Enact Holdings, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed February 28, 2023. This is an annual report, not a standalone fourth-quarter filing. Enact is a U.S. private mortgage insurer whose coverage primarily protects lenders against losses on low-down-payment residential mortgages.
Financial and operating results
- Revenue: $1.095 billion, down 2% from $1.118 billion in 2021. Premiums were $939.5 million, down 4%; net investment income rose 10% to $155.3 million.
- Profit: Net income was $704.2 million, up 29% from $546.7 million; diluted EPS was $4.31 versus $3.36. Adjusted operating income, a non-GAAP measure, increased to $708.5 million from $550.5 million.
- Losses and margins: Incurred losses were a benefit of $94.2 million, versus $125.5 million of losses in 2021. The loss ratio was negative 10%, compared with 13%; the expense ratio remained 25%. Results benefited substantially from a $314 million reserve release, primarily reflecting better-than-expected cures on 2020–2021 COVID-related delinquencies. The company also strengthened reserves by $46 million on prior-quarter delinquencies as it raised expected claim rates amid economic uncertainty.
- Cash flow and liquidity: Operating cash flow was $560.5 million, versus $572.1 million. Cash and cash equivalents were $513.8 million at year-end, and investments had a fair value of $4.888 billion. Investing cash outflow was $220.3 million and financing cash outflow was $252.3 million.
- Debt: $750 million principal amount of 6.5% senior notes mature August 2025; carrying value was $742.8 million. A $200 million five-year revolving facility was undrawn at year-end.
- Capital and portfolio: PMIERs sufficiency was 165%, or $2.050 billion above published requirements; approximately 89% of risk-in-force was covered by credit-risk-transfer arrangements. The combined statutory risk-to-capital ratio was 12.8:1. Primary insurance-in-force grew 10% to $248.3 billion, while risk-in-force rose to $62.8 billion. Delinquency rate fell to 2.08% from 2.65%.
Changes versus 2021
- New insurance written fell 31% to $66.5 billion, mainly as higher mortgage rates reduced refinance and purchase originations. Purchase loans made up 96% of 2022 NIW, compared with 79% in 2021.
- Primary persistency rose to 80% from 62%, supporting growth in insurance-in-force but slowing single-premium cancellations and related premium recognition.
- New delinquencies increased to 35,996 from 32,624, but total delinquent loans declined to 19,943 from 24,820 as cures outpaced new defaults.
- Net investment income increased with higher yields and average invested assets. Rising rates also drove a $466.3 million after-tax OCI loss, moving accumulated other comprehensive income from positive $83.6 million to negative $382.7 million; management attributed unrealized securities losses largely to rates and market volatility, and said it intended and was able to hold securities to recovery or maturity.
Outlook, commentary and notable items
- Management described the market as uncertain amid elevated inflation and interest rates, reduced housing affordability, and home-price declines in the second half of 2022. It expected elevated rates to keep refinancing subdued into 2023; the ultimate effect on NIW and premiums was uncertain. No quantified earnings or revenue guidance is provided.
- At year-end, about 1.5% of active primary policies were reported in forbearance; 36% of those were delinquent. Management cited cure performance above expectations but emphasized uncertainty over future claims, severity, and foreclosure timing.
- The GSE capital restrictions required 120% PMIERs assets through 2022 and 125% thereafter until specified conditions are met. Enact had achieved the required ratings for two consecutive quarters; Genworth believed it had met its financial metrics for the second half of 2022. The filing says restrictions would end only after GSE confirmation.
- Enact began quarterly dividends of $0.14 per share in 2022 and paid a special $1.12-per-share dividend, totaling approximately $183 million. It authorized up to $75 million in share repurchases; $73.5 million remained at year-end. Future capital returns remain subject to board, parent, regulatory, and debt-related approvals.
- Material risks include recession or falling home prices, reserve-estimation uncertainty, dependence on GSE eligibility and PMIERs, competition and alternatives to private mortgage insurance, availability and cost of reinsurance, interest-rate effects on originations and investment values, and restrictions on upstreaming insurance-subsidiary capital. The filing reports no pending material legal proceedings. KPMG issued unqualified financial-statement and internal-control opinions; loss reserves were identified as a critical audit matter.
Important facts for investors to verify
- Whether the GSEs confirmed that Enact and Genworth met the conditions to lift the additional capital restrictions, and the resulting requirements for capital, liquidity, and dividends.
- How much of 2022 earnings depended on reserve releases, and whether subsequent cure, claim, and severity experience supports the $519 million year-end loss reserve estimate.
- Whether elevated rates, weaker affordability, and home-price declines materially change NIW, persistency, premium revenue, and portfolio risk in 2023.
- Whether investment-portfolio unrealized losses remain manageable without forced sales, and how investment yields and credit quality evolve.
- The company’s capacity to service the 2025 notes and sustain dividends or repurchases given subsidiary dividend limits, Genworth’s continued ownership and influence, and applicable GSE and lender covenants.