Enact Holdings, Inc. Common Stock 2026 Q2 Earnings Call

Good morning. Welcome to our second 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 discuss the details of our quarterly results before turning the call back to Rohit for closing remarks. We will take your questions. The earnings materials we issued after market close 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.

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 SEC, which will be available on our website. Please keep in mind the earnings materials and management's prepared remarks today includes 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. I'll turn the call over to Rohit.

Thank you, Dani. Good morning, everyone. Before discussing our second quarter results, I would like to begin by saying that our thoughts are with Tom McInerney, who's a valued member of our board and strong supporter of Enact. We wish Tom a full and speedy recovery. I also want to express my support for Jerome Upton as he steps into the role of Interim President and CEO of Genworth. Jerome has been an important member of Genworth's leadership team as well as Enact's board of directors for many years, and I'm confident he will provide thoughtful and steady leadership during this time. I look forward to our continued partnership. Turning to our results, Enact closed the first half of 2026 with another strong quarter, reflecting the disciplined execution of our strategy, resilient credit performance, and our continued focus on long-term sustainable value creation.

As a result of our strong performance, we are updating our 2026 capital return expectations to between $550 million and $600 million, up from our prior guidance of $500 million. I will discuss this in more detail shortly. For the second quarter, we reported adjusted operating income of $177 million or $1.26 per diluted share. Adjusted return on equity was 13%, and we generated strong new insurance written of $15 billion, resulting in total insurance in force of $274 billion. The macro and housing environment remained dynamic as elevated interest rates, geopolitical developments, and policy uncertainty continued to contribute to market volatility. At the same time, the U.S. economy was resilient, supported by a healthy labor market and generally stable household balance sheets.

Within housing, underlying demand fundamentals are strong, and while higher mortgage rates continue to temper overall transaction volumes, purchase application activity benefited from the spring selling season. From a credit perspective, our portfolio is performing well with recent books performing in line with our expectations. Persistence fee remained elevated at 80% during the quarter. This is supported by the rate environment with approximately 57% of loans in our portfolio carrying mortgage rates below 6%. Looking ahead, we continue to believe the long-term fundamentals supporting the housing market remain intact, and we are confident that private mortgage insurance will continue to play a critical role in responsibly expanding access to sustainable homeownership while creating attractive opportunities for Enact. Our insurance in-force portfolio remains resilient with a risk-weighted average credit score of 746 and a risk-weighted average loan-to-value ratio of 93%.

Layered risk was 1.1% of risk in force. Pricing remained constructive in the quarter while our participation was strong and our dynamic risk-adjusted pricing engine is enabling us to prudently target the right risk at the right price on a granular level as market conditions evolve. As we continue to leverage technology to enable better risk selection and improve operational efficiency, we are pleased to announce that in addition to our pricing engine, we recently launched our Enact Loan Level Assistant or ELLA. This new tool is our internal underwriting innovation that applies generative AI to help underwriters make smarter underwriting decisions. By reviewing loan documents, identifying inconsistencies, and surfacing relevant insights more efficiently, ELLA reduces repetitive tasks, improves risk selection and allows our underwriters to spend more time applying their expertise to making underwriting decisions.

While it is still early in its launch, adoption has grown rapidly, and we believe ELLA will create a strong foundation for future efficiency improvements. Turning to losses, new delinquencies were down 9% and cures were down 9% sequentially, consistent with seasonal trends, and total delinquencies declined 1%. Our strong cure performance was driven by favorable credit trends and effective loss mitigation efforts. This drove a reserve release of $37 million in the quarter, resulting in a loss ratio of 14%. Credit performance remains strong, and we are well reserved across a range of scenarios. We delivered another quarter of prudent expense management, with operating expenses down year-over-year despite the inflationary environment. Dean will discuss the key drivers of this strong performance and our improved expectations for 2026.

We continue to execute against our capital allocation priority, maintaining a strong and resilient balance sheet to support existing policyholders, investing to drive organic growth and operating efficiencies, funding attractive new business opportunities such as Enact Re, and returning excess capital to shareholders. At the end of the quarter, our TMARS efficiency ratio was 161%, providing significant financial flexibility, and our credit and investment portfolios were in excellent shape. Our strong capital position is further reinforced by our CRT program and the backing of our undrawn credits facility. We also continue to execute on our growth and diversification strategy. Enact Re delivered another quarter of strong performance, generating attractive risk-adjusted returns while remaining both capital and expense efficient. Finally, our strong performance supports continued robust returns to shareholders. During the quarter, we returned $127 million through share repurchases and dividends.

As I mentioned, we have now increased our capital return expectations to between $550 million to $600 million for 2026. This upward revision reflects our commitment to returning excess capital to shareholders while maintaining a strong balance sheet. I'd now like to take a moment to recognize our culture and our people. For the fourth time since our IPO, Enact was recognized as one of the best places to work by the Triangle Business Journal. We have always taken pride in fostering an environment where teams can do their best work for our customers and stakeholders, and are pleased to have received this recognition again. Turning to recent housing policy announcements, as I mentioned last quarter, Enact supports the FHFA and GSE's ongoing efforts to modernize credit evaluation in ways that responsibly expand access to sustainable homeownership.

During the quarter, we began participating in the market's limited rollout of VantageScore 4, although its financial impact during the quarter was immaterial. We remain committed to supporting our customers and staying operationally aligned as initiatives are implemented and scaled in the market. Overall, we had a great first half of 2026 that positions Enact for long-term success. With that, I will now hand the call over to Dean.

Thanks, Rohit, and good morning, everyone. We delivered another strong quarter of performance. Adjusted operating income was $177 million or $1.26 per diluted share, compared to $1.15 per diluted share in the same period last year, and $1.21 per diluted share in the first quarter of 2026. Adjusted operating return on equity was 13.2%. A detailed reconciliation of net income to adjusted operating income can be found in our earnings release. Turning to revenue drivers, new insurance written was $15 billion in the quarter, up 19% sequentially and up 15% year-over-year, as rates remained elevated and seasonal dynamics played out across the period. Persistency was 80% in the quarter, flat sequentially and down two points year-over-year on lower prevailing mortgage rates.

While rates increased over the quarter, our portfolio remains resilient, with 12% of our mortgages in our portfolio having rates at least 50 basis points above June's average of 6.5%. At the same time, 57% of loans in our portfolio carry rates below 6%. Primary insurance in force was $274 billion in the quarter, up $1 billion or approximately 1% from the first quarter of 2026, and up $4 billion or approximately 2% year-over-year. Total net premiums earned were $245 million, up $2 million sequentially and flat year-over-year. The sequential increase is primarily driven by premium growth from attractive adjacencies and growth in primary insurance in force. Our base premium rate of 39.1 basis points was down 0.3 basis points sequentially.

As a reminder, our base premium rate is impacted by several factors, including macro factors driving refinancing activity and tends to modestly fluctuate from quarter to quarter. Our net earned premium rate was 34.1 basis points, down 0.2 basis points sequentially and aligned with the decrease in base premium rate. Investment income in the second quarter was $73 million, up $2 million or 3% sequentially, and up $7 million or 11% year-over-year. Our new money investment yield was over 5% and contributed to an increase in the average portfolio book yield to 4.6% 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 recoup realized losses through future higher net investment income. Turning to credit, we continue to see strong loss performance across our portfolio.