Enact Holdings, Inc. (Nasdaq: ACT) today announced financial
results for the second quarter of 2022.
"This was another strong quarter for Enact in which we delivered
record results,” said Rohit Gupta, President and CEO of Enact. “Our
performance reflects the continued execution of our strategy, the
strength and resiliency of our business model, and the sustained
performance of our outstanding team. We pursued our strategy of
disciplined growth, maintained a strong balance sheet, took
additional steps to enhance our risk profile and financial
flexibility, and continued to invest in our business and return
capital to our shareholders. While economic uncertainty has
increased and mortgage rates have come off historically low levels,
overall market conditions and the longer-term drivers of demand
remain constructive, and we believe we are well positioned to
execute on our strategy in a dynamic environment. Going forward, we
remain committed to our goal of increasing the accessibility and
affordability of home ownership and to driving value creation for
all stakeholders.”
Key Financial Highlights
(In millions, except per share data or otherwise noted) |
2Q22 |
|
1Q22 |
|
2Q21 |
Net Income (loss) |
$205 |
|
|
$165 |
|
|
$131 |
|
Diluted Net Income (loss) per share |
$1.25 |
|
|
$1.01 |
|
|
$0.80 |
|
Adjusted Operating Income (loss) |
$205 |
|
|
$165 |
|
|
$134 |
|
Adj. Diluted Operating Income (loss) per share |
$1.26 |
|
|
$1.01 |
|
|
$0.82 |
|
NIW ($B) |
$17 |
|
|
$19 |
|
|
$27 |
|
Primary IIF ($B) |
$238 |
|
|
$232 |
|
|
$217 |
|
Persistency |
80 |
% |
|
76 |
% |
|
63 |
% |
Net Premiums Earned |
$237 |
|
|
$234 |
|
|
$242 |
|
Losses Incurred |
$(62 |
) |
|
$(10 |
) |
|
$30 |
|
Loss Ratio |
(26 |
)% |
|
(4 |
)% |
|
12 |
% |
Operating Expenses |
$61 |
|
|
$57 |
|
|
$67 |
|
Expense Ratio |
26 |
% |
|
24 |
% |
|
27 |
% |
Net Investment Income |
$36 |
|
|
$35 |
|
|
$35 |
|
Return on Equity |
20.1 |
% |
|
16.2 |
% |
|
13.0 |
% |
Adjusted Operating Return on Equity |
20.2 |
% |
|
16.2 |
% |
|
13.4 |
% |
PMIERs Sufficiency ($) |
$2,047 |
|
|
$2,261 |
|
|
$1,941 |
|
PMIERs Sufficiency (%) |
166 |
% |
|
176 |
% |
|
165 |
% |
Second Quarter 2022 Financial and Operating
Highlights
- Net income for the second quarter of 2022 was $205 million, or
$1.25 per diluted share, compared with $165 million, or $1.01 per
diluted share, for the first quarter of 2022 and $131 million, or
$0.80 per diluted share, for the second quarter of 2021. The
sequential and year-over-year improvement in net income was
primarily driven by lower losses from favorable reserve
development. Adjusted operating income for the second quarter of
2022 was $205 million, or $1.26 per diluted share, compared with
$165 million, or $1.01 per diluted share, for the first quarter of
2022 and $134 million, or $0.82 per diluted share, for the second
quarter of 2021.
- New insurance written (NIW) was $17 billion, down 7% compared
to $19 billion in the first quarter of 2022, and down 35%
compared to $27 billion in the second quarter of 2021, driven by
lower estimated originations given the recent increase in interest
rates. Our NIW for the second quarter was comprised of 93% monthly
premium policies and 96% purchase originations.
- Primary Insurance-In-Force was $238 billion, up 2% compared to
$232 billion in the first quarter of 2022 and up 9% compared to
$217 billion in the second quarter of 2021, driven by strong NIW
and increasing persistency.
- Persistency for the second quarter of 2022 was 80%, up from 76%
in the first quarter of 2022 and 63% in the second quarter of 2021.
The continued increase in persistency to approximate historical
norms was primarily driven by an increase in mortgage rates and an
ongoing decline in the percentage of our in-force policies with
mortgage rates above current rates.
- Net premiums earned were $237 million, up 1% compared to $234
million in the first quarter of 2022 and down 2% compared to $242
million in the second quarter of 2021. Net earned premium yield was
down from the first quarter of 2022 and the second quarter of 2021,
driven by the lapse of older, higher-priced policies as compared to
our new insurance written, lower single premium cancellations and
higher ceded premiums sequentially.
- Losses incurred for the second quarter of 2022 were $(62)
million and the loss ratio was (26)%, compared to $(10) million and
(4)%, respectively, in the first quarter of 2022, driven by a
reserve release of $96 million primarily from favorable cure
performance on 2020 COVID related delinquencies. Current quarter
losses incurred and the loss ratio also compared favorably to
results of the second quarter 2021 of $30 million and 12%,
respectively, driven by the favorable reserve development in the
current quarter partially offset by higher new delinquencies from
recent large books that are aging and going through their normal
loss development pattern.
- The percentage of loans in default at quarter end was 2.06%,
compared to 2.40% as of March 31, 2022, and 3.60% as of
June 30, 2021, as cures continued to outpace new
delinquencies.
- Operating expenses in the current quarter were $61 million
and the expense ratio was 26%, compared to $57 million and
24%, respectively, in the first quarter of 2022, driven by higher
general and administrative costs. Current quarter expenses compared
favorably to results of the second quarter of 2021 of $67 million
and 27%, respectively, driven by lower costs allocated by our
Parent, Genworth Holdings, Inc., partially offset by higher general
and administrative expenses in the current quarter.
- Net investment income for the second quarter of 2022 was $36
million, up modestly as compared to $35 million for each of the
first quarter of 2022 and the second quarter of 2021.
- Annualized return on equity for the second quarter of 2022 was
20.1%, and annualized adjusted operating return on equity was
20.2%. Current-quarter results compare favorably to both the first
quarter 2022 results of 16.2% and 16.2%, respectively, and second
quarter 2021 results of 13.0% and 13.4%, respectively. Sequential
improvements in both return on equity and adjusted operating return
on equity were driven, in part, by lower losses in the current
quarter, the change in unrealized gains / losses in our asset
portfolio, and the execution of a $23 million dividend in the
second quarter of 2022.
Capital and Liquidity
- PMIERs sufficiency for the quarter was 166% and $2,047 million
above the published PMIERs requirements, compared to 176% and
$2,261 million above the published PMIERs requirements in the first
quarter of 2022. The sequential decrease in PMIERs sufficiency was
driven by NIW, the $242 million distribution from our flagship
insurance writer and the amortization of existing reinsurance
transactions, partially offset by our business cash flows and lower
delinquencies.
- PMIERs sufficiency benefited from a 0.30 multiplier applied to
the risk-based required asset factor for certain non-performing
loans, which resulted in a reduction of the published PMIERs
required assets by an estimated $178 million at the end of the
current quarter, compared to $272 million at the end of the first
quarter 2022 and $760 million at the end of the second quarter
2021. These amounts are gross of incremental reinsurance benefits
from the elimination of the 0.30 multiplier.
- Enact Holdings, Inc. held $468 million of cash as of
June 30, 2022, an increase of $225 million from the prior
quarter, primarily due to our $242 million distribution from our
flagship insurance writer partially offset by our common dividend
paid in the current quarter.
- On June 30, 2022, Enact Holdings, Inc. entered into a five-year
$200 million senior unsecured revolving credit facility. The
company may use borrowings under the Credit Facility for working
capital needs and general corporate purposes, including capital
contributions to our insurance subsidiaries.
Recent Events
- Moody’s Investors Service upgraded the insurance financial
strength rating for Enact Mortgage Insurance Corporation - to Baa1
from Baa2, and Enact’s long-term issuer rating and senior unsecured
debt rating to Ba1 from Ba2. The outlook for the ratings is
stable.
Conference Call and Financial Supplement
InformationThis press release, the second quarter 2022
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 second quarter financial results in a
conference call tomorrow, Tuesday, August 2, 2022, at 8:00 a.m.
(Eastern). Enact’s conference call can be accessed via telephone
and Internet. The dial-in number for Enact’s August 2nd conference
call is 866-634-2594 or 412-902-4104 (outside the U.S.);
participants should ask to be joined into the Enact Holdings, Inc.
call. To participate in the call by webcast, register at
https://ir.enactmi.com/news-and-events/events at least 15 minutes
prior to the webcast to download and install any necessary
software.
A digital replay of the webcast will be available on the Enact
website following the live broadcast for a period of one year at
https://ir.enactmi.com/news-and-events/events.
In addition to the information provided in the company's
earnings news release, other statistical and financial information,
which is expected to be referred to during the conference call, is
available on Enact’s website at https://ir.enactmi.com.
About EnactEnact (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 StatementThis 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 DiscussionThis
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 21% tax rate.
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 ended June 30, 2022 and 2021, as
well as for the three months ended March 31, 2022.
Exhibit A: Consolidated Statements of
Income (amounts in thousands, except per share
amounts)
|
2Q22 |
1Q22 |
2Q21 |
REVENUES: |
|
|
|
Premiums |
$ |
237,386 |
|
$ |
234,279 |
|
$ |
242,480 |
|
Net investment income |
|
35,776 |
|
|
35,146 |
|
|
34,689 |
|
Net investment gains (losses) |
|
(381 |
) |
|
(339 |
) |
|
(1,753 |
) |
Other income |
|
760 |
|
|
502 |
|
|
705 |
|
Total revenues |
|
273,541 |
|
|
269,588 |
|
|
276,121 |
|
|
|
|
|
LOSSES AND EXPENSES: |
|
|
|
Losses incurred |
|
(61,563 |
) |
|
(10,446 |
) |
|
30,003 |
|
Acquisition and operating expenses, net of deferrals |
|
58,201 |
|
|
54,262 |
|
|
63,050 |
|
Amortization of deferred acquisition costs and intangibles |
|
3,230 |
|
|
3,090 |
|
|
3,597 |
|
Interest expense |
|
12,786 |
|
|
12,776 |
|
|
12,745 |
|
Total losses and expenses |
|
12,654 |
|
|
59,682 |
|
|
109,395 |
|
|
|
|
|
INCOME BEFORE INCOME TAXES |
|
260,887 |
|
|
209,906 |
|
|
166,726 |
|
Provision
for income taxes |
|
56,152 |
|
|
45,276 |
|
|
35,914 |
|
NET INCOME |
$ |
204,735 |
|
$ |
164,630 |
|
$ |
130,812 |
|
|
|
|
|
Net investment (gains) losses |
|
381 |
|
|
339 |
|
|
1,753 |
|
Costs associated with reorganization |
|
104 |
|
|
222 |
|
|
2,316 |
|
Taxes on adjustments |
|
(102 |
) |
|
(118 |
) |
|
(854 |
) |
Adjusted Operating Income |
$ |
205,118 |
|
$ |
165,073 |
|
$ |
134,027 |
|
|
|
|
|
Loss ratio (1) |
|
(26 |
)% |
|
(4 |
)% |
|
12 |
% |
Expense ratio (2) |
|
26 |
% |
|
24 |
% |
|
27 |
% |
Earnings Per Share Data: |
|
|
|
Net
Income per share |
|
|
|
Basic |
$ |
1.26 |
|
$ |
1.01 |
|
$ |
0.80 |
|
Diluted |
$ |
1.25 |
|
$ |
1.01 |
|
$ |
0.80 |
|
Adj
operating income per share |
|
|
|
Basic |
$ |
1.26 |
|
$ |
1.01 |
|
$ |
0.82 |
|
Diluted |
$ |
1.26 |
|
$ |
1.01 |
|
$ |
0.82 |
|
Weighted-average common shares outstanding |
|
|
|
Basic |
|
162,842 |
|
|
162,841 |
|
|
162,840 |
|
Diluted |
|
163,225 |
|
|
163,054 |
|
|
162,840 |
|
(1)The
ratio of losses incurred to net earned premiums. |
(2)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
decreased the expense ratio by zero percentage points for the three
months ended June 30, 2022 and March 31, 2022 and one percentage
point for the three months ended June 30, 2021. |
Exhibit B: Consolidated Balance Sheets
(amounts in thousands, except per share amounts)
Assets |
2Q22 |
4Q21 |
2Q21 |
Investments: |
|
|
|
Fixed maturity securities available-for-sale, at fair value |
$ |
4,909,362 |
|
$ |
5,266,339 |
|
$ |
5,256,467 |
|
Short term investments |
|
— |
|
|
— |
|
|
12,499 |
|
Total investments |
|
4,909,362 |
|
|
5,266,339 |
|
|
5,268,966 |
|
Cash and cash equivalents |
|
583,947 |
|
|
425,828 |
|
|
435,323 |
|
Accrued investment income |
|
33,103 |
|
|
31,061 |
|
|
30,843 |
|
Deferred acquisition costs |
|
26,689 |
|
|
27,220 |
|
|
28,322 |
|
Premiums receivable |
|
41,036 |
|
|
42,266 |
|
|
43,287 |
|
Deferred tax asset |
|
98,695 |
|
|
— |
|
|
— |
|
Other assets |
|
67,601 |
|
|
73,059 |
|
|
55,348 |
|
Total assets |
$ |
5,760,433 |
|
$ |
5,865,773 |
|
$ |
5,862,089 |
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
Liabilities: |
|
|
|
Loss reserves |
$ |
558,894 |
|
$ |
641,325 |
|
$ |
624,256 |
|
Unearned premiums |
|
224,781 |
|
|
246,319 |
|
|
263,573 |
|
Other liabilities |
|
154,656 |
|
|
130,604 |
|
|
119,289 |
|
Long-term borrowings |
|
741,602 |
|
|
740,416 |
|
|
739,269 |
|
Deferred tax liability |
|
— |
|
|
1,586 |
|
|
25,851 |
|
Total liabilities |
|
1,679,933 |
|
|
1,760,250 |
|
|
1,772,238 |
|
Equity: |
|
|
|
Common stock |
|
1,628 |
|
|
1,628 |
|
|
1,628 |
|
Additional paid-in capital |
|
2,377,042 |
|
|
2,371,861 |
|
|
2,369,601 |
|
Accumulated other comprehensive income |
|
(293,027 |
) |
|
83,581 |
|
|
159,854 |
|
Retained earnings |
|
1,994,857 |
|
|
1,648,453 |
|
|
1,558,768 |
|
Total equity |
|
4,080,500 |
|
|
4,105,523 |
|
|
4,089,851 |
|
Total liabilities and equity |
$ |
5,760,433 |
|
$ |
5,865,773 |
|
$ |
5,862,089 |
|
|
|
|
|
Book
value per share |
$ |
25.06 |
|
$ |
25.21 |
|
$ |
25.12 |
|
Book
value per share excluding AOCI |
$ |
26.86 |
|
$ |
24.70 |
|
$ |
24.13 |
|
|
|
|
|
U.S. GAAP ROE (1) |
|
20.1 |
% |
|
14.8 |
% |
|
13.0 |
% |
Net investment (gains) losses |
|
0.0 |
% |
|
0.0 |
% |
|
0.2 |
% |
Costs associated with reorganization |
|
0.0 |
% |
|
0.0 |
% |
|
0.2 |
% |
Taxes on adjustments |
|
0.0 |
% |
|
0.0 |
% |
|
(0.1 |
)% |
Adjusted Operating ROE(2) |
|
20.2 |
% |
|
14.8 |
% |
|
13.4 |
% |
|
|
|
|
Debt to Capital Ratio |
|
15 |
% |
|
15 |
% |
|
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 |
Contact Info
Investor Contact
Daniel Kohl
daniel.kohl@enactmi.com
Media Contact
Brittany Harris-Flowers
brittany.harris-flowers@enactmi.com
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