Enact Holdings, Inc.

Good morning, and welcome to the ENACT second quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Daniel Cole. Please go ahead.

Thank you, and good morning. Welcome to our second quarter earnings call. Joining me today are Rohit Gupta, President and Chief Executive Officer, and Dean Mitchell, Chief Financial Officer and Treasurer. Rohit will provide an overview of our business, our performance, and progress against our strategy. Dean will then discuss the details of our second quarter results before turning the call back to Rohit for closing remarks. After prepared remarks, we will take your questions. The earnings materials we issued after market closed yesterday contain ENAC's financial results for the second quarter of 2022. And a comprehensive set of financial and operational metrics are available on the investor relations section of the company's website at www.ir.enactmi.com under the section marked quarterly results. Today's call is being recorded and will include the use of forward-looking statements. These statements are based on current assumptions, estimates, expectations, and projections as of today's date that are subject to risks and uncertainties which may cause actual results to be materially different. We undertake no obligation to update or revise any such statements 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 are available on our website. Also, 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, our earnings presentation, and our upcoming SEC filing on our website. With that, I'll turn the call over to Rohit.

Thank you, Daniel. Good morning, everyone, and thank you for joining us. The second quarter was another strong period of performance for Enact. Continued execution of our strategy, combined with reserve releases due to elevated cure activity, resulted in record-adjusted net operating income of $205 million, or $1.26 per share, up 54% from the same period last year, and a return on equity of 20%. I'm proud of how we have continued to navigate this environment and would like to thank our team for all their great work. During the quarter, we continued to enhance and act competitive differentiation while maintaining strong capital levels and delivering attractive risk-adjusted returns. Beyond our record results, Moody's recent decision to upgrade and act from BAA2 to BAA1 is additional evidence of our continued success. This marks the second time since our IPO that we have received an upgrade from Moody's, and we believe it reflects our execution, financial performance, and the strength and flexibility of our balance sheet. The upgrade enhances our ability to compete in the market by creating additional opportunities for customer engagement to support our production goals. On this front, we continue to win new business and expand relationships during the quarter. delivering innovative technology-driven tools and solutions designed to meet the unique needs of our customers. We wrote $17 billion of new insurance written in the quarter in a slowing housing market, while the persistency of our portfolio increased to 80%. The recent and sudden rise in interest rates has affected overall mortgage origination volumes, However, our industry is highly correlated with the purchase market, and thus we have not been meaningfully impacted by the significant decline in refinance activity. We also benefit from increased persistency, which has been positively affected by the same rise in rates. Importantly, 98% of our portfolio has mortgage rates at least 50 basis points below current market rates, and we expect this to have a positive impact on persistency moving forward. These factors combined to drive sequential growth in our insurance in force, which reached another record at $238 billion, demonstrating the resiliency of our business model. I've spoken in the past about our commitment to pursuing high-quality business that targets the right price for the right risk. The pricing environment during the quarter remained competitive, though constructive, given the increased economic uncertainty We kept our rate engine pricing relatively stable while also making targeted changes to manage our overall risk. This approach is aligned with our stated goal of pursuing disciplined growth, and we remain confident in our ability to write new business that delivers attractive returns and creates value for our shareholders across economic scenarios. We continue to prudently manage our risk, and the credit quality of our portfolio remains strong. The weighted average FICO score in the quarter was 743, and the average loan-to-value ratio was 93%. In thinking about portfolio risk going forward, I would note that we have written large 2020 and 2021 books that have experienced substantial increases in equity as a result of strong home price appreciation trends, a dynamic that should both support increased persistency and decreased risk. This was evident in the second quarter as we saw record 70% of our policies realize mark-to-market equity of at least 20%. In addition, and as expected, our layered risk concentration decreased sequentially from 1.6% to 1.5% of risk in force. Our $96 million reserve release in the quarter improved our loss ratio to negative 26% and was the result of our risk management and loss mitigation efforts, healthy consumers, and strong home price appreciation, leading to favorable resolution of long-term forbearance plans. Total delinquencies continue to decline on a year-over-year basis, and the second quarter was the eighth consecutive quarter in which cures outpaced new delinquencies. New delinquencies also improved sequentially in line with seasonal trends. We ended the second quarter with 93% of our risk and force covered by credit risk transfers and a PMIRS sufficiency ratio of 166%, or $2 billion of sufficiency. During the quarter, we further enhanced our financial strength and flexibility by entering a $200 million revolving credit facility at attractive terms. Our strong regulatory capital levels, robust balance sheet, and access to capital puts us in an excellent position with enhanced financial flexibility. Our PMARS performance speaks to our execution against another key aspect of our strategy, maintaining a strong balance sheet to support our existing policyholders while also pursuing a balanced approach to capital allocation. During the quarter, we paid our inaugural quarterly dividend with the next dividend expected to be paid in September, subject to requisite approvals, economic and market conditions, and business performance. In addition to our quarterly dividend, we expect to return additional capital to shareholders by the end of 2022, subject to requisite approvals and based on assessment of economic conditions, market dynamics, and business performance. Dean will discuss this in more detail in a few minutes. I'll now take a moment to discuss recent market dynamics. We believe the market continues to be supportive for our industry. However, we recognize that the sudden and significant increase in rates and the potential impact of inflation along with the continued economic uncertainty will drive near-term volatility. Having said that, there are also areas where we see strength. The labor market is robust. Household savings remains above pre-pandemic levels, and there has been homeowner equity built up through strong home price appreciation. In addition, recall that a major driver of current housing market dynamics during this cycle has been the housing supply. While there is evidence that the inventories have started to improve in some areas, they remain at low levels, providing an offset to the reduction in demand we have seen from higher rates and affordability pressure. The demographic trends driving demand haven't changed. First time home buyers will continue to provide a tailwind over the long term as a significant number of new potential homeowners reach peak age for home buying. The dynamics affecting our markets remain multiple and complex, and we will continue to plan for all scenarios. Through our credit risk transfer program and other initiatives, we have significantly reduced the risk embedded in our portfolio while also providing our balance sheet with additional production capacity that we will continue to utilize to drive prudent growth in our insurance and force. For example, we have increased prices in certain geographies we believe are potentially more vulnerable to weaker economic conditions, should they develop, and for loans with certain stacked risk factors. As part of our ongoing monitoring of consumer and housing metrics, we will continue to evaluate future actions. To be clear, we are taking these actions because we are committed to responsible growth, not because of performance. Overall, we are entering the second half of the year operating from a position of confidence with the right strategy, a resilient, well-positioned business, a strong balance sheet, and substantial access to capital. The long-term drivers of our markets remain favorable despite near-term dynamics that are creating the potential for multiple scenarios And our focus at Enact is to ensure we are operating under a framework that allows us to continue to successfully execute in all of them and create value for our stakeholders. With that, I'll turn it over to Dean.