Enact Holdings’ Q1 Results: Navigating Headwinds with Resilience

Enact Holdings (NASDAQ:ACT) delivered a first-quarter performance that balanced modest financial gains against industry-wide headwinds, revealing both strengths and vulnerabilities in its mortgage insurance business. With net income of $166 million and revenue of $306.8 million, the company met analyst expectations, but its results underscore the challenges of operating in a high-rate, low-origination housing market.

Financial Highlights: Steady, but Not Spectacular

Enact’s Q1 2025 GAAP net income rose 0.6% sequentially to $1.08 per diluted share, aligning with forecasts. Adjusted operating income held steady at $169 million, reflecting cost discipline—operating expenses dropped 9% to $53 million due to lower incentive compensation. Meanwhile, net investment income grew 11% year-over-year to $63 million, buoyed by higher interest rates and asset allocations.

However, the company’s core business faced headwinds:
- New Insurance Written (NIW) plummeted 26% sequentially to $10 billion, driven by seasonal slowdowns and a 7% year-over-year decline tied to reduced market share.
- The loss ratio rose to 12% from 10% in Q4 2024, as lower reserve releases ($47 million vs. $56 million) offset premium growth.

Operational Challenges: NIW Decline and Persistency Trade-offs

The 26% sequential drop in NIW is a critical concern. While Enact attributes this to “seasonal factors,” the 7% year-over-year decline signals deeper issues, including heightened competition and tepid mortgage origination volumes. The persistency rate improved to 84% from Q4’s 82%, but this metric—measuring policy retention—has fallen from 85% in Q1 2024.

CEO Rohit Gupta emphasized that the company’s “embedded home equity”—with 8% of mortgages at least 50 basis points above current rates—provides a buffer against defaults. Still, the reliance on existing policies over new business highlights a shift in strategy.

Capital Allocation: Prioritizing Returns Over Growth

Enact’s focus on shareholder returns remains its strongest suit. The company:
- Raised its dividend by 14% to $0.21 per share, marking the fourth increase in the last two years.
- Repurchased 2.6 million shares (including post-Q1 buys) at an average price of $33.38, with a new $350 million buyback authorization announced.

These moves, combined with a 165% PMIERs sufficiency ratio (exceeding regulatory requirements by $2.0 billion), signal confidence in its balance sheet. Book value per share rose 3% sequentially to $33.96, a key metric for investors.

Analysts’ Take: Caution Amid Resilience

The stock rose 3.4% premarket to $36.99, nearing its 52-week high, as investors cheered capital returns and cost control. However, analysts remain divided:
- Bulls cite Enact’s “point of strength” in liquidity ($648 million in cash and investments) and Fitch’s recent ratings upgrade (A for EMICO’s insurer strength, BBB for senior debt).
- Bears worry about NIW’s sustainability and the 12% loss ratio, which could pressure margins if reserve releases continue to shrink.

The Bottom Line: A Buy with Caveats

Enact’s Q1 results are a mixed bag. While its capital returns and balance sheet strength make it a compelling defensive play, its mortgage insurance business faces structural challenges in a high-rate environment. The $350 million buyback program and dividend hikes offer near-term upside, but NIW’s decline and the loss ratio’s rise are red flags.

Investors should monitor:
1. Q2 2025 EPS guidance of $1.09, which must hold to avoid triggering concerns.
2. NIW recovery trends, given the 7% year-over-year drop.
3. Loss ratio stability, as reserve releases normalize.

With shares trading at a P/E of 7.7—below its five-year average of 9.2—and a ROE of 13.1%, Enact looks attractively priced. However, the path to growth hinges on stabilizing its core business. For now, the stock is a Hold with upside potential, pending clearer signs of a housing market rebound.

Final Verdict: Enact’s financial resilience and shareholder-friendly policies make it a survivor in tough times, but its long-term prospects depend on navigating the housing cycle’s next turn.