Enact Holdings, Inc.

Good day and welcome to the Q4 2022 Enact Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Mr. Daniel Cole, Vice President of Investor Relations. Please go ahead.

Thank you and good morning. Welcome to our fourth 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 fourth quarter results before turning the call back to Rohit for closing remarks, and then we will take your questions. The earnings materials we issued after market closed yesterday contain our financial results for the fourth quarter of 2022, along with a comprehensive set of financial and operational metrics. These 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 and 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 will be available on our website. 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 filings on our website. With that, I'll turn the call over to Rohit. Thank you, Daniel.

Good morning, everyone. Thank you for joining us to discuss our fourth quarter and full year results. 2022 was an exceptional year for Enact in which we delivered record performance, achieved several new milestones, and generated a total shareholder return well ahead of the market. We ended the year with record insurance in force of $248 billion driven by rising persistency that reached 86% in the fourth quarter and new insurance written of $66 billion for the full year. Net income for the full year was a record $704 million or $4.31 per diluted share, up 28% from a year ago, and return on equity was 14%. These results are the product of the continued execution of our cycle-tested growth and risk management strategy and reflect the commitment, hard work, and talent of ENAX employees. I'd like to thank all of them for their continued focus and dedication. As I mentioned, we achieved several significant milestones in 2022, reflecting progress against all aspects of our strategy. We strengthened our value proposition and ability to compete and win new business. Our investments in innovative technology-driven tools and solutions have further differentiated our platform while also driving efficiency and enhancing decision-making. We've seen several benefits from these investments across our business, including improved underwriting efficiency and deepened understanding of layered risk. One of our stated goals at our IPO was to expand and deepen our customer relationships, and I'm pleased to say that we made meaningful progress. Supported by our investments in the business and our enhanced financial flexibility, we have either activated or increased our new business share with 80% of our target customers since our IPO. And the team is committed to building on this momentum in the new year. We continue to take actions to maintain our financial strength, flexibility, and a strong balance sheet. We ended the year with PMIR sufficiency of 165%. We continue to execute against our credit risk transfer strategy and completed three excess of loss reinsurance transactions to manage our overall risk, demonstrating our ability to source cost-effective PMART capital and loss protection in a period of capital markets volatility and widening spread. And in July, we received our second upgrade from Moody's since our IPO, recognizing our performance and the strength and flexibility of our balance sheet. Finally, we believe that as of the end of 2022, an Act and General have fully met all the conditions necessary to remove the restrictions placed on an Act by the GSC. As a result of this significant milestone and upon confirmation from the GSC, we expect the GSC restrictions on an Act will be lifted, a step that will further enhance our financial flexibility and elevate our competitiveness by no longer making us subject to more stringent capital requirements than our peer group. In addition to investing in our growth, we remain focused on discipline cost management, and our expense levels for 2022 were below our target of $240 million. As part of our discipline focus and to ensure our operations are aligned with current market dynamics, during the fourth quarter, we effected a voluntary separation program and renegotiated our shared services agreement expenses with General. We remain committed to cost discipline and operational excellence, particularly in response to a market environment that remains uncertain and are currently targeting expense levels in 2023 below what we achieved in 2022. Dean will have more to say on this during his comments. Now, let me turn to capital allocation, where our strong execution enabled us to achieve our capital return commitment for the year. Through the initiation of our regular quarterly dividend and our special cash dividend in December, we returned just over $250 million to shareholders over the course of 2022. In November, we also announced the board's approval of $75 million share repurchase program. Taken together, these actions reflect the strength of our balance sheet, the sustainability of our cash flows, the confidence we have in our business, and our commitment to create value for our shareholders. I'd now like to touch on our solid fourth quarter, which had the strong year for an act. While we have seen a slowdown in housing activity, the fundamentals of our business remains resilient. As I mentioned earlier, insurance and force reached a new record, and we wrote $15 billion of NIW, inclusive of a one-time season deal in the fourth quarter. Excluding this deal, NIW was marginally lower sequentially in a smaller market suggesting an at-gain share in the fourth quarter. As we have previously commented on, market share across the industry fluctuates quarter to quarter, largely driven by rate engine variations. We are pleased with our NIW performance, and it reflects the strength of our platform and our ability to win new business, expand relationships, and deliver value to our customers. The pricing environment also remained constructive. During the quarter, we saw an increase in industry pricing, and we implemented several price increases on new business, and we have continued these actions into the first quarter as well. We are confident in our ability to continue to write new insurance written that generates attractive risk-adjusted returns and value for shareholders. As I've discussed previously, Persistency is a natural hedge in our business and tends to increase as interest rates rise and new mortgage originations fall. Persistency again improved during the fourth quarter, reaching 86%. At the end of the quarter, 98% of mortgages in our portfolio had rates at least 50 basis points below current market rates, and we expect this dynamic to continue to support persistency moving forward. Higher persistency and new insurance levels have driven record insurance in force, which has continued to be a tailwind as the business benefits from increased duration without a corresponding increase in cost. Our delinquency rate in the fourth quarter was stable and consistent with pre-pandemic levels. Importantly, 90% of delinquencies had an estimated 20% or more of mark-to-market equity. Ever-to-date home price appreciation, our approach to risk management and loss mitigation, and the favorable resolution of long-term forbearance plans resulted in the net release of an additional $42 million of reserves in the fourth quarter, leading to a loss ratio of 8%. As we did last quarter, we continue to take a prudent view on loss reserves with careful consideration given to the uncertain macro environment and any other factors which may affect the future credit performance within the portfolio. I believe it is prudent for us to be well-reserved in this uncertain environment. The credit quality of our portfolio remains healthy, and while the broader housing market has slowed, we believe overall underwriting quality remains favorable. On an insurance-enforced basis, the weighted average FIPO score in our portfolio during the quarter was 743. The average loan-to-value ratio was 93%, and our layered risk was 1.4% of risk in force. I'd like to now speak about the economic environment and housing market and how we are thinking about these factors in relation to our business moving forward. Overall, we believe we are well positioned for 2023 and beyond. though a smaller mi market is expected and uncertainty remains in the near term while employment and household balance sheets are healthy inflation rising borrow cost and the possibility of a recession pose risk households have started to draw down the buffers of savings that had accumulated during the pandemic and revolving credit card balances have increased that said Revolving balances and household savings are both still favorable to pre-pandemic levels, and the labor market is strong. And as we look to the housing market, we see strong long-term demand driven by demographics surrounding first-time homebuyers and housing supply that remains tight, which is supportive to prices. These factors are constructive for the MI industry, and mortgage insurance is an important tool to help buyers qualify for a mortgage especially in an environment of lower affordability. So while the near-term outlook is uncertain, we are confident in the long-term foundational strength of the MI industry. Against this backdrop, we will continue to execute on our cycle-tested strategy, prudently investing in our capabilities, taking the appropriate actions to align our costs and operations with the market environment, pursuing new business that appropriately balances risk and reward, and ensuring we maintain the financial strength and flexibility to both support our policyholders and create value for our shareholders. Our performance in 2022 is evidence that we have the right plan and people in place to achieve our goals. I'd like to now comment on the actions the FHFA has announced over the last few months pertaining to the elimination of upfront fees for certain borrowers and affordable mortgage products. These actions represent an important step in facilitating equitable and sustainable access to homeownership. We continue to be encouraged by the FHFA's support of core mission borrowers and believe the spirit of these changes is consistent with our mission at ANAT to help people responsibly achieve and maintain the dream of homeownership. Before I close, I would like to note that beyond our financial performance, we have been and will be committed to making a difference. We have spoken in the past of our mission to help those who might otherwise not be able to achieve the dream of homeownership, and in 2022, we have helped 192,000 homebuyers qualify for a mortgage. In addition, this year we were awarded the Diversity, Equity, and Inclusion Residential Leadership Award from the Mortgage Bankers Association, demonstrating our leadership in increasing diversity in the mortgage industry and making homeownership more accessible for underrepresented communities. We also have formed new partnerships and created innovative recruiting programs that will help address the minority homeownership gap and bring diverse talent into mortgage finance. These examples are part of our longstanding commitment to strong ESG principles. We recently published our ESG roadmap, which lays out our priorities and approach to environmental, social, and governance issues. We will have more to say on this front as the year progresses with the publishing of our inaugural ESG report in the first half of 2023. In closing, our business fundamentals remain solid, and while near-term dynamics are uncertain, we believe the long-term drivers of demand remain in place. Going forward, we will continue to execute and maintain the financial strength and flexibility needed to navigate and succeed in this environment. Overall, I believe we remain well-positioned to achieve our goals and continue creating value for all our stakeholders. I will now turn it over to Dean.