Enact (ACT) 7 Nov 24 2024 Q3 Earnings call transcript

In the third quarter of 2024, Enact delivered another set of robust financial results, reflecting its solid execution against strategic priorities and favorable market dynamics. The company reported an adjusted operating income of $182 million, up 11% year-over-year, and an adjusted EPS of $1.16. These figures underscore Enact's financial health and growth prospects, underscoring its resilience in a dynamic economic environment.

Market Dynamics and Credit Performance

The U.S. economy remains strong, with a healthy consumer and labor market. Despite potential macroeconomic risks, the company's credit and manufacturing quality continue to be strong, contributing to high-quality NIW and a considerable embedded equity portfolio. Enact's credit portfolio remains strong, with a risk-weighted average FICO score of 745 and a loan-to-value ratio of 93%. The company's pricing remains constructive, with a commitment to prudent underwriting standards and a risk-adjusted basis.

New delinquencies rose in the quarter, primarily driven by seasonality and aging of newer books. However, cure performance remained robust, with cures remaining elevated above pre-pandemic levels. The company released reserves of $65 million due to favorable credit performance and proactive loss mitigation efforts, indicating a strong credit performance in line with expectations.

Strategic Initiatives and Expansion

Enact's strategic initiatives to expand its addressable market in compelling adjacencies are gaining momentum. The launch of Enact Re, the company's entry into the GSE credit risk transfer market, has been successful, maintaining strong underwriting standards and an attractive return profile. Enact Re's performance and recent S&P's assignment of an A-rating and a stable outlook are testament to its successful launch and potential for future growth.

Enact remains committed to returning capital to shareholders, having returned $100 million through share buybacks and dividends, positioning itself to be in the upper half of its $300 million to $350 million guidance range for 2024. The company's disciplined and strategic approach to capital allocation, balancing liquidity, balance sheet strength, and investment and capital return to shareholders, is a notable strength.

Challenges and Competitive Landscape

The company faces challenges, including the impact of hurricanes on its delinquency rates and potential regulatory changes under the new administration. However, Enact's track record of navigating well under both administrations and its strong relationships on the regulatory and legislative side offer a measure of reassurance.

In the competitive landscape, Enact remains focused on maintaining its position through constructive pricing and prudent underwriting, while exploring strategic opportunities to deepen existing relationships and expand its platform.

Looking Ahead

Enact's third-quarter performance and strategic initiatives position it well for continued growth and value creation in the future. The company's strong financial health, strategic investments in technology, and commitment to customer experience and operational efficiencies are key drivers of its competitive edge. As Enact looks ahead, it remains dedicated to delivering exceptional value for all stakeholders, including homebuyers, taxpayers, and shareholders.