Enact's Q3 2025 Earnings Call Reveal Contradictions on Delinquency Trends, Capital Returns, and AI Investments

Date of Call: November 6, 2025

Financials Results

• EPS: $1.12 per diluted share (adjusted operating income per diluted share), compared to $1.16 in Q3 2024 and $1.15 in Q2 2025

Guidance:

• 2025 total capital returns expected to be approximately $500 million (up from prior guidance of $400M).
• 2025 operating expenses (excluding reorganization costs) forecasted at approximately $219 million (down from prior range $220–225M).
• Dividend declared: $0.21 per common share payable December 11; share repurchases continuing (Q3 repurchases $105M; additional $42M through Oct 31).
• Capital returns remain contingent on business performance, market conditions and regulatory approvals.

Business Commentary:

* Strong Financial Performance: - Enact Holdings, Inc. reported an adjusted operating income of $166 million, or $1.12 per diluted share, for the third quarter of 2025.

- The company's adjusted return on equity was 13%. Insurance in-force increased by 2% year-over-year to $272 billion, and the company generated robust new insurance written of over $14 billion. - This performance was driven by disciplined execution of their strategy, a strong operating model, and healthy macroeconomic conditions supporting consumer spending and housing affordability. * Increased Capital Return Guidance: - Enact announced an updated 2025 capital return expectation of approximately $500 million, up from the previous guidance of $400 million. - The increase reflects the company's strong business performance and current mortgage origination levels, demonstrating confidence in its financial position and growth prospects. * Credit and Financial Stability: - Enact's PMIERs sufficiency ratio was 162%, providing significant financial flexibility. - The company's insurance in-force portfolio maintained a risk-weighted average FICO score of 746, with a risk-weighted average loan-to-value ratio of 93% and layered risk at 1.2% of risk in-force. - This stability is attributed to prudent underwriting standards, favorable macroeconomic conditions, and utility of their Rate360 pricing engine. * Reinsurance and CRT Program: - Enact entered a new $435 million revolving credit facility with favorable terms, enhancing its financial flexibility. - The company executed on its CRT program, entering a new quota share agreement that will cover new insurance written in 2027 and securing approximately $170 million in forward excess-of-loss reinsurance coverage. - These measures reflect the company's commitment to disciplined risk management and securing favorable market terms for its insurance business.

Sentiment Analysis:

Overall Tone: Positive

• Management called it "another strong quarter," raised 2025 capital return expectation to approximately $500 million, reported PMIERs sufficiency of 162% and noted Moody's upgrades — all signaling confidence in performance and capital strength.

Q&A:

• Question from Bose George (Keefe, Bruyette, & Woods, Inc., Research Division): I first wanted to just ask about the expectation for delinquency trends. Can you talk about where you think delinquencies will peak on portfolios as they're fully seasoned? Can we look at books that are closer to being fully seasoned like maybe 2021 or as a way to gauge where the newer books will season?
  Response: Credit performance remains very strong and aligned with expectations; delinquency outcomes will depend on the macro, but current trends match company loss-development assumptions.

• Question from Bose George (Keefe, Bruyette, & Woods, Inc., Research Division): Okay. Great. And is the typical seasoning sort of 4 years, 5 years? Is that when they're fully seasoned?
  Response: Seasoning typically plateaus between years 3 and 4 (with another ~12 months thereafter), explaining the slower year-over-year increase in new delinquencies.

• Question from Bose George (Keefe, Bruyette, & Woods, Inc., Research Division): Okay, great. And then just actually one clarification on the expense. The year-over-year increase, obviously, is very modest, but just in terms of the quarterly trends, the last couple of quarters, I guess, were a little lighter than '24. So this year, I guess, is the 4Q just a little more back-end heavy versus the other quarters?
  Response: Yes — expenses are seasonally back-end loaded due to higher variable, performance-based incentive compensation in the second half, particularly Q4.

• Question from Richard Shane (JPMorgan Chase & Co, Research Division): One, you've provided favorable guidance on expenses. One of the questions that I think everybody is wrestling with is how technology, particularly AI is transforming different businesses. Can you talk a little bit about what's driving your favorable expense guidance, but also longer term, how you see AI transforming your business?
  Response: Expense discipline plus targeted technology investments (Rate360, ML/AI) drive efficiency and more granular, risk‑adjusted pricing; AI is used for efficiency and smarter underwriting/pricing decisions.

• Question from Richard Shane (JPMorgan Chase & Co, Research Division): You've increased your return of capital allocation for the year 25%. Is it just that you guys as you move through the year and gather more information, feel more confident in terms of setting your capital return expectations? What drives a 25% increase in capital return outlook?
  Response: The increase to ~$500M reflects favorable year‑to‑date business performance and current mortgage origination levels, which together narrowed the uncertainty and increased confidence in returning more capital.

• Question from Richard Shane (JPMorgan Chase & Co, Research Division): So if I were to summarize that, year has manifested potentially better than your conservative expectations, but this is really about the confidence interval on that performance narrowing to the higher end as we sort of move into fourth quarter?
  Response: Management reiterated they operate with cautious assumptions; as actual performance builds confidence through the year they update capital actions accordingly.

Contradiction Point 1

Delinquency Trends and Seasoning

It directly impacts expectations regarding the progression of delinquency trends as mortgage portfolios season, which could influence risk assessments, loan servicing strategies, and investor expectations.

What is the typical seasoning period—4 or 5 years? When are they considered fully seasoned? - Bose George

2025Q3: Delinquency development follows a normal loss development curve, plateauing at around years 3 to 4. - Hardin Mitchell(CFO)

Can you discuss the seasoning of recent origination vintages and how regional home price weakness might impact newer vintages? - Doug Harter

2025Q2: We don't see a high correlation between slight home price declines in certain geographies and consumers defaulting on their mortgages. - Rohit Gupta(CEO)

Contradiction Point 2

Capital Return Expectations

It involves changes in financial forecasts, specifically regarding capital return expectations, which are critical indicators for investors and shareholders.

How should we interpret the 25% increase in capital return allocation and its steady rise throughout the year? - Richard Shane

2025Q3: The 25% increase in capital return guidance reflects both favorable business performance year-to-date and the current level of mortgage originations. - Hardin Mitchell(CFO)

Has the outlook on housing credit changed, and what about delinquency? - Mihir Bhatia

2025Q2: We don't expect any meaningful change in our capital return outlook. - Rohit Gupta(CEO)

Contradiction Point 3

Credit Performance and Delinquency Trends

It involves differing assessments of credit performance and delinquency trends, which are crucial for understanding the financial health of the company and its mortgage portfolio.

What is the typical seasoning period—4 or 5 years? When are they considered fully seasoned? - Bose George

2025Q3: We typically have higher variable performance-based incentive comp over the last half of the year, which will be more meaningful this year. - Hardin Mitchell(CFO)

How do current insurance book characteristics affect portfolio performance? - Richard Shane

2025Q1: As the portfolio ages, new delinquency increases slow, aligning with seasoning and macroeconomic factors. Vintage performance aligns with expectations, considering purchase-market characteristics and home price assumptions. - Rohit Gupta(CEO)

Contradiction Point 4

AI and Technology Investment

It involves the company's stance on AI and technology investment, which are key strategic areas for operational efficiency and decision-making.

What is driving the favorable expense guidance, and how do you see AI transforming your business in the long term? - Richard Shane

2025Q3: We've been prudent in expense management since our IPO, reducing expenses despite inflationary pressures. We continuously invest in technology for efficiency and smarter decisions, including enhancements to our Rate360 pricing engine and improvements in customer experience. We also invest in AI for both efficiency and making more granular decisions, which will continue to be a focus. - Rohit Gupta(CEO)

How is the industry responding to macroeconomic uncertainties impacting underwriting and pricing? How has Enact addressed these uncertainties? - Mihir Bhatia

2025Q1: Given market uncertainties, pricing is being adjusted constructively. Our Rate360 capabilities help us align pricing with current uncertainties. The industry is just wrapping up April, and market data is not yet available. Enact is strengthening its pricing posture in response to market uncertainty. - Rohit Gupta(CEO)

Contradiction Point 5

Capital Return Guidance

It involves changes in capital return guidance, which is a critical indicator for investor expectations regarding the company's financial outlook and shareholder value distribution.

Has your capital return increased by 25% this year and has steadily risen throughout the year? - Richard Shane

2025Q3: The 25% increase in capital return guidance reflects both favorable business performance year-to-date and the current level of mortgage originations. - Hardin Mitchell(CFO)

Can you clarify the capital return guidance for this year and the potential for higher returns if the market remains elevated? - Bose George

2024Q4: Enact's capital return guidance for 2025 aligns with the previous year at $350 million. - Hardin Mitchell(CFO)