Enact Holdings, Inc.

Hello, and welcome to your next fourth quarter earnings call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Daniel Cole, Vice President of Investor Relations. You may begin.

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 performance and progress against our strategy. Dean will then discuss the details of our quarterly results before turning the call back to Rohit for closing remarks. We will then take your questions. The earnings materials we issued after market closed yesterday contain our financial results for the quarter, 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. 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. Additionally, they are subject to risks and uncertainties, which may cause actual results to be materially different and we undertake no obligation to update or revise 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 FCC, 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 filing on our website. With that, I'll turn the call over to Rohit.

Thanks, Daniel. Good morning, everyone. We delivered very strong fourth quarter and full year 2023 results, including high-quality growth in our insured portfolio, strong credit performance, increasing investment income, expense efficiency, and solid profitability in return, while also returning substantial capital to our shareholders. Driving this performance was a continued execution of our cycle-tested growth and risk management strategy, made possible by the hard work and talent of our employees. I'd like to thank them for their continued focus and commitment, and for helping Enact deliver another successful year. Net income for the full year was $666 million, or $4.11 per diluted share, and return on equity was 15%. We ended 2023 with record insurance in force of $263 billion, driven by new insurance written of $53 billion for the full year, and persistency that reached 86% in the fourth quarter. In addition to our strong financial performance, we achieved several strategic milestones during 2023 that will help position us to perform over the long term and across market cycles. First, we delivered important enhancements to our customer and technology platforms. These enhancements have improved the customer experience and are demonstrative of our commitment to deliver a high caliber, seamless, and efficient experience to our lender partners and have helped us add over 150 new customers in 2023 in a market that saw the number of lenders contract. We also made significant progress in extending our platform into compelling adjacencies. During the second quarter, we launched an act re to pursue opportunities in the mortgage reinsurance market. An act re continues to write high quality and attractive GSC risk share business And we have participated in all seven of the GFC deals that have come to market since its launch. And today, I'm pleased to announce that ANACRI has entered into our first international reinsurance deal with a leading mortgage insurance provider in the Australian market. We are excited to be participating in a familiar, mature, and scaled mortgage insurance market where we can leverage our previous experience. When we launched an Act Re, I discussed our view of the opportunities for compelling returns, and we continue to be pleased with the strong underwriting and attractive risk-adjusted returns we have seen since its launch. Going forward, we continue to see an Act Re as a long-term capital and expense efficient growth opportunity. Aligned with this view, during the quarter, Emeco contributed an additional $250 million to Anacri, which will support a 12.5% quota share of our in-force business, up from previously announced quota share of 7.5%, as well as new insurance written and new business opportunities, primarily consisting of GSE credit risk transfer. Based on our current view, we believe that with this infusion, we have sufficiently funded Anakri to support its growth for the foreseeable future and will continue to keep the market apprised of progress through time. Importantly, we executed on these opportunities while driving expenses below our target for the year and exceeding our target for capital return to our shareholders. Both Dean and I will have more to say on these topics shortly. I'm very pleased with our operating performance and the strategic progress we achieved in 2023. In 2024, we will continue to maximize value and efficiencies in our core MI business while also pursuing discipline growth. After a strong 2023, I'm confident that we are well positioned for continued success as we enter 2024. I will now turn to the operating environment and our results. The economy remains resilient, supported by a strong labor market and healthy household balance sheet. While macro factors such as geopolitical conflicts, higher interest rates, and continued economic uncertainty pose potential risks, delinquency rates for prime mortgage borrowers are consistent with pre-pandemic levels, and our manufacturing quality continues to be strong. Even as originations have slowed amid higher borrowing costs, we are encouraged by the pent-up demand amongst first-time homebuyers, the long-term outlook for housing, and the attractive opportunity we see in the private mortgage insurance market. Home prices continue to be supported by low housing inventory and strong demand, and mortgage insurance will remain an important tool to help buyers qualify for a mortgage. While higher interest rates have affected mortgage originations, elevated persistency has continued to support insurance-enforced growth. As of December 31st, only 4% of the mortgages in our portfolio had raised at least 50 basis points above the prevailing market rate. Also, as mortgage rates have come down following a peak of more than 8% in the fourth quarter, Recent data has pointed to an uptick in housing activity, which may provide a tailwind heading into the spring selling season. Our overall expectations based on current information is for 2024 MI market size to be similar to that in 2023. The credit quality of our insured portfolio remained strong, with a weighted average FICO score of 744 and a weighted average loan-to-value ratio of 93% in the fourth quarter. And layered risk in our portfolio was 1.3%. Pricing overall was constructive during the quarter, and underwriting standards remained rigorous. We increased our price on NIW in certain cohorts and geographies in response to potential macroeconomic risk. Our dynamic pricing rate engine enables us to deliver our best price to customers while targeting appropriate risk-adjusted returns in real time, ensuring we onboard a prudent mix of business while managing expected returns. Our delinquency rate in the fourth quarter was 2.1%, up 13 basis points sequentially, relatively flat year-over-year, and consistent with our expectations and pre-pandemic levels. Strong credit performance continued during the quarter, and our loss mitigation efforts helped drive strong cure activity. As a result, we released $53 million of reserves, and the loss ratio was 10%. We believe we remain well-reserved for a range of scenarios. We continue to operate from a position of financial strength with strong balance sheet principles and liquidity. At year end 2023, our PMR sufficiency was a strong 161% or 1.9 billion of sufficiency, and approximately 90% of our risk in force was subject to credit risk transfers. Since last quarter, we have completed an ILN, a quota share, and an excess of loss reinsurance transaction, providing capital efficiency and loss volatility protection that Dean will detail later. As a proof point to our continued financial strength and liquidity, Emico received multiple upgrades to its insurer financial strength rating by three different rating agencies in 2023. And as previously announced, S&P upgraded Emico to A- in January. With that upgrade, Emico is rated A- or equivalent across four different rating agencies, and our holding company is rated investment grade across four different rating agencies also. Additionally, the upgrades in 2023 grow and act senior debt rating to investment grade. The strength and flexibility of our capital position allowed us to deploy capital to support new business and grow our insurance in force while also meeting our commitment to return capital to our shareholders. In 2023, we returned over $300 million to shareholders in the form of dividends and share repurchases. including a 14% increase in the quarterly dividend beginning in the second quarter and a special dividend of $113 million during the fourth quarter. Additionally, we completed our first share buyback program of $75 million and authorized the second program of $100 million. Going forward, we remain committed to maximizing shareholder value through our balanced approach to capital allocation. As we enter 2024, we will continue to prudently invest in the growth opportunities we see for the business while also maintaining strong liquidity levels and our commitment to return capital to our shareholders. On that front, for 2024, we expect total capital return will be similar to what we delivered in 2023. And given the compelling valuation we have seen in our stock through late 2023 and early 2024, we expect to increase our share repurchase activity. We had a strong quarter, and I'm very pleased with our performance in 2023. We look forward to continuing to serve our customers and their borrowers and delivering on our opportunity to drive value for our shareholders. With that, I will now turn the call over to Dean.