter share of the private mortgage insurance market by per annum NIW since 2012, based on data from Inside Mortgage Finance.
• The FHA had a 34% share, and the VA a 23% share, of the mortgage insurance market for the first three quarters of 2024, according to Inside Mortgage Finance.
• The GSEs held or guaranteed approximately $7.8 trillion as of September 30, 2024, or around 55%, of total United States 1-4 family residential mortgage debt according to most recent data from the Federal Reserve.

Related Party Transactions

• The company has various agreements with Genworth that provide for reimbursement to and from Genworth of certain administrative and operating expenses.
• The investment portfolios of the company's insurance subsidiaries are primarily managed by Genworth, for which the company is charged a fee.
• The company's employees participate in certain benefit plans sponsored by Genworth and certain share-based compensation plans that utilize shares of Genworth common stock and other incentive plans.
• The company pays cash dividends to Genworth.
• The company has a tax sharing agreement in place with Genworth, such that it participates in a single U.S. consolidated income tax return filing.

Stakeholder Impact

• Shareholders: The company's financial performance and capital allocation decisions directly impact shareholder value.
• Employees: The company's human capital management practices and compensation packages affect employee satisfaction and retention.
• Customers: The company's mortgage insurance products provide credit protection to mortgage lenders, facilitating access to financing for prospective homeowners.
• Policyholders: The company's ability to meet policyholder obligations is critical to maintaining public confidence in its mortgage insurance coverage.
• Regulators: The company's compliance with regulatory requirements, including PMIERs, is essential for maintaining its eligibility to operate in the mortgage insurance market.

Next Steps

• The company will continue to focus on differentiating itself from competitors, maintaining strong capital levels, and delivering attractive risk-adjusted returns.
• The company will continue to monitor and manage its risk profile, including credit risk, market risk, and operational risk.
• The company will continue to evaluate opportunities to return capital to shareholders via dividends and share repurchases.

Key Dates

Keywords

mortgage insurance, PMIERs, risk management, financial results, reinsurance, capital, GSEs, NIW, Enact Holdings, mortgage