Enact Holdings, Inc. (NASDAQ:ACT), a leading U.S. private mortgage insurance provider, has demonstrated its resilience and ability to navigate a complex operating environment, delivering strong financial results in the first quarter of 2024.

Financials

The company reported net income of $160.9 million, or $1.01 per diluted share, for the first quarter of 2024, compared to $175.9 million, or $1.08 per diluted share, in the same period last year. The annual net income for 2023 was $665.5 million. Enact's revenue for the first quarter of 2024 was $291.6 million, up from $280.9 million in the first quarter of 2023. The company's annual revenue for 2023 was $1.15 billion.

Enact's strong performance is a testament to its commitment to its strategy, its market position, and its focus on driving long-term value creation for its shareholders. The company's insured portfolio continued to grow, reaching a record $264 billion as of the end of the first quarter, up 4% year-over-year. This growth was driven by a persistency rate of 85% and new insurance written (NIW) of $10.5 billion, down 20% year-over-year due to a smaller estimated mortgage insurance market and lower estimated market share.

The company's credit quality remains robust, with a risk-weighted average FICO score of 744 and a risk-weighted average loan-to-value ratio of 93% in its insured portfolio. The delinquency rate in the first quarter was 2%, down 9 basis points sequentially and consistent with pre-pandemic levels. Enact's effective loss mitigation efforts and favorable credit performance resulted in a $54 million reserve release during the quarter.

Enact's investment portfolio, which is a key component of its financial strength, continues to perform well. Net investment income for the first quarter of 2024 was $57.1 million, up 26% year-over-year, driven by higher interest rates and a growing investment portfolio. The company's investment portfolio had a duration of 3.7 years and a pre-tax yield of 3.7% as of the end of the first quarter.

The company's operating expenses for the first quarter of 2024 were $53 million, down 2% year-over-year, reflecting its ongoing commitment to expense discipline. The expense ratio for the quarter was 22%, down 1 percentage point year-over-year.

Enact's capital position remains strong, with a Private Mortgage Insurer Eligibility Requirements (PMIERs) sufficiency ratio of 163% as of the end of the first quarter, or $1.9 billion above the PMIERs requirements. Additionally, 90% of the company's risk in-force was subject to credit risk transfers, providing further financial flexibility.

During the first quarter, Enact returned $75 million of capital to shareholders through dividends and share repurchases. The company announced a 16% increase in its quarterly dividend to $0.185 per share and a new $250 million share repurchase authorization, reflecting its confidence in the business and its commitment to returning capital to shareholders.

Outlook

Looking ahead, Enact remains optimistic about the long-term dynamics of the mortgage insurance market, despite the current macroeconomic uncertainties. The company expects the mortgage insurance market size in 2024 to be generally in line with 2023 levels, which were comparable to 2018. Enact's focus on prudent risk selection, effective loss mitigation, and strategic capital management positions it well to navigate the evolving market conditions and continue delivering value to its shareholders.

Business Overview

Enact's geographic footprint is nationwide, with a presence in all 50 states and the District of Columbia. The company's primary mortgage insurance business is the main driver of its revenue, accounting for the majority of its insurance in-force and new insurance written.

In addition to its core mortgage insurance business, Enact has expanded into compelling adjacencies, such as its Enact Re subsidiary, which participates in GSE credit risk transfer transactions. These strategic initiatives have contributed to the company's diversified revenue streams and enhanced its overall financial performance.

Liquidity

Enact's liquidity position remains strong, with $614 million in cash and cash equivalents as of the end of the first quarter. The company's operating cash flow for 2023 was $632 million, and its free cash flow for the same period was also $632 million, providing ample resources to support its operations, investments, and capital return activities.

The company's financial ratios, such as a current ratio of 2.18 and a cash ratio of 1.16, further demonstrate its financial strength and ability to meet its short-term obligations. Enact's return on equity of 14% in the first quarter of 2024 also highlights its ability to generate attractive returns for its shareholders.

Risks and Challenges

While Enact faces risks, such as macroeconomic uncertainties, regulatory changes, and competition, the company's proven track record, strong market position, and disciplined approach to risk management position it well to navigate these challenges and continue delivering consistent performance. Investors should closely monitor Enact's progress as it navigates the evolving market landscape and capitalizes on the long-term growth opportunities in the mortgage insurance industry.