Yahoo Finance Enact Holdings Inc (ACT) (Q1 2024) Earnings Call Transcript Highlights: Strong Start with ...
Net Income: $161 million
Earnings Per Share (EPS): $1.01 per diluted share
Return on Equity: 14%
Insurance in Force: Increased 4% year-over-year to $264 billion
New Insurance Written: $11 billion
Persistency Rate: 85%
Delinquency Rate: 2%
Reserve Releases: $54 million due to favorable credit performance
Capital Returned to Shareholders: $75 million, including increased share repurchases and a 16% dividend increase to $0.185 per share
PMIERs Sufficiency: 163% or $1.9 billion above requirements
Net Premiums Earned: $241 million, up 2% year-over-year
Investment Income: $57 million, up 26% year-over-year
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Enact Holdings Inc reported a strong start to 2024 with a net income of $161 million, or $1.01 per diluted share, and a solid return on equity of 14%.
Insurance in force increased by 4% year-over-year to a record $264 billion, driven by high persistency and new insurance written.
The company demonstrated strong credit performance with a delinquency rate of 2%, down 9 basis points sequentially, and consistent with expectations.
Enact Holdings Inc returned $75 million of capital to shareholders in the first quarter through dividends and share repurchases, reflecting strong financial health and confidence in future performance.
The company's PMIERs sufficiency stood at 163%, indicating a robust capital position and financial flexibility.
Negative Points
New insurance written in the first quarter was down $3 billion year-over-year, a 20% decrease primarily due to a lower estimated market size and market share.
Persistency slightly decreased by 1 percentage point sequentially, potentially indicating challenges in maintaining customer retention.
The company faces ongoing macroeconomic uncertainties, including higher interest rates and geopolitical conflicts, which could impact future performance.
Operating expenses, although reduced from the previous quarter, are expected to increase in the second half of the year, potentially impacting profitability.
Despite strong overall performance, the company noted that higher borrowing costs have slowed origination volumes, which could affect future growth.
Q & A Highlights
Q: Can you provide an update on how you see the total market for New Insurance Written (NIW) progressing as the year unfolds, especially with the recent increase in rates? A: (Rohit Gupta, President and CEO) - Given the volatility in rates, it's challenging to forecast originations narrowly. Our expectation is that the MI market size will be generally in line with 2023, comparable to 2018 levels. Despite rate volatility, consumer demand remains strong, particularly among first-time homebuyers. The main challenge is the lack of inventory and recent rate volatility. Our persistency provides a natural hedge in our business as higher rates benefit the retention of our existing portfolio.
Q: What are you observing about affordability for new purchases in the context of higher rates? A: (Rohit Gupta, President and CEO) - Consumers entering the market are now accustomed to 6% to 7% mortgage rates and are getting qualified at these levels. Our granular risk-based pricing allows us to align loan pricing with our risk and return views. The current market dynamics reflect a typical purchase market with loan-to-value ratios and debt-to-income ratios at levels seen in previous purchase markets.
Q: Can you discuss the prevalence of interest rate buydowns in the market and your approach to underwriting these? A: (Rohit Gupta, President and CEO) - Interest rate buydowns remain a strong product, particularly temporary ones where rates are reduced for one to two years by the lender. Consumers are qualified at the full rate, not the teaser rate, ensuring they are well-prepared for future rate adjustments. Builder-originated buydowns are also consistent, where rates are reduced for the life of the mortgage.
Q: Could you provide insights into the embedded equity in your delinquent inventory? A: (Rohit Gupta, President and CEO) - As of the end of Q1, 94% of delinquent policies had mark-to-market equity greater than 10%, and 81% had more than 20% equity, based on end-of-2023 home prices. This high level of equity is a positive indicator for the potential recovery on these delinquent loans.
Q: Your default-to-claim rate at 10% is above peers. What would need to change for you to adjust this rate? A: (Dean Mitchell, EVP and CFO) - The 10% claim rate on new delinquencies reflects heightened macroeconomic uncertainty. Adjustments to this rate would depend on a material decrease in economic pressures or increased reliance on recent strong performance data.
Q: How does the growth or change in portfolio size impact your capital return decisions? A: (Rohit Gupta, President and CEO) - Portfolio growth is a significant factor in our capital return strategy. Our guidance for MI market size remains stable, and we focus on writing a well-priced and well-mixed portfolio. Our strategy prioritizes the right price for the right risk and managing our layered risk concentration effectively.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
