Enact Reports First Quarter 2022 Results
First quarter GAAP Net Income of
First quarter Adjusted Net Operating Income of
First quarter return on equity of 16.2% and adjusted operating return on equity of 16.2%
PMIERs Sufficiency of 176% or
Book value per share of
"We had an excellent first quarter and a very strong start to our first full year as a public company,” said
Key Financial Highlights
(In millions, except per share data or otherwise noted) | 1Q22 | 4Q21 | 1Q21 |
Net Income (loss) | |||
Diluted Net Income (loss) per share | |||
Adjusted Operating Income (loss) | |||
Adj. Diluted Operating Income (loss) per share | |||
NIW ($B) | |||
Primary IIF ($B) | |||
Persistency | 76% | 69% | 56% |
Net Premiums Earned | |||
Losses Incurred | |||
Loss Ratio | (4)% | 3% | 22% |
Operating Expenses | |||
Expense Ratio | 24% | 25% | 24% |
Net Investment Income | |||
Return on Equity | 16.2% | 14.8% | 12.8% |
Adjusted Operating Return on Equity | 16.2% | 14.8% | 12.9% |
PMIERs Sufficiency ($) | |||
PMIERs Sufficiency (%) | 176% | 165% | 159% |
First Quarter 2022 Financial and Operating Highlights
- Net income for the first quarter of 2022 was
$165 million , or$1.01 per diluted share, compared with$125 million , or$0.77 per diluted share, for the first quarter of 2021 and$154 million , or$0.94 per diluted share, for the fourth quarter of 2021. The sequential improvement in net income was primarily driven by lower losses from favorable reserve development, partially offset by lower premiums. The increase in net income from the first quarter of 2021 was primarily driven by lower losses from favorable reserve development in the current quarter, lower new delinquencies in the current quarter and unfavorable reserve development in the first quarter of 2021, offset partially by lower premiums in the current quarter. - Adjusted net operating income for the first quarter of 2022 was
$165 million , or$1.01 per diluted share, compared with$126 million , or$0.77 per diluted share, for the first quarter of 2021 and$154 million , or$0.94 per diluted share, for the fourth quarter of 2021. - New insurance written (NIW) was
$19 billion , down 25% compared to$25 billion in the first quarter of 2021, driven by lower estimated originations and down 12% compared to$21 billion in the fourth quarter of 2021 driven by seasonally lower purchase originations. Our new insurance written for the first quarter was comprised of 91% monthly premium policies and 92% purchase originations. - Primary Insurance-In-Force was
$232 billion , up 10% compared to$210 billion in the first quarter of 2021 and up 2% compared to$227 billion in the fourth quarter of 2021. - Persistency for the first quarter of 2022 was 76%, up from 56% in the first quarter of 2021 and 69% in the fourth quarter of 2021. The continued increase in persistency towards historical norms was primarily driven by an increase in mortgage rates and an ongoing decline in the percentage of our in-force policies with mortgage rates above current rates.
- Net premiums earned were
$234 million , down 7% compared to$253 million in the first quarter of 2021 and down 1% compared to$237 million in the fourth quarter of 2021. Net earned premium yield was down from the first quarter of 2021 and the fourth quarter of 2021, driven by the lapse of older, higher-priced policies as compared to our new insurance written and lower single premium cancellations. The decrease in net earned premium yield versus the first quarter of 2021 was also driven by higher ceded premiums in the current quarter. - Losses incurred for the first quarter of 2022 were
$(10) million and the loss ratio was (4)%, compared to$55 million and 22%, respectively, in the first quarter of 2021, driven by favorable reserve development in the current quarter of$50 million and lower new delinquencies. Current quarter losses incurred and the loss ratio also compared favorably to results of the fourth quarter 2021 of$6 million and 3%, respectively, driven by favorable reserve development of$50 million partially offset by higher new delinquencies from recent large books that are aging and going through their normal loss development pattern. - Percentage of loans in default at quarter end was 2.40%, compared to 4.48% as of
March 31, 2021 , and 2.65% as ofDecember 31, 2021 , as cures continued to outpace new delinquencies. - Operating expenses in the current quarter were
$57 million and the expense ratio was 24%, compared to$61 million and 24%, respectively, in the first quarter of 2021, driven by lower allocations from our Parent partially offset by incremental expenses associated with standing-up certain public company activities. Operating expenses and the expense ratio were$59 million and 25%, respectively, in the fourth quarter of 2021. Operating expenses in the fourth quarter of 2021 included$1 million of strategic transaction preparation costs and restructuring costs. - Net investment income for the first quarter of 2022 was
$35 million , flat sequentially and as compared to first quarter of 2021. - Annualized return on equity for the first quarter of 2022 was 16.2%, and annualized adjusted operating return on equity was 16.2%. Current-quarter results compare favorably to both the first quarter 2021 results of 12.8% and 12.9% and the fourth quarter 2021 results of 14.8% and 14.8%, respectively. Sequential improvements in both return on equity and adjusted operating return on equity were driven, in part, by lower losses in the current quarter, the execution of a
$200 million special cash dividend in the fourth quarter of 2021 and the change in unrealized gains / losses in our asset portfolio.
Capital and Liquidity
- We executed two excess-of-loss reinsurance transactions with a panel of reinsurers. The first transaction provides up to
$294 million of loss coverage on a portion of current and expected new insurance written for the 2022 book year. The second provides$325 million of loss coverage on a portfolio of existing mortgage insurance policies written fromJuly 1, 2021 throughDecember 31, 2021 . - PMIERs sufficiency was 176% and
$2,261 million above the published PMIERs requirements compared to 159% and$1,764 million above the published PMIERs requirements in the first quarter of 2021. The sequential increase in PMIERs sufficiency was driven by our execution of two reinsurance transactions, business cash flows and lower delinquencies, partially offset by NIW and the amortization of existing reinsurance transactions. - PMIERs sufficiency benefited from a 0.30 multiplier applied to the risk-based required asset factor for certain non-performing loans, which resulted in a reduction of the published PMIERs required assets by an estimated
$272 million at the end of the current quarter, compared to$1,012 million at the end of the first quarter 2021 and$390 million at the end of the fourth quarter 2021. These amounts are gross of incremental reinsurance benefits from the elimination of the 0.30 multiplier. Enact Holdings, Inc. held$243 million of cash as ofMarch 31, 2022 , a decrease of$21 million from the prior quarter, primarily due to the semi-annual interest payment on our 2020 debt issuance.
Recent Events
- In April, we announced that our Board of Directors has approved the initiation of a dividend program under which the Company intends to pay a quarterly cash dividend. The inaugural quarterly dividend for the second quarter of 2022 will be
$0.14 per share, payable onMay 26, 2022 to common shareholders of record onMay 9, 2022 . Future dividend payments are subject to quarterly review and approval by our Board of Directors and our Parent and will be targeted to be paid in the third month of each subsequent quarter. Our primary mortgage insurance operating company,Enact Mortgage Insurance Corporation (“EMICO”), completed a distribution toEnact Holdings Inc. (“EHI”). We intend to use these proceeds and future EMICO distributions to fund the quarterly dividend as well as to bolster our financial flexibility at EHI and return additional capital to shareholders.
Conference Call and Financial Supplement Information
This press release, the first quarter 2022 financial supplement and earnings presentation are now posted on the Company’s website, https://ir.enactmi.com. Investors are encouraged to review these materials.
Enact will discuss first quarter financial results in a conference call tomorrow,
A digital replay of the webcast will be available on the Enact website following the live broadcast for a period of one year at https://ir.enactmi.com/news-and-events/events.
In addition to the information provided in the company's earnings news release, other statistical and financial information, which is expected to be referred to during the conference call, is available on Enact’s website at https://ir.enactmi.com.
About Enact
Enact (Nasdaq: ACT), operating principally through its wholly-owned subsidiary
Safe Harbor Statement
This communication contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements may address, among other things, our expected financial and operational results, the related assumptions underlying our expected results, and the quotations of management. These forward-looking statements are distinguished by use of words such as “will,” “may,” “would,” “anticipate,” “expect,” “believe,” “designed,” “plan,” “predict,” “project,” “target,” “could,” “should,” or “intend,” the negative of these terms, and similar references to future periods. These views involve risks and uncertainties that are difficult to predict and, accordingly, our actual results may differ materially from the results discussed in our forward-looking statements. Our forward-looking statements contained herein speak only as of the date of this press release. Factors or events that we cannot predict, including uncertainty around Covid-19 and the effects of government and other measures seeking to contain its spread; supply chain constraints; inflation; risks related to an economic downturn or recession in
GAAP/Non-GAAP Disclosure Discussion
This communication includes the non-GAAP financial measures entitled “adjusted operating income (loss)”, “adjusted operating income (loss) per share", and “adjusted operating return on equity." Adjusted operating income (loss) per share is derived from adjusted operating income (loss). The chief operating decision maker evaluates performance and allocates resources on the basis of adjusted operating income (loss). The Company defines adjusted operating income (loss) as net income (loss) excluding the after-tax effects of net investment gains (losses), restructuring costs and infrequent or unusual non-operating items. The Company excludes net investment gains (losses) and infrequent or unusual non-operating items because the company does not consider them to be related to the operating performance of the company and other activities. The recognition of realized investment gains or losses can vary significantly across periods as the activity is highly discretionary based on the timing of individual securities sales due to such factors as market opportunities or exposure management. Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these realized gains and losses. We do not view them to be indicative of our fundamental operating activities. Therefore, these items are excluded from our calculation of adjusted operating income. In addition, adjusted operating income (loss) per share is derived from adjusted operating income (loss) divided by shares outstanding. Adjusted operating return on equity is calculated as annualized adjusted operating income for the period indicated divided by the average of current period and prior periods’ ending total stockholders’ equity.
While some of these items may be significant components of net income (loss) in accordance with
Adjustments to reconcile net income (loss) available to
Exhibit A: Consolidated Statements of Income (amounts in thousands, except per share amounts)
1Q22 | 4Q21 | 1Q21 | |
REVENUES: | |||
Premiums | |||
Net investment income | 35,146 | 35,246 | 35,259 |
Net investment gains (losses) | (339) | 5 | (956) |
Other income | 502 | 727 | 1,738 |
Total revenues | 269,588 | 272,842 | 288,583 |
LOSSES AND EXPENSES: | |||
Losses incurred | (10,446) | 5,972 | 55,374 |
Acquisition and operating expenses, net of deferrals | 54,262 | 55,630 | 57,622 |
Amortization of deferred acquisition costs and intangibles | 3,090 | 3,600 | 3,838 |
Interest expense | 12,776 | 12,771 | 12,737 |
Total losses and expenses | 59,682 | 77,973 | 129,571 |
INCOME BEFORE INCOME TAXES | 209,906 | 194,869 | 159,012 |
Provision for income taxes | 45,276 | 41,335 | 33,881 |
NET INCOME | $164,630 | $153,534 | $125,131 |
Net investment (gains) losses | 339 | (5) | 956 |
Costs associated with reorganization | 222 | 89 | — |
Taxes on adjustments | (118) | (17) | (201) |
Adjusted Operating Income | $165,073 | $153,601 | $125,886 |
Loss ratio(1) | (4)% | 3% | 22% |
Expense ratio(2) | 24% | 25% | 24% |
Earnings Per Share Data: | |||
Net Income per share | |||
Basic | |||
Diluted | |||
Adj operating income per share | |||
Basic | |||
Diluted | |||
Weighted-average common shares outstanding | |||
Basic | 162,841 | 162,840 | 162,840 |
Diluted | 163,054 | 162,985 | 162,840 |
(1)The ratio of losses incurred to net earned premiums.
(2)The ratio of acquisition and operating expenses, net of deferrals, and amortization of deferred acquisition costs and intangibles to net earned premiums. Expenses associated with strategic transaction preparations and restructuring costs decreased the expense ratio by zero percentage point for the three months ended
Exhibit B: Consolidated Balance Sheets (amounts in thousands, except per share amounts)
Assets | 1Q22 | 4Q21 | 1Q21 |
Investments: | |||
Fixed maturity securities available-for-sale, at fair value | |||
Short term investments | — | — | 12,500 |
Total investments | 5,093,084 | 5,266,339 | 5,118,628 |
Cash and cash equivalents | 440,160 | 425,828 | 431,335 |
Accrued investment income | 32,565 | 31,061 | 28,821 |
Deferred acquisition costs | 27,000 | 27,220 | 28,544 |
Premiums receivable | 40,381 | 42,266 | 42,454 |
Deferred tax asset | 56,060 | — | — |
Other assets | 103,157 | 73,059 | 49,921 |
Total assets | $5,792,407 | $5,865,773 | $5,699,703 |
Liabilities and Shareholders' Equity | |||
Liabilities: | |||
Loss reserves | |||
Unearned premiums | 236,410 | 246,319 | 280,742 |
Other liabilities | 141,125 | 130,604 | 121,609 |
Long-term borrowings | 741,004 | 740,416 | 738,711 |
Deferred tax liability | — | 1,586 | 19,787 |
Total liabilities | 1,743,818 | 1,760,250 | 1,764,377 |
Equity: | |||
Common stock | 1,628 | 1,628 | 1,628 |
Additional paid-in capital | 2,374,568 | 2,371,861 | 2,368,782 |
Accumulated other comprehensive income | (140,690) | 83,581 | 136,960 |
Retained earnings | 1,813,083 | 1,648,453 | 1,427,956 |
Total equity | 4,048,589 | 4,105,523 | 3,935,326 |
Total liabilities and equity | $5,792,407 | $5,865,773 | $5,699,703 |
Book value per share | |||
16.2% | 14.8% | 12.8% | |
Net investment (gains) losses | 0.0% | 0.0% | 0.1% |
Costs associated with reorganization | 0.0% | 0.0% | 0.0% |
Taxes on adjustments | 0.0% | 0.0% | 0.0% |
Adjusted Operating ROE(2) | 16.2% | 14.8% | 12.9% |
Debt to Capital Ratio | 15% | 15% | 16% |
(1)Calculated as annualized net income for the period indicated divided by the average of current period and prior periods’ ending total stockholders’ equity
(2)Calculated as annualized adjusted operating income for the period indicated divided by the average of current period and prior periods’ ending total stockholders’ equity
Investor ContactDaniel Kohl [email protected] Media ContactBrittany Harris-Flowers [email protected]
Source:
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