Enact Holdings, Inc.

Hello, and thank you for standing by. Welcome to ENAC fourth quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to turn the call over to Daniel Cole. 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 our website. 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 the 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 filing on our website. With that, I'll turn the call over to Rohit.

Thank you, Daniel. Good morning, everyone. ANAC delivered a very strong finish to 2025 that reflected the disciplined execution of our strategy, robust credit performance, and our commitment to shareholder value creation. For the full year, we reported adjusted operating income of $688 million, or $4.61 per deleted share. We returned over $500 million of capital to shareholders, and the year-end adjusted book value per share increased 11% to $37.87. Before discussing the quarter, I want to take a moment to highlight some of our accomplishments in 2025. In a complex housing environment, we helped over 134,000 borrowers buy a home and over 16,000 borrowers keep their home. We continue to innovate our risk selection and pricing capabilities, leveraging advanced modeling and machine learning to deploy the latest version of our pricing engine, RAID 360. We generated $52 billion of new insurance written and ended the year with record insurance in force of $273 billion. We maintained our commitment to expense discipline with full-year operating expenses at $217 million, excluding restructuring charges. We delivered record levels of capital returns to our shareholders, and we enhanced our financial flexibility by entering a new $435 million revolving credit facility and protected our forward books at attractive cost of capital through new CRT deals. Our execution continued to be recognized by the market, evidenced by receiving multiple credit ratings upgrades. Finally, ANAC received multiple industry and local awards, a testament to our commitment to excellence and providing an exceptional employee experience. Taken together, these accomplishments underscored the progress we made in 2025 and reinforced our confidence in ANAC's long-term strategy. Turning to our fourth quarter results, we reported adjusted operating income of $179 million, or $1.23 per diluted share, while adjusted return on equity was 13.5%, and we generated robust new insurance return of over $14 billion, driven by an increase in refinance originations as mortgage rates declined. However, 59% of loans in our book have rates below 6%, providing support for continued elevated persistency. The long-term drivers of housing demand remain strong, and we are confident that mortgage insurance will continue to play an essential role for both buyers and lenders. Pricing remained constructive in the quarter, and our dynamic risk-adjusted pricing engine, Rate360, is enabling us to prudently price risk with discipline as market conditions continue to evolve. Our insurance-enforced portfolio remains resilient, with risk-weighted average FICO score of 746. The risk-weighted average loan-to-value ratio was 93%, and layered risk was 1.2% of risk-enforced. Cured performance continues to outperform our expectations given by favorable credit performance and effective loss mitigation efforts. This resulted in a net reserve release of $60 million in the quarter, partially driven by a claim rate reduction from 9% to 8%. Dean will touch more on this shortly. We also continue to advance our capital allocation priorities of supporting existing policyholders by maintaining a strong balance sheet, investing in our business to drive organic growth and efficiency, funding attractive new business opportunities, and returning excess capital to shareholders. At the end of the quarter, our PMIR sufficiency ratio was 162%, providing significant financial flexibility, and our credit and investment portfolios are in excellent shape. Our strong capital position is further reinforced by the effective implementation of our CRT program and the backing of our credit facility. We continue to make steady progress against our strategic initiatives, advancing innovation in the MI business, and continuing to expand into attractive adjacencies. An Act Re continued to perform well and participated in attractive GSC single and multifamily deals in the quarter while maintaining strong underwriting standards and generating attractive risk-adjusted returns. An ACRI remains a long-term growth opportunity that is both capital and expense efficient. Finally, as it relates to capital returns, during the fourth quarter, we returned $157 million to shareholders through share repurchases and dividends. We remain committed to our capital allocation priorities, and we are pleased to announce our 2026 capital return expectations of approximately $500 million. Additionally, we issued a press release last night announcing that our board of directors authorized a new share repurchase program that is the largest in Enacs history. In closing, we believe we are well-positioned to continue navigating the uncertain macro environment, supporting our customers, and delivering sustainable value for shareholders, none of which would be possible without the hard work and talent of our employees. and I would like to take a moment to thank them for their continued efforts and contributions. With that, I will now hand the call over to Dean.

Thanks, Rohit, and good morning, everyone. We are pleased with the very strong results we delivered in the fourth quarter of 2025, which concluded an excellent year for ENACT. Adjusted operating income was $179 million, or $1.23 per diluted share, compared to $1.09 per diluted share in the same period last year, and $1.12 per diluted share in the third quarter of 2025. Adjusted operating return on equity was 13.5%. For the full year, adjusted operating income totaled $688 million, or $4.61 per diluted share, compared to $718 million, or $4.56 per diluted share in 2024. A detailed reconciliation of GAAP net income to adjusted operating income can be found in our earnings release. Turning to the fourth quarter, new insurance written was $14 billion for the fourth quarter, up 2% sequentially and up 8% year over year. This new business is well priced, has a strong credit risk profile, and is comprised of loans that are well underwritten to prudent market standards. Persistency was 80% in the fourth quarter, down three points sequentially and down two points year over year on lower prevailing mortgage rates. While mortgage rates have fallen recently, only 22% of our mortgages in our portfolio have rates at least 50 basis points above December's average of 6.2%, providing support for continued elevated persistency. The combination of solid new insurance written and lower but still elevated persistency drove primary insurance in force of $273 billion in the fourth quarter, up $1 billion from the third quarter of 2025, and $4 billion, or approximately 1% year-over-year. Total net premiums earned were $246 million, up $1 million sequentially, and flat year-over-year. Our base premium rate of 39.6 basis points was down .1 basis points sequentially, in line with our expectations. As a reminder, our base premium rate is impacted by several factors and tends to modestly fluctuate from quarter to quarter. Given our current expectations for the MI market size and mortgage rates, we anticipate our base premium rate in 2026 to be relatively flat versus 2025. Our net earned premium rate was 34.8 basis points, down slightly sequentially, driven by higher seeded premiums. Investment income in the fourth quarter was $69 million, flat sequentially and up $6 million or 10% year over year. Our new money investment yield of approximately 5% contributed to an increase in the weighted average portfolio book yield of 4.4% for the quarter. While we typically hold investments to maturity, we may selectively pursue income enhancement opportunities. During the quarter, we sold certain assets that will allow us to recruit realized losses through future higher net investment income. Turning to credit, we continue to see strong loss performance across our overall portfolio. New delinquencies increased sequentially to 13,700 in the quarter from 13,000 in the third quarter of 2025, in line with expected seasonal trends. Our new delinquency rate for the quarter remained consistent with pre-pandemic levels at 1.5% an increase of 10 basis points from the third quarter of 2025 and flat versus the fourth quarter of 2024. Total delinquencies in the fourth quarter increased sequentially to 24,900 from 23,400 as news outpaced cures and the delinquency rate increased 10 basis points sequentially to 2.6%. Losses in the fourth quarter of 2025 were 18 million, and the loss ratio was 7%, compared to 36 million and 15%, respectively, in the third quarter of 2025, and 24 million and 10%, respectively, in the fourth quarter of 2024. We reduced our claim rate in the quarter for new and recent delinquencies from 9% to 8% after factoring in the continued strong cure performance sustained throughout 2025. We believe the 8% claim rate is well aligned with the current macroeconomic uncertainties and remains consistent with our measured and prudent reserve philosophy. The net reserve release of $60 million in the fourth quarter was driven by favorable cure performance, our loss mitigation activities, and the reduction in our claim rate assumption. This compares to reserve releases of $45 million and $56 million in the third quarter of 2025 and fourth quarter of 2024 respectively. We maintain our focus on discipline cost management in 2025. Operating expenses for the fourth quarter of 2025 were $59 million, and the expense ratio was 24%, compared to $53 million and 22% respectively in the third quarter of 2025, and $57 million and 24% respectively in the fourth quarter of 2024. For the full year, our operating expenses of 218 million or 217 million, excluding reorganization costs, were favorable to our updated guidance of approximately 219 million. For 2026, we anticipated an operating expense range of 215 to 220 million, excluding any reorganization costs, as we continue to prudently manage our expense base, balancing our continued focus to drive further efficiencies in our business while also investing in our growth initiatives. We continue to operate from a strong capital and liquidity position reinforced by our robust PMIRS sufficiency and the successful execution of our diversified CRT program. Our PMIRS sufficiency was 162% or $1.9 billion above PMIRS requirements at the end of the fourth quarter. And as of December 31, 2025, Our third-party CRT program provides $1.9 billion of PMIRES capital credit. Turning now to capital allocation, during the quarter, we paid out $30 million or 21 cents per share through our quarterly dividend, and we bought back 3.4 million shares at an average price of $37.66 for $127 million. For the full year 2025, we returned $503 million to shareholders. $121 million through our quarterly dividends, and we repurchased 10.5 million shares at an average price of $36.25 for a total of $382 million. Through January 30th, we have repurchased an additional 0.8 million shares for $31 million. For 2026, we expect capital returns of approximately $500 million. As in the past, the ultimate amount and form of capital return to shareholders will be dependent on business performance, market conditions, and regulatory approvals. As we announced yesterday, the Board has authorized a new $500 million share repurchase program and declared a quarterly dividend of 21 cents per common share payable March 19th. Overall, we are pleased with our performance in 2025 and we believe we are well positioned for another strong year in 2026. We remain focused on prudently managing risk, maintaining a strong balance sheet, and delivering solid returns for our shareholders. With that, let me turn the call back to Rohit.

Thanks, Dean. Looking ahead to 2026, our strong balance sheet The portfolio's significant embedded equity and our disciplined operating approach position us to effectively navigate uncertainty and capitalize on long-term opportunities. Additionally, demographic tailwinds, particularly among first-time homebuyers, support long-term demand for housing and for private mortgage insurance. Finally, as housing affordability and supply constraints shape policy discussions, We continue to actively engage with our lending partners, the GSEs, the FHFA, and the administration, and believe we remain well-positioned to navigate and adopt to an evolving policy environment. We remain committed to helping people responsibly achieve the dream of homeownership and deliver long-term value for all our stakeholders. Operator, we are now ready for Q&A.

Thank you. Ladies and gentlemen, as a reminder to ask the question, please press Start11 on your telephone, then wait for your name to be announced. To withdraw your question, please press Start11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Doug Hodder with UBS. Your line is open.

Thanks, and good morning. Appreciate the guidance on the capital return. You know, in the past couple of years, you were able to exceed your initial capital return goal. Like, how do you think about, you know, the sensitivities to that capital return goal for 2026 and what could cause that to, you know, come in better or, you know, what would be the factors that might cause you to need to slow it down?

Yeah, Doug. Hey, it's Dean. Thanks for the question. Yeah, much like we said in our prepared remarks, we set a capital return guidance at the beginning of the year. We're very confident in delivering $500 million back to shareholders. But we'll continue to evaluate dynamics in the marketplace, namely our business performance, how the business continues to perform, how we continue to grow the business, and certainly loss performance. during 2026. We're also going to be looking at the macroeconomic environment. Obviously, we're looking at the prevailing macroeconomic environment, the uncertainties that exist today, and still feel confident in our ability to return $500 million. But we're going to look and see how that evolves over the course of the remainder of the year. And that can have an effect. And then lastly, and maybe a little bit less in this market right now, is the regulatory environment. Is there anything going on either in the context of PMIRES or with state regulatory environments or otherwise, that would cause us to rethink and adjust our plan $500 million capital return in 2026. But we're confident that right now, given those dynamics, we're confident in the ability to return $500 million to shareholders in 2026. Great. Appreciate that, Dean. Thank you.

Thanks, Doug. Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of Mihair Bhatia with Bank of America. Your line is open.

Hi. Good morning. Thank you for taking my question. I wanted to start actually where you ended that last answer, Dean, just about regulatory environment. Obviously, I think everyone's been hearing about a potential for an FHA rate card, affordability agenda, and other Are there a few things that you guys are particularly paying attention to from a regulatory or government action standpoint that maybe are worth highlighting for investors that they should just keep an eye out for?

Good morning, Mihir. Thank you for the question. This is Rohit. I would say we remain actively engaged with the new administration, and that includes Treasury, FHFA, the GSC, as well as policymakers. And our focus continues to be on the topics that are in discussions of the most macro basis. We are talking about limited inventory challenges as well as affordability challenges. So as ideas come up, we actually provide our input on the pros and cons of those ideas, but also equally important in our market, we provide input on implementation of those ideas and what that entails. So, but ideas like credit scores come up, what are the pros and cons of different credit score ideas, all the way to some of the recent ideas that are being discussed on the announcement of BSCs buying mortgage-backed securities and on institutional investors buying single-family homes. I would say those ideas are more in the water table as already announced. Any future ideas that come up, and there's a list of ideas that you mentioned that are in discussion. We are actively engaged on all those places. I couldn't call out any specific idea which is high up on the list from an execution perspective. I think it's just a list of ideas right now, but that's how I would frame it.

Okay. And then maybe just like a little bit more, just from 2026 thoughts. What type of mortgage market are you planning for in 2026? What does that mean for NIW or insurance-informed? I think you talked about premium rate and OPEX, but just, like, what are you assuming for the mortgage market and NIW in that scenario?

Yes. Yeah, Mehr, thank you for the question. So I would say in this environment when there is a good amount of rate volatility and mortgage rate volatility specifically, it's tough to forecast origination. So I'll just give you that caveat up front. But with that being said, we look at external originations forecast to figure out what the market originations are, overall mortgage originations are, and just to kind of index the market on the purchase origination side. So our take is that 90 plus percent of the market in 2025 was for MI market size was purchase origination. And if you look at 2026 purchase originations forecast in the market between Fannie Mae, NBA, movies, you see a range of an 8% increase all the way to a 24% increase between those three external parties. So as we think about those external forecasts and convert that to a mortgage insurance market, we can see an increase of approximately 10 to 15% from 2025 to 2026. Again, with the caveat being that that's based on our current forecast of mortgage rate expectations, affordability expectations, but that environment continues to be dynamic. So as the environment evolves, we will come back and update that forecast. But at this point of time, that feels like the most updated view for us.

Right. No, that's quite helpful. And just one last one from me, and then I'll get back in queue. Just on default rates, where do you think they trend from here? Is it just Like, you read stability and seasonality from here. Anything we should be keeping in mind, whether from a vintage seasoning, vintage size type of view? Thanks.

Yeah, Mihir. Dean again. Hey, you know, from a Delcrate perspective, I think we're seeing what we would expect to see. So, you know, just in terms of vintage contribution to Delcrates, you continue to see, you know, book years age up their loss development pattern. And so as newer books season or age towards higher, you know, parts of the loss development patterns, they're contributing more delinquencies as you would expect to the overall Dell grade. I think the portfolio now stands at about four years, about 4.1 years on a weighted average basis. That's kind of towards that plateauing of the loss development pattern, the normal loss development pattern. So I think what we'd expect heading into, you know, before we get to 26, you know, what we saw in 25 is kind of in line with what we expected. We expected year over year change in new delinquencies to slow. From 23 to 24, it was in the mid teens. When you went from 24 to 25, it was in the mid single digits. So very much in line with expectations. I think as we think about going from 25 to 26, we can still see it continue to moderate. might still increase in terms of new delinquencies year over year, but moderating from its current level, recognizing that year over year there were only 2,000 incremental new delinquencies. So we're dealing with pretty small numbers.

Understood. Thank you so much. Thank you.

Thanks, Mahir.

Please stand by for our next question. Our next question comes from the line of Rick Shane with JP Morgan. Your line is open.

Hey guys, thanks for taking my questions this morning. Look, in some ways you guys have two books. You have the sort of pre-22 legacy book with credit that's going to be sort of the best in a generation. You have a subsequent book that I think is evolving to be in line to better with your sort of underwritten expectations. As you look at the second part of that book, the front book, I am curious if you can sort of put credit performance in some terms versus your expectations. How are things tracking? But specifically, are there things that you are seeing within certain cohorts, whether it's DTI, LTV, geography that are stand out in terms of elevated risks?

Yeah, Rick. Hey, Dean. Thanks for the question. You know, if we think about vintage performance, I'd probably start off by saying it's kind of redundant to your question a little bit. But let me start off by saying all of our recent book years have been performing in line with or better than our pricing expectations. Obviously, to your, a little bit underpinning your question, our newer books, so think, you know, 2022 through 2024, have been originated in primarily a purchase market, which tend to have higher risk attributes, like a little bit higher LTV, a little bit higher DTI than refi markets. And in addition to that, they have had much more modest home price appreciation, and in certain instances, depreciation, depending on the geography. compared to prior book years. We price for those attributes. So we price for our view of risk. We price for our future view of home prices, all in an objective to achieve an attractive return on equity. So on new vintages, we haven't seen performance differ from our pricing expectations that we established at policy inception. And we still believe we're onboarding You know, the right risk at the right price, if you will, across vintages, across book years, based on vintage performance to date. You know, yes, are there differences across attributes? Of course, risk attributes matter. Geographies matter. Again, we factored that in our price, and we haven't seen anything that, you know, worked against our expectations and created negative variation.

Got it. And anything going forward that you're going to be, and I realize you have to be sensitive about this from a competitive perspective, but any areas that you would highlight where you're being a little bit more circumspect about risk?

Yeah, I mean, we don't want to go into our pricing schema, if you will. But let me just, I mean, I think it's the things that you would expect, Rick. So there's certainly areas of the country where housing supply has increased and home prices have either moderated or declined. You know, think parts of the Sun Belt, particularly, you know, Florida, Texas, California, Arizona. I don't think those are states that would surprise you as having pulled back a little bit in terms of home prices. You know, that's in contrast to the Northeast, where you still have low housing supply and home prices continue to appreciate. pretty meaningfully. So, you know, we're monitoring housing markets as an example of something that we're keeping our eye on for affordability, supply-demand dynamics, and we'll continue to consider that as we think about how to, again, crystallize our philosophy of the right risk at the right price.

And, Rick, just to add to Dean's point, We have talked about this in the past and also mentioned it in our prepared remarks on the call. we have a very deep analytics and a lot of capabilities even from a forecasting perspective to incorporate those views in our pricing and we have the ability to make those pricing changes on a very frequent basis when we think those are appropriate so to dean's point uh not only historically speaking but also looking forward we continue to incorporate that view of risk performance geographic differences or risk attributes at a loan level into our pricing. And now we have the mechanism to charge that price at a very granular level.

Got it. Okay. Very helpful as always, guys. Thank you very much. Thank you, Rick.

Please stand back for our next question. Our next question comes from the line of Boss George with KBW. Your line is open.

Hey, guys. Good morning. Actually, on expenses, you guys continue to do a good job there. It kept it flat now for a few years and seems to be the case again in 26. Is technology the main driver? And then longer term, could we see the expense ratio continue to decline as expenses stay flattish or at least increase by less than revenues?

Yeah, thank you both. Appreciate your question. So I would say from an expense perspective, you are correct. We have actually not only kept our expenses flat in the last year, two years, but since our IPO, our expenses are on a dollar basis are probably down 30 plus million dollars on an annualized run rate basis. So we continue to invest in technology, invest in different amounts of innovation to drive that improvement. And that is meant to drive all aspects of our business, drive productivity, drive better customer experience, and drive smarter decisions. So when you think about our expenses in 2025 coming in below our original guidance, that is driven by us actually harvesting those benefits, harvesting those gains. from our investments, and we see the same thing happening in 2026. Now, in terms of long-term expectations on expense ratio, I think it's tougher to give that guidance. Our aspiration is to always be prudent managers of expenses. So, yes, we will always try to actually improve our expense ratio, both through growing our premiums by actually getting to a larger, more profitable book, and at the same time, getting the right efficiencies from the business. but how those premiums play out and how those expense dollars play out difficult to forecast beyond 2026. So yes, directionally, you're absolutely correct. And then as we navigate through 26 and get to 27, we'll provide updated guidance.

Okay, great. Thanks. And then just on the reinsurance transactions, as you guys did, can you just talk about the attachment and detachment points and then how's the pricing on that market, you know, just the trends in pricing?

Yeah, Boze, so let me start with the pricing and then I'll go to the nature of the agreement. You know, from a pricing perspective, we're seeing a tremendous amount of demand in the traditional reinsurance market for mortgage credit default risk. That has benefited the terms of some of our most recent reinsurance transactions going all the way back to, you know, the coverage we've secured on both the 2026 book as well as now the the two-year forward 2027 book. So, we've typically talked about that in low to mid-single digits cost of capital. If you go prior to those transactions, we were probably on the higher end of that cost range, and these most recent transactions were on the lower end of that continuum from a cost range perspective. You know, from an attachment and detachment perspective, You know, our objective with our CRT program and certainly our CRT transactions is twofold. It's to provide cost-efficient capital relief and also obviously to protect the balance sheet from a volatility perspective. If we think about that first objective, what that means for our XOLs is we secure coverage inside the PMIRES tier. And so, we typically attach around the 3%. It's not always 3% of our risk and force, but it's generally in that ballpark. And then detached within PMIRs, and that's typically, again, PMIRs on requirements on new business are generally around that 7%. So you can see our transactions evolve through time, but generally in broad strokes, attachment and detachment are around those points that I just gave you, Bose.

Okay, great.

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Rohit for closing remarks.

Thank you, Tawanda, and thank you, everyone. We appreciate your interest in an act, and I look forward to seeing many of you this quarter in Florida at UBS's Financial Services Conference on February 9th and at Bank of America's Financial Conference on February 10th. We also plan to attend the RBC Capital Markets Global Financial Institutions Conference in New York on March 11th. With that, we will wrap up the call. Thank you.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.