Executive Summary / Key Takeaways

• Resilient Core Business: Enact Holdings, Inc. (ACT) demonstrates robust performance in a dynamic U.S. mortgage insurance market, driven by disciplined underwriting, strong credit quality, and effective loss mitigation, leading to consistent profitability and significant reserve releases.
• Technological Moat: The proprietary Rate360 engine provides a critical competitive advantage, enabling precise, risk-adjusted pricing and prudent risk selection, which enhances profitability and market positioning.
• Fortified Capital Position & Shareholder Returns: With a PMIERs sufficiency of 165% and a strategic Credit Risk Transfer (CRT) program, Enact maintains substantial financial flexibility. The company has increased its 2025 capital return guidance to approximately $400 million, underscoring its commitment to shareholder value.
• Strategic Diversification: The successful launch and growth of Enact Re, participating in GSE CRT transactions, diversifies the platform and contributes to long-term earnings, further bolstered by recent credit rating upgrades.
• Macroeconomic Headwinds & Opportunities: While elevated mortgage rates, inflation, and trade policy uncertainties present challenges to origination volumes, strong demographic trends and a resilient borrower base support a positive long-term outlook for the U.S. housing market and the mortgage insurance sector.

Enact's Enduring Foundation: Resilience in Mortgage Insurance

Enact Holdings, Inc. (ACT) stands as a pivotal player in the U.S. private mortgage insurance industry, primarily operating through its flagship subsidiary, Enact Mortgage Insurance Corporation (EMICO), established in 1981. This core business involves writing and assuming residential mortgage guaranty insurance, a vital service that protects lenders and investors against losses from loan defaults. By enabling borrowers to secure homes with down payments typically less than 20%, Enact facilitates homeownership and supports the liquidity of the secondary mortgage market, particularly for government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac.

The company's strategic evolution gained significant momentum with its minority initial public offering (IPO) in September 2021, marking its emergence as a publicly traded entity while maintaining ties to Genworth Financial, Inc. (GNW). This strategic move was followed by the launch of Enact Re Ltd. in mid-2023, a Bermuda-based subsidiary designed to participate in the GSE credit risk transfer (CRT) market. This initiative not only diversifies Enact's platform but also leverages its core competencies in risk management, contributing to its long-term earnings profile. Enact Re's strategic importance was underscored by an A- rating from S&P in Q3 2024, enhancing its capital optimization capabilities.

Enact's overarching strategy is built on a foundation of disciplined risk management and a balanced approach to capital allocation. The company prioritizes maintaining a robust balance sheet to support policyholders, investing in organic growth and operational efficiencies, pursuing attractive new business opportunities for diversification, and consistently returning excess capital to shareholders. This comprehensive strategy, coupled with prudent underwriting and proactive loss mitigation efforts, positions Enact to navigate complex macroeconomic environments and deliver sustainable value.

The Technological Edge: Rate360's Precision Power

A cornerstone of Enact's competitive strength and operational excellence is its proprietary underwriting technology, particularly the Rate360 engine. This latest-generation comprehensive rate engine is not merely a tool; it represents a significant technological differentiator that underpins the company's ability to maintain pricing discipline and underwriting quality in a highly competitive market.

Rate360 leverages a sophisticated combination of proprietary data, real-time market information, advanced analytical models, and machine learning capabilities. This technological prowess enables Enact to deliver competitive pricing on a risk-adjusted basis, ensuring that the company is adequately compensated for the risks it assumes. The system facilitates prudent risk selection, allowing Enact to underwrite and select risks that align with its attractive return appetite.

For investors, the "so what" of Rate360 is clear: it directly contributes to Enact's competitive moat and financial performance. By enhancing the company's ability to adjust pricing more effectively and quickly in a rapidly evolving and increasingly complex market, Rate360 drives profitable growth. This technological advantage translates into optimized risk-adjusted returns, supporting higher margins and a more resilient portfolio over the long term.

Navigating the Competitive Currents

The U.S. private mortgage insurance industry is intensely competitive, with Enact vying for market share against established players such as MGIC Investment Corporation (MTG), Radian Group Inc. (RDN), Essent Group Ltd. (ESNT), and Arch Capital Group Ltd. (ACGL). Beyond direct peers, the landscape also includes indirect competitors like government-backed programs (Federal Housing Administration and Veterans Affairs) and emerging fintech solutions offering alternative risk mitigation tools.

Enact holds a solid position as a key player among these established competitors. Its growth trajectory shows consistent expansion, aligning with the broader housing market. Enact's strengths lie in its operational stability, deep risk management expertise, and a strong brand legacy stemming from its long history and ties to Genworth. The company's proprietary underwriting technology, Rate360, provides a distinct advantage, enabling more tailored solutions and notably faster processing for certain clients compared to some rivals. This technological edge, combined with its regulatory expertise, allows Enact greater regulatory navigation, potentially improving its market share in compliant segments and enhancing pricing power, which can lead to more robust growth.

However, Enact, like its peers, faces vulnerabilities, particularly sensitivity to housing market cycles. While its focused strategy on prime loans offers a degree of protection, a significant market downturn could lead to higher claim costs and reduced market share. Compared to more diversified competitors like Radian, which has a broader strategy encompassing additional financial guarantees, Enact may lag in overall market reach or innovation speed. Radian's technological investments, for instance, might enable faster adaptation to market changes. Similarly, Essent is recognized for its agile technological capabilities, which could translate to faster innovation cycles. Despite these competitive pressures, Enact's disciplined approach to risk and its efficient operational execution in core insurance products, including superior efficiency in claim handling, help it maintain competitive profitability and financial health. The high capital requirements and stringent regulatory approvals in the mortgage insurance industry also act as significant barriers to entry, further protecting Enact's established position and contributing to its profitability.

Financial Fortitude: Performance in a Dynamic Market

Enact's strategic execution and technological advantages are clearly reflected in its robust financial performance. For the second quarter of 2025, the company reported adjusted operating income of $174 million, contributing to a first-half 2025 adjusted operating income of $342.427 million. Adjusted earnings per diluted share stood at $1.15 for Q2 2025, with an adjusted return on equity exceeding 13%.

Revenue trends underscore the company's resilience. Premiums in Q2 2025 increased modestly year-over-year to $245.289 million, driven by higher assumed premiums and insurance in-force growth, partially offset by higher ceded premiums. For the first half of 2025, total premiums reached $490.075 million, a 1% increase year-over-year. Net investment income saw a healthy increase, rising 10% year-over-year to $65.884 million in Q2 2025 and $128.921 million for the first half, primarily due to elevated interest rates and higher average invested assets, with new money investment yields consistently exceeding 5%.

Credit performance remains a key strength. Losses incurred in Q2 2025 were $25.289 million, resulting in a favorable loss ratio of 10%. This was significantly aided by a $48 million reserve release in Q2 2025 (and $95 million for the first half), driven by strong cure performance of delinquencies from early 2024 and prior years. The company's new delinquency rate in Q2 2025 remained consistent with pre-pandemic levels at 1.2%, and cure rates remained robust at 52%. Enact's disciplined expense management is also evident, with operating expenses at $53 million in Q2 2025, contributing to an expense ratio of 22%. This reflects a decrease in expenses, net of deferrals, primarily due to restructuring activities in 2024.

The balance sheet further reinforces Enact's financial strength. As of June 30, 2025, the company reported a PMIERs sufficiency of 165%, translating to $2.0 billion above requirements, providing substantial financial flexibility. Its third-party CRT program provides $1.9 billion of PMIERs capital credit. The investment portfolio, totaling $5.90 billion, is highly rated, with 99% classified as investment grade. Recent credit rating upgrades from Fitch (A to A in January 2025) and Moody's (A3 to A2 for EMICO, Baa3 to Baa2 for EHI in August 2025) further affirm Enact's robust financial health and disciplined risk management.

Capital Discipline and Shareholder Returns

Enact's approach to capital allocation is a cornerstone of its shareholder value creation strategy. The company prioritizes maintaining a strong balance sheet to support policyholders, investing in organic growth and operational efficiencies, funding attractive new business opportunities, and returning excess capital to shareholders. This balanced framework guides its capital deployment decisions.

In a clear demonstration of its financial strength and commitment to shareholders, Enact has increased its expected total capital returns for 2025 to approximately $400 million. This follows a strong 2024, where the company returned $354 million to shareholders through dividends and share repurchases. In Q2 2025, Enact returned $116 million to shareholders, including $31 million in quarterly dividends and $85 million in share repurchases. The company completed a $250 million share repurchase authorization in Q2 2025 and subsequently authorized a new $350 million program in April 2025, with $292.9 million remaining available as of June 30, 2025. These repurchases are executed opportunistically, considering share price, capital availability, and market conditions.

The company's strategic use of Credit Risk Transfer (CRT) transactions, including excess-of-loss reinsurance agreements for its 2025 and 2026 books, further optimizes its capital structure by providing cost-effective capital and volatility protection. While regulatory restrictions from North Carolina insurance laws govern dividend payments from its insurance subsidiaries, Enact's strong statutory capital position and PMIERs compliance provide ample capacity for distributions, with $64 million available from unassigned surplus as of June 30, 2025, with 30-day advance notice. The company's undrawn $200 million revolving credit facility also provides additional liquidity and financial flexibility.

Outlook: Prudent Optimism Amidst Uncertainty

Enact's management maintains a tone of prudent optimism regarding the future, balancing the ongoing macroeconomic uncertainties with the fundamental strengths of the U.S. housing market and the company's resilient business model. The company anticipates the overall mortgage insurance market size for 2025 to be generally similar to 2024 levels, which were around $300 billion. This outlook acknowledges the headwinds from elevated mortgage rates and sustained low housing supply that continue to pressure origination activity.

However, management remains optimistic about the long-term health of the U.S. housing market, citing strong demographic trends, particularly the pent-up demand from the first-time homebuyer population. The company expects its base premium rate in 2025 to stabilize around 2024 levels, reflecting its confidence in Rate360's ability to maintain attractive risk-adjusted pricing. Operating expenses for 2025 are guided to be in the range of $220 million to $225 million (excluding reorganization costs), demonstrating continued expense discipline while allowing for strategic investments in technology and growth initiatives. Elevated persistency rates are expected to continue, mitigating some of the impact from higher mortgage rates on new originations. Enact's strategic initiatives, including the continued growth of Enact Re in the GSE CRT market, are poised to contribute to long-term earnings diversification and capital efficiency.

Key Risks to Monitor

While Enact demonstrates significant strengths, investors should be mindful of several key risks. The macroeconomic environment remains volatile, with uncertainties stemming from changing economic policies, including new tariffs, and broader geopolitical tensions. These factors could materially impact U.S. housing markets and, consequently, Enact's business. Elevated inflation and persistently high mortgage rates continue to challenge housing affordability, potentially dampening mortgage origination activity.

Furthermore, the severity of losses on delinquent loans could be negatively impacted by extended forbearance and foreclosure timelines, as well as the higher loan amounts associated with more recent originations, although embedded home price appreciation offers a significant mitigant. The company's investment portfolio is exposed to market risks, including fluctuations in interest rates, changes in credit quality, and concentration risk. Newer book years (2022-2024) exhibit different credit characteristics, such as higher loan-to-value ratios and slightly lower FICO scores, and less embedded equity compared to older vintages, which could lead to different loss development patterns. While hurricane-related delinquencies have historically cured at high rates, significant storm activity could still impact performance. Finally, regulatory changes, such as the pending implementation details for FHFA's acceptance of VantageScore 4.0, introduce an element of uncertainty regarding their full impact on the business.

Conclusion

Enact Holdings, Inc. presents a compelling investment thesis rooted in its operational resilience, technological leadership, and disciplined capital management. The company's core mortgage insurance business, bolstered by the precision of its Rate360 underwriting engine, consistently delivers strong financial results and maintains a high-quality insured portfolio despite a challenging macroeconomic backdrop. Strategic diversification through Enact Re and a robust capital position, evidenced by strong PMIERs sufficiency and a commitment to substantial shareholder returns, underscore its financial fortitude.

While the U.S. housing market faces headwinds from elevated interest rates and affordability concerns, Enact's focus on prudent risk selection, effective loss mitigation, and efficient operations positions it to navigate these dynamics effectively. The company's ability to adapt to evolving market conditions, coupled with its long-term optimism for housing demand driven by demographic trends, suggests a pathway for continued value creation. For discerning investors, Enact represents a financially sound and strategically agile player in the specialty insurance sector, poised for sustained profitability and shareholder value growth.