Genworth Financial Inc

Hello, and welcome to ENAC's first 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 first 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 first 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 first quarter of 2023, 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 and are subject to risks and uncertainties which may cause actual results to be materially different. We undertake no obligation to update or revise such statements as a result of the 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.

Thank you, Daniel. Good morning, everyone. Thank you for joining us to discuss our first quarter 2023 results. The first quarter marked a strong start to 2023 for Enact. We delivered a 17% return on equity and net income of $176 million, or $1.08 per diluted share, which was up 7% year over year. In a market that remained dynamic and volatile, we achieved these robust results by executing our strategy maintaining our commitment to a strong balance sheet, and continuing to prudently manage our risk. Insurance in force in the quarter was a record $253 billion, driven by persistency of 85% and new insurance written off $13 billion as we continue to win new business. I've spoken in the past about our commitment to investing to further enhance and differentiate our product offerings, and we made additional progress here during the quarter announcing integrations with several pricing and loan origination systems designed to increase connectivity, simplify and enhance the customer experience, and support the platform that works best for our customers. As higher interest rates have affected mortgage origination volumes in NIW, elevated persistency has continued to act as a counterbalance and support continued insurance-enforced growth as maintaining older mortgages with lower rates remains economically favorable to refinancing at current rates. As of the end of the quarter, 99% of the mortgages in our portfolio had rates at least 50 basis points below the prevailing market rate, and we expect this dynamic to be a tailwind for persistency going forward. The pricing environment remained constructive during the quarter, with pricing across the industry trending upwards. In response to increased macroeconomic uncertainty, we continue to increase our price on new insurance returns. We are committed to prudently pursuing high-quality business priced to generate attractive returns on a risk-adjusted basis and remain confident in our ability to do so and create value for shareholders. Overall, underwriting and credit quality remain healthy and our portfolio dynamics are strong and as seen in our investor presentation on slide 8, have significantly improved over time. On an if basis, the weighted average FICO score in our portfolio during the quarter was 744. The average loan-to-value ratio was 93%, and our layered risk was 1.4% of risk-in-force. At 1.9%, our delinquency rate was down slightly from the fourth quarter of 2022 and was consistent with pre-pandemic levels. In addition, 86% of our delinquent policies had an estimated 20% or more of mark-to-market equity. As I stated in the past, this could act as a mitigant to both the frequency and severity of defaults. The loss ratio in the quarter was negative 5%, which reflected a reserve release of $70 million, driven by ever-to-date home price appreciation, our approach to risk management and loss mitigation, and the favorable resolution of long-term forbearance plans. We will continue to act with prudence with respect to loss reserves, with careful consideration given to the macro environment and various factors which may affect future credit performance. Based on our current views, we believe we are well reserved for the current market environment. I spoke to you last quarter about our focus on and commitment to cost discipline and operational excellence. During the quarter, we were able to reduce our operating expenses by 13% sequentially, driving a 400 basis point decrease in our expense ratio, despite the ongoing impact of inflation on the economy more broadly. Now turning to the macro environment, while it generally remains uncertain, we continue to view several positive economic factors and secular trends as supportive for the MI industry. Elevated inflation, higher borrowing costs, and the possibility of a recession continue to pose risks. In addition, the excess savings accumulated by households during the pandemic has declined as revolving credit balances have increased. Having said that, Unemployment, wage growth, and household balance sheets remain generally healthy, and despite recent softening in some areas, consumer finances are still better than pre-pandemic levels. While the sharp increase in mortgage rates has dampened demand, inventories remain well below the 40-year average, as does the rental vacancy rate, making it difficult to find a housing alternative. Single-family housing starts have largely remained below the long-term average since 2008. At the same time, the demographics surrounding first-time homebuyers remain unchanged and a driver of continued long-term demand. These factors, in addition to low housing supply, are supportive to home prices and constructive for the MI industry as an important tool to help buyers qualify for a mortgage, especially in an environment of lower affordability. Additionally, the legislative, regulatory, and business changes that have been implemented over the last decade have made our business a lot more resilient. So while the near-term economic outlook is less clear, we are confident in the long-term strength of the MI industry. In the current environment, our commitment to balance sheet strength and financial flexibility becomes even more important. PMIR's sufficiency at the end of first quarter remained very strong at 164%, or $2.1 billion of sufficiency, and 90% of our risk in force was covered by credit risk transfers. Additionally, we executed an excess of loss reinsurance transaction in the quarter with a panel of reinsurers, which provides up to $180 million of reinsurance coverage on our 2023 book year. Our performance and enhanced financial strength were again recognized by the market. During the quarter, we received ratings upgrades from both S&P and Moody's, with the Moody's upgrade marking the third we have received from them since our IPO. In April, Fitch Ratings upgraded an Axe insurer financial strength rating to A-. In addition, during the quarter, we received confirmation from Fannie Mae and Freddie Mac that the GSC conditions first imposed after the issuance of an Act's August 2020 senior notes have been satisfied, and the accompanying restrictions were lifted on March 1st. Each of these developments support our competitive position and financial flexibility and create more opportunity for customer engagement. We maintained our focus on discipline capital allocation during the period, focused on our three key pillars, supporting our policyholders, investing to enhance and diversify our platform, and returning capital to our shareholders. I've already discussed supporting our policyholders through our strong PMIRES position, and I've highlighted some of our recent initiatives to enhance our product solutions during the quarter. So let me turn to our third pillar of returning capital to our shareholders. On this front, we continue to make meaningful strides. During the quarter, we repurchased an additional $22 million in stock. Additionally, we repurchased an additional $9 million in April. On May 1st, we announced the Board's approval of an increase in ANAC's regular quarterly dividend by 2 cents to 16 cents per common share, a 14% increase over the prior quarter's dividend amount, and a decision that reflects our belief in the strength and sustainability of our cash flows, our confidence in the business, and our commitment to shareholder value creation. We believe our performance and financial strength positions us well related to our commitment to return capital to shareholders, and Dean will have more to say about this shortly. Now turning to recent events, on February 22nd, the Biden administration announced a reduction of 30 basis points on FHA annual mortgage insurance premium rate effective for loans endorsed after March 20th, 2023. This move, while widely anticipated, came on the heels of the Federal Housing Finance Agency's loan level pricing adjustment changes announced on January 19th. These changes became effective May 1st and favored low to moderate income borrowers. We believe the combined impact of these actions is consistent with our prior expectations of a modest low to mid single digit percent decrease in the MI market. We will continue to monitor market dynamics related to both announcements. Finally, before I turn the call over to Dean, I'd like to take a minute to highlight a recent milestone that I know is very important to all of us at Enact. For the past 40 years, we have enabled people to realize their dreams of homeownership and create a path to building wealth. This is our purpose as a company, and it motivates everything we do. Good corporate citizenship has always been an important part of our culture, And last month, we took our next significant step forward on this journey since becoming a public company with the release of our inaugural 2022 ESG report. The report provides insight into our environmental, social, and governance priorities, as well as how we are approaching these priorities in our operations and seeking to expand and improve our performance. It can be found on our investor page of our website, and I encourage you to review it. We are proud of our record of corporate responsibility and look forward to building on our progress as we continue integrating ESG initiatives with our business objectives to help build a more inclusive and sustainable future for our customers, employees, investors, and communities. I will now turn it over to Dean.