Enact Holdings, Inc. - Quarter Report: 2023 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from to

Commission File Number 001-40399

Enact Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware						46-1579166
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

8325 Six Forks Road

Raleigh, North Carolina 27615

(919) 846-4100

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

ACT

The Nasdaq Stock Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

As of October 30, 2023, there were 159,703,377 shares of Common Stock, par value $0.01 per share, outstanding.

TABLE OF CONTENTS


			Page
Part I. Financial Information			4
Item 1. Financial Statements			4
Condensed Consolidated Balance Sheets			4
Condensed Consolidated Statements of Income			5
Condensed Consolidated Statements of Comprehensive Income			6
Condensed Consolidated Statements of Changes in Equity			7
Condensed Consolidated Statements of Cash Flows			9
Notes to Condensed Consolidated Financial Statements			10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			33
Item 3. Quantitative and Qualitative Disclosures About Market Risk			64
Item 4. Controls and Procedures			65
Part II. Other Information			66
Item 1. Legal Proceedings			66
Item 1A. Risk Factors			66
Item 2. Recent Sales of Unregistered Securities			66
Item 5. Other Information			66
Item 6. Exhibits			67
Signatures			68

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, 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,” “would,” “anticipate,” “expect,” “believe,” “designed,” “plan,” 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 quarterly report.

Although Enact Holdings, Inc. (the “Company”) believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its expectations will be achieved and it undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events, or otherwise, except as required by applicable law. Factors or events that we cannot predict, including the following, may cause our actual results to differ from those expressed in forward-looking statements:

•inability to continue to maintain the private mortgage insurer eligibility requirements (“PMIERs”) or any other restrictions imposed on us by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), government-sponsored enterprises collectively referred to as the “GSEs”

•deterioration in economic conditions or a decline in home prices, including a severe recession;

•uncertainty around COVID-19 and the remaining effects of forbearance programs and foreclosure timing;

•uncertainty of our loss reserve estimates or inaccuracies in our models;

•competition for our customers or the loss of a significant customer;

•changes to the charters or practices of the GSEs, including actions or decisions to decrease or discontinue the use of mortgage insurance;

•lenders or investors seeking alternatives to private mortgage insurance;

•failure of our risk management or loss mitigation strategies;

•fluctuations and continued increases in interest rates;

•limited availability of capital or reinsurance;

•adverse actions by rating agencies;

•competition with government-owned enterprises and GSEs;

•failure to manage the risk in our investment portfolio;

•disruption in the servicing of mortgages covered by our insurance policies or poor servicer performance;

•unanticipated claims arising under and risks associated with our delegated underwriting program or contract underwriting program;

•inadequacy of the premiums we charge to compensate for the losses we incur;

•decrease in the volume of Low-Down Payment Loan originations;

•failure to protect our confidential customer information;

•adverse changes in regulatory requirements;

•inability to maintain sufficient regulatory capital;

•risks relating to our continuing relationship with our parent;

•changes in tax laws;

•litigation, regulatory investigations or other actions;

•changes in accounting principles or policies or in our application of such accounting principles or policies;

•inability to attract and retain key employees;

•failure or any compromise of the security of our computer systems, disaster recovery systems, business continuity plans and failures to safeguard or breaches of confidential information; and

•occurrence of natural or man-made disasters or public health emergencies, including pandemics and disasters caused or exacerbated by climate change.

We provide additional information regarding these and other risks and uncertainties in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the U.S. Securities and Exchange Commission (“SEC”) on February 28, 2023. In addition, unlisted factors may present significant additional obstacles to the realization of forward-looking statements. We therefore caution you against relying on any forward-looking statements.

Part I. Financial Information

Item 1. Financial Statements

ENACT HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2023		December 31, 2022
(Amounts in thousands, except par value amount)	(Unaudited)
Assets

Fixed maturity securities available-for-sale, at fair value (amortized cost of $5,487,280 and $5,371,673 as of September 30, 2023, and December 31, 2022, respectively)	$	4,990,692	$	4,884,760
Short-term investments, at fair value	18,173		3,047
Total investments	5,008,865		4,887,807
Cash and cash equivalents	677,990		513,775
Accrued investment income	42,051		35,844
Deferred acquisition costs	25,572		26,121
Premiums receivable (net of allowance for credit losses of $924 and $873 as of September 30, 2023, and December 31, 2022, respectively)	44,310		41,738
Other assets	82,196		76,391
Deferred tax asset	119,704		127,473
Total assets	$	6,000,688	$	5,709,149
Liabilities and equity
Liabilities:
Loss reserves	$	501,093	$	519,008
Unearned premiums	161,580		202,717
Other liabilities	136,057		143,686
Long-term borrowings	744,752		742,830

Total liabilities	1,543,482		1,608,241
Equity:
Common stock ($0.01 par value; 600,000 shares authorized; 159,995 shares issued and outstanding as of September 30, 2023, and 162,779 shares issued and outstanding as of December 31, 2022)	1,600		1,628
Additional paid-in capital	2,322,622		2,382,068
Accumulated other comprehensive income	(400,349)		(382,744)
Retained earnings	2,533,333		2,099,956
Total equity	4,457,206		4,100,908
Total liabilities and equity	$	6,000,688	$	5,709,149

See Notes to Condensed Consolidated Financial Statements

ENACT HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
(Amounts in thousands, except per share amounts)	2023		2022		2023		2022
Revenues:
Premiums	$	243,346	$	235,060	$	716,974	$	706,725
Net investment income	54,952		39,493		151,208		110,415
Net investment gains (losses)	(23)		(42)		(13,146)		(762)
Other income	760		564		2,460		1,826
Total revenues	299,035		275,075		857,496		818,204
Losses and expenses:
Losses incurred	17,847		(40,309)		2,793		(112,318)
Acquisition and operating expenses, net of deferrals	52,339		54,523		155,931		166,986
Amortization of deferred acquisition costs and intangibles	2,803		3,338		8,088		9,658
Interest expense	12,941		12,879		38,919		38,441
Total losses and expenses	85,930		30,431		205,731		102,767
Income before income taxes	213,105		244,644		651,765		715,437
Provision for income taxes	48,910		53,658		143,562		155,086
Net income	$	164,195	$	190,986	$	508,203	$	560,351

Net income per common share:
Basic	$	1.03	$	1.17	$	3.15	$	3.44
Diluted	$	1.02	$	1.17	$	3.13	$	3.43
Weighted average common shares outstanding:
Basic	160,066		162,843		161,275		162,842
Diluted	161,146		163,376		162,165		163,219

See Notes to Condensed Consolidated Financial Statements

ENACT HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
(Amounts in thousands)	2023		2022		2023		2022
Net income	$	164,195	$	190,986	$	508,203	$	560,351
Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on securities without an allowance for credit losses	(55,118)		(134,102)		(17,608)		(510,803)

Foreign currency translation	12		44		3		137
Other comprehensive income (loss)	(55,106)		(134,058)		(17,605)		(510,666)
Total comprehensive income (loss)	$	109,089	$	56,928	$	490,598	$	49,685

See Notes to Condensed Consolidated Financial Statements

ENACT HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)


	Three months ended September 30, 2023
(Amounts in thousands)	Common stock		Additional paid-in capital		Accumulated other comprehensive income (loss)		Retained earnings		Total equity
Balance as of June 30, 2023	$	1,602	$	2,324,527	$	(345,243)	$	2,395,010	$	4,375,896

Comprehensive income (loss):
Net income	—		—		—		164,195		164,195
Other comprehensive income (loss), net of taxes	—		—		(55,106)		—		(55,106)

Repurchase of common stock	(2)		(6,290)		—		—		(6,292)
Stock-based compensation expense and exercises and other	—		4,385		—		(273)		4,112
Dividends	—		—		—		(25,599)		(25,599)

Balance as of September 30, 2023	$	1,600	$	2,322,622	$	(400,349)	$	2,533,333	$	4,457,206


	Three months ended September 30, 2022
(Amounts in thousands)	Common stock		Additional paid-in capital		Accumulated other comprehensive income (loss)		Retained earnings		Total equity
Balance as of June 30, 2022	$	1,628	$	2,377,042	$	(293,027)	$	1,994,857	$	4,080,500

Comprehensive income (loss):
Net income	—		—		—		190,986		190,986
Other comprehensive income (loss), net of taxes	—		—		(134,058)		—		(134,058)


Stock-based compensation expense and exercises and other	—		2,534		—		(172)		2,362
Dividends	—		—		—		(22,798)		(22,798)

Balance as of September 30, 2022	$	1,628	$	2,379,576	$	(427,085)	$	2,162,873	$	4,116,992

See Notes to Condensed Consolidated Financial Statements


	Nine months ended September 30, 2023
(Amounts in thousands)	Common stock		Additional paid-in capital		Accumulated other comprehensive income (loss)		Retained earnings		Total equity
Balance as of December 31, 2022	$	1,628	$	2,382,068	$	(382,744)	$	2,099,956	$	4,100,908

Comprehensive income (loss):
Net income	—		—		—		508,203		508,203
Other comprehensive income (loss), net of taxes	—		—		(17,605)		—		(17,605)

Repurchase of common stock	(29)		(69,698)		—		—		(69,727)
Stock-based compensation expense and exercises and other	1		10,252		—		(769)		9,484
Dividends	—		—		—		(74,057)		(74,057)

Balance as of September 30, 2023	$	1,600	$	2,322,622	$	(400,349)	$	2,533,333	$	4,457,206


	Nine months ended September 30, 2022
(Amounts in thousands)	Common stock		Additional paid-in capital		Accumulated other comprehensive income (loss)		Retained earnings		Total equity
Balance as of December 31, 2021	$	1,628	$	2,371,861	$	83,581	$	1,648,453	$	4,105,523

Comprehensive income (loss):
Net income	—		—		—		560,351		560,351
Other comprehensive income (loss), net of taxes	—		—		(510,666)		—		(510,666)


Stock-based compensation expense and exercises and other	—		7,715		—		(335)		7,380
Dividends	—		—		—		(45,596)		(45,596)

Balance as of September 30, 2022	$	1,628	$	2,379,576	$	(427,085)	$	2,162,873	$	4,116,992

See Notes to Condensed Consolidated Financial Statements

ENACT HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine months ended September 30,
(Amounts in thousands)	2023		2022
Cash flows from operating activities:
Net income	$	508,203	$	560,351
Adjustments to reconcile net income to net cash provided by operating activities:
Net investment (gains) losses	13,146		762
Amortization of fixed maturity securities discounts and premiums	(4,677)		(1,992)
Amortization of deferred acquisition costs and intangibles	8,088		9,658
Acquisition costs deferred	(4,896)		(5,044)
Deferred income taxes	(140)		1,413
Stock-based compensation expense	9,484		7,401
Amortization of debt issuance costs	1,922		1,795
Other	—		(21)
Change in certain assets and liabilities:
Accrued investment income	(6,207)		(4,835)
Premiums receivable	(2,572)		1,935
Other assets	2,377		381
Loss reserves	(17,915)		(131,088)
Unearned premiums	(41,137)		(33,332)
Other liabilities	(23,694)		(5,313)
Net cash provided by operating activities	441,982		402,071
Cash flows from investing activities:
Purchases of fixed maturity securities available-for-sale	(802,128)		(1,069,759)

Proceeds from sales of fixed maturity securities available-for-sale	394,148		451,285
Proceeds from maturities of fixed maturity securities available-for-sale	298,221		374,399
Net change in short-term investments	(14,617)		(2,453)
Other	(9,607)		—
Net cash used in investing activities	(133,983)		(246,528)
Cash flows from financing activities:

Repurchase of common stock	(69,727)		—
Dividends paid	(74,057)		(45,596)
Net cash used in financing activities	(143,784)		(45,596)

Net increase in cash and cash equivalents	164,215		109,947
Cash and cash equivalents at beginning of period	513,775		425,828
Cash and cash equivalents at end of period	$	677,990	$	535,775

See Notes to Condensed Consolidated Financial Statements

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1)Nature of business, organization structure and basis of presentation

The accompanying unaudited condensed consolidated financial statements include, on a consolidated basis, the accounts of Enact Holdings, Inc. (“EHI,” together with its subsidiaries, the “Company,” “we,” “us” or “our”) (formerly known as Genworth Mortgage Holdings, Inc.). EHI is a subsidiary of Genworth Financial, Inc. (“Genworth” or “Parent”) and has been since EHI’s incorporation in Delaware in 2012. In September 2021, we completed a minority initial public offering (“IPO”) of 18.4% of EHI’s common stock.

We are engaged in the business of writing and assuming residential mortgage guaranty insurance. The insurance protects lenders and investors against certain losses resulting from nonpayment of loans secured by mortgages, deeds of trust, or other instruments constituting a lien on residential real estate. We offer private mortgage insurance products predominantly insuring prime-based, individually underwritten residential mortgage loans (“primary mortgage insurance”). Our primary mortgage insurance enables borrowers to buy homes with a down payment of less than 20% of the home’s value. Primary mortgage insurance also facilitates the sale of these low down payment mortgage loans in the secondary mortgage market, most of which are sold to government sponsored enterprises. We also selectively enter into insurance transactions with lenders and investors, under which we insure a portfolio of loans at or after origination.

We also perform fee-based contract underwriting services for mortgage lenders. The provision of underwriting services by mortgage insurers eliminates the duplicative lender and mortgage insurer underwriting activities and expedites the approval process.

We operate our business through our primary insurance subsidiary, Enact Mortgage Insurance Corporation, (“EMICO”), formerly known as Genworth Mortgage Insurance Corporation, with operations in all 50 states and the District of Columbia. We completed name changes to some of our subsidiary legal entities during the first quarter of 2022. EMICO is an approved insurer by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Fannie Mae and Freddie Mac are government-sponsored enterprises, and we refer to them collectively as the “GSEs.”

We also offer mortgage-related insurance and reinsurance through our wholly owned Bermuda-based subsidiary, Enact Re Ltd. ("Enact Re"). We contributed $250 million into Enact Re during the second quarter of 2023. As of September 30, 2023, Enact Re provided excess of loss reinsurance relating to GSE risk share and reinsures EMICO’s new and existing insurance in-force under quota share reinsurance agreements.

We operate our business in a single segment, which is how our chief operating decision maker (who is our Chief Executive Officer) reviews our financial performance and allocates resources. Our segment includes a run-off insurance block with reference properties in Mexico (“run-off business”), which is immaterial to our condensed consolidated financial statements.

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Preparing financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. These unaudited condensed consolidated financial statements include all adjustments (including normal recurring adjustments) considered necessary by management to present a fair statement of the financial position, results of operations and cash flows for the periods presented. The results reported in these unaudited condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. The unaudited condensed consolidated financial

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

statements included herein should be read in conjunction with the audited consolidated financial statements and related notes for the years ended December 31, 2022 and 2021.

(2)Accounting changes

Accounting Pronouncements Recently Adopted

We have not adopted new accounting pronouncements in 2023.

Accounting Pronouncements Not Yet Adopted

There are no significant new accounting pronouncements impacting our financial statements.

(3)Investments

Net Investment Income

Sources of net investment income were as follows for the periods indicated:


	Three months ended September 30,				Nine months ended September 30,
(Amounts in thousands)	2023		2022		2023		2022
Fixed maturity securities available-for-sale	$	46,728	$	38,450	$	132,645	$	111,794
Cash, cash equivalents and short-term investments	9,665		2,423		23,240		2,854
Gross investment income before expenses and fees	56,393		40,873		155,885		114,648
Investment expenses and fees	(1,441)		(1,380)		(4,677)		(4,233)
Net investment income	$	54,952	$	39,493	$	151,208	$	110,415

Net Investment Gains (Losses)

The following table sets forth net investment gains (losses) for the periods indicated:


	Three months ended September 30,				Nine months ended September 30,
(Amounts in thousands)	2023		2022		2023		2022
Fixed maturity securities available-for-sale:
Gross realized gains	$	—	$	573	$	20	$	1,214
Gross realized (losses)	(36)		(615)		(13,166)		(2,149)
Net realized gains (losses)	(36)		(42)		(13,146)		(935)
Net change in allowance for credit losses on commitment	13		—		—		173

Net investment gains (losses)	$	(23)	$	(42)	$	(13,146)	$	(762)

There was no allowance for credit losses recorded on fixed maturity securities classified as available-for-sale as of September 30, 2023, or December 31, 2022, or activity during the nine months ended September 30, 2023.

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Unrealized Investment Gains (Losses)

Net unrealized gains and losses on available-for-sale securities reflected as a separate component of accumulated other comprehensive income (“AOCI”) were as follows as of the dates indicated:


(Amounts in thousands)	September 30, 2023		December 31, 2022
Net unrealized gains (losses) on investment securities:
Fixed maturity securities	$	(496,588)	$	(486,913)
Short-term investments	(12)		(30)
Unrealized gains (losses) on investment securities	(496,600)		(486,943)
Income taxes	96,096		104,047
Net unrealized investment gains (losses)	$	(400,504)	$	(382,896)

The change in net unrealized gains (losses) on available-for-sale securities reported in accumulated other comprehensive income was as follows as of and for the periods indicated:


	Three months ended September 30,
(Amounts in thousands)	2023		2022
Beginning balance	$	(345,386)	$	(293,113)

Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on investment securities	(57,401)		(170,400)
Provision for income taxes	(345)		36,265
Change in unrealized gains (losses) on investment securities	(57,746)		(134,135)
Reclassification adjustments to net investment (gains) losses, net of taxes of $2,592 and $(9), respectively	2,628		33
Change in net unrealized investment gains (losses)	(55,118)		(134,102)
Ending balance	$	(400,504)	$	(427,215)

	Nine months ended September 30,
(Amounts in thousands)	2023		2022
Beginning balance	$	(382,896)	$	83,588

Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on investment securities	(22,802)		(649,750)
Provision for income taxes	(7,791)		138,209
Change in unrealized gains (losses) on investment securities	(30,593)		(511,541)
Reclassification adjustments to net investment (gains) losses, net of taxes of $(161) and $(197), respectively	12,985		738
Change in net unrealized investment gains (losses)	(17,608)		(510,803)
Ending balance	$	(400,504)	$	(427,215)

Amounts reclassified out of accumulated other comprehensive income to net investment gains (losses) include realized gains (losses) on sales of securities, which are determined on a specific identification basis.

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Fixed Maturity Securities Available-For-Sale

As of September 30, 2023, the amortized cost, gross unrealized gains (losses) and fair value of our investment securities were as follows:


(Amounts in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
U.S. government, agencies and GSEs	$	149,146	$	3	$	(2,041)	$	147,108
State and political subdivisions	505,703		1,018		(99,183)		407,538
Non-U.S. government	12,360		—		(1,237)		11,123
U.S. corporate	2,813,640		252		(256,412)		2,557,480
Non-U.S. corporate	719,919		36		(64,671)		655,284
Residential mortgage-backed	10,433		7		(207)		10,233
Other asset-backed	1,276,079		784		(74,937)		1,201,926
Total fixed maturity securities available-for-sale	$	5,487,280	$	2,100	$	(498,688)	$	4,990,692
Short-term investments	18,185		—		(12)		18,173
Total investments	$	5,505,465	$	2,100	$	(498,700)	$	5,008,865

As of December 31, 2022, the amortized cost, gross unrealized gains (losses) and fair value of our investment securities were as follows:


(Amounts in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
U.S. government, agencies and GSEs	$	46,319	$	59	$	(1,609)	$	44,769
State and political subdivisions	515,935		1,815		(97,894)		419,856
Non-U.S. government	10,607		—		(1,258)		9,349
U.S. corporate	2,886,269		1,355		(240,761)		2,646,863
Non-U.S. corporate	716,333		158		(63,647)		652,844
Residential mortgage-backed	11,162		—		(119)		11,043
Other asset-backed	1,185,048		462		(85,474)		1,100,036
Total fixed maturity securities available-for-sale	$	5,371,673	$	3,849	$	(490,762)	$	4,884,760
Short-term investments	3,077		—		(30)		3,047
Total investments	$	5,374,750	$	3,849	$	(490,792)	$	4,887,807

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Gross Unrealized Losses and Fair Values of Fixed Maturity Securities Available-For-Sale

The following table presents the gross unrealized losses and fair values of our fixed maturity securities for which an allowance for credit losses has not been recorded, aggregated by investment type and length of time that individual fixed maturity securities have been in a continuous unrealized loss position, as of September 30, 2023:


	Less than 12 months					12 months or more					Total
(Amounts in thousands)	Fair value		Gross unrealized losses		Number of securities	Fair value		Gross unrealized losses		Number of securities	Fair value		Gross unrealized losses		Number of securities
Fixed maturity securities:
U.S. government, agencies and GSEs	$	116,661	$	(717)	28	$	30,208	$	(1,324)	14	$	146,869	$	(2,041)	42
State and political subdivisions	1,396		(60)		2	388,682		(99,123)		85	390,078		(99,183)		87
Non-U.S. government	1,845		(17)		1	9,278		(1,220)		1	11,123		(1,237)		2
U.S. corporate	532,245		(27,758)		160	2,000,352		(228,654)		435	2,532,597		(256,412)		595
Non-U.S. corporate	136,341		(6,277)		38	513,481		(58,394)		124	649,822		(64,671)		162
Residential mortgage-backed	3,867		(21)		3	5,281		(186)		3	9,148		(207)		6
Other asset-backed	237,667		(4,111)		97	838,758		(70,826)		208	1,076,425		(74,937)		305
Total for fixed maturity securities in an unrealized loss position	$	1,030,022	$	(38,961)	329	$	3,786,040	$	(459,727)	870	$	4,816,062	$	(498,688)	1,199

We did not recognize an allowance for credit losses on securities in an unrealized loss position included in the table above. Based on a qualitative and quantitative review of the issuers of the securities, we believe the unrealized losses are largely due to changes in interest rates and recent market volatility and are not indicative of credit losses. The issuers continue to make timely principal and interest payments.

For all securities in an unrealized loss position without an allowance for credit losses, we expect to recover the amortized cost based on our estimate of the amount and timing of cash flows to be collected. We do not intend to sell nor do we expect that we will be required to sell these securities prior to recovering our amortized cost.

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the gross unrealized losses and fair values of our fixed maturity securities, aggregated by investment type and length of time that individual fixed maturity securities have been in a continuous unrealized loss position, as of December 31, 2022:


	Less than 12 months					12 months or more					Total
(Amounts in thousands)	Fair value		Gross unrealized losses		Number of securities	Fair value		Gross unrealized losses		Number of securities	Fair value		Gross unrealized losses		Number of securities
Fixed maturity securities:
U.S. government, agencies and GSEs	$	43,873	$	(1,600)	18	$	96	$	(9)	1	$	43,969	$	(1,609)	19
State and political subdivisions	203,752		(40,988)		43	196,235		(56,906)		46	399,987		(97,894)		89
Non-U.S. government	—		—		—	9,349		(1,258)		1	9,349		(1,258)		1
U.S. corporate	2,033,713		(131,150)		468	568,171		(109,611)		92	2,601,884		(240,761)		560
Non-U.S. corporate	486,117		(35,515)		125	155,345		(28,132)		27	641,462		(63,647)		152
Residential mortgage-backed	11,043		(119)		6	—		—		—	11,043		(119)		6
Other asset-backed	655,525		(31,684)		217	375,810		(53,790)		71	1,031,335		(85,474)		288
Total for fixed maturity securities in an unrealized loss position	$	3,434,023	$	(241,056)	877	$	1,305,006	$	(249,706)	238	$	4,739,029	$	(490,762)	1,115

Contractual Maturities of Fixed Maturity Securities Available-For-Sale

The scheduled maturity distribution of fixed maturity securities as of September 30, 2023, is set forth below. Actual maturities may differ from contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.


(Amounts in thousands)	Amortized cost		Fair value
Due one year or less	$	324,880	$	319,740
Due after one year through five years	2,097,579		1,931,440
Due after five years through ten years	1,601,988		1,379,748
Due after ten years	176,321		147,605
Subtotal	4,200,768		3,778,533
Residential mortgage-backed	10,433		10,233
Other asset-backed	1,276,079		1,201,926
Total fixed maturity securities available-for-sale	$	5,487,280	$	4,990,692

As of September 30, 2023, securities issued by the finance and insurance, technology and communications, consumer—non-cyclical, and utilities industry groups represented approximately 34%, 13%, 11%, and 10%, respectively, of our domestic and foreign corporate fixed maturity securities portfolio. No other industry group comprised more than 9% of our investment portfolio.

As of September 30, 2023, we did not hold any fixed maturity securities in any single issuer, other than securities issued or guaranteed by the U.S. government, which exceeded 10% of equity.

As of September 30, 2023, and December 31, 2022, $25.2 million and $25.1 million, respectively, of securities in our portfolio were on deposit with various state insurance commissioners in order to comply with relevant insurance regulations.

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(4)Fair value

Recurring fair value measurements

We hold fixed maturity securities and short-term investments, which are carried at fair value. The fair value of fixed maturity securities and short-term investments are estimated primarily based on information derived from third-party pricing services (“pricing services”), internal models and/or broker quotes, which use a market approach, income approach or a combination of the market and income approach depending on the type of instrument and availability of information. In general, a market approach is utilized if there is readily available and relevant market activity for an individual security. In certain cases where market information is not available for a specific security but is available for similar securities, that security is valued using market information for similar securities, which is also a market approach. When market information is not available for a specific security (or similar securities) or is available but such information is less relevant or reliable, an income approach or a combination of a market and income approach is utilized. For securities with optionality, such as call or prepayment features (including asset-backed securities), an income or combination approach may be used. These valuation techniques may change from period to period, based on the relevance and availability of market data.

Further, while we consider the valuations provided by pricing services and broker quotes to be of high quality, management determines the fair value of our investment securities after considering all relevant and available information.

In general, we first obtain valuations from pricing services. If prices are unavailable for public securities, we obtain broker quotes. For all securities, excluding certain private fixed maturity securities, if neither a pricing service nor broker quotes valuation is available, we determine fair value using internal models. For certain private fixed maturity securities where we do not obtain valuations from pricing services, we utilize an internal model to determine fair value since transactions for similar securities are not readily observable and these securities are not typically valued by pricing services.

Given our understanding of the pricing methodologies and procedures of pricing services, the securities valued by pricing services are typically classified as Level 2 unless we determine the valuation process for a security or group of securities utilizes significant unobservable inputs, which would result in the valuation being classified as Level 3.

Broker quotes are typically based on an income approach given the lack of available market data. As the valuation typically includes significant unobservable inputs, we classify the securities where fair value is based on our consideration of broker quotes as Level 3 measurements.

For private fixed maturity securities, we utilize an income approach where we obtain public bond spreads and utilize those in an internal model to determine fair value. Other inputs to the model include rating and weighted-average life, as well as sector which is used to assign the spread. We then add an additional premium, which represents an unobservable input, to the public bond spread to adjust for the liquidity and other features of our private placements. We utilize the estimated market yield to discount the expected cash flows of the security to determine fair value. We utilize price caps for securities where the estimated market yield results in a valuation that may exceed the amount that would be received in a market transaction. When a security does not have an external rating, we assign the security an internal rating to determine the appropriate public bond spread that should be utilized in the valuation. While we generally consider the public bond spreads by sector and maturity to be observable inputs, we evaluate the similarities of our private placement with the public bonds, any price caps utilized, liquidity premiums applied, and whether external ratings are available for our private placements to determine whether the spreads utilized would be considered observable inputs. We classify private securities without an external rating or public bond spread as Level 3. In general, a significant increase (decrease) in credit spreads

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

would have resulted in a significant decrease (increase) in the fair value for our fixed maturity securities as of September 30, 2023.

For remaining securities priced using internal models, we determine fair value using an income approach. We maximize the use of observable inputs but typically utilize significant unobservable inputs to determine fair value. Accordingly, the valuations are typically classified as Level 3.

Our assessment of whether or not there were significant unobservable inputs related to fixed maturity securities was based on our observations obtained through the course of managing our investment portfolio, including interaction with other market participants, observations related to the availability and consistency of pricing and/or rating, and understanding of general market activity such as new issuance and the level of secondary market trading for a class of securities. Additionally, we considered data obtained from pricing services to determine whether our estimated values incorporate significant unobservable inputs that would result in the valuation being classified as Level 3.

A summary of the inputs used for our fixed maturity securities and short-term investments based on the level in which instruments are classified is included below. We have combined certain classes of instruments together as the nature of the inputs is similar.

Level 1 measurements

There were no fixed maturity securities classified as Level 1 as of September 30, 2023, and December 31, 2022.

Level 2 measurements

Fixed maturity securities:

Third-party pricing services

In estimating the fair value of fixed maturity securities, approximately 89% of our portfolio was priced using third-party pricing services as of September 30, 2023. These pricing services utilize industry-standard valuation techniques that include market-based approaches, income-based approaches, a combination of market-based and income-based approaches or other proprietary, internally generated models as part of the valuation processes. These third-party pricing vendors maximize the use of publicly available data inputs to generate valuations for each asset class. Priority and type of inputs used may change frequently as certain inputs may be more direct drivers of valuation at the time of pricing. Examples of significant inputs incorporated by pricing services may include sector and issuer spreads, seasoning, capital structure, security optionality, collateral data, prepayment assumptions, default assumptions, delinquencies, debt covenants, benchmark yields, trade data, dealer quotes, credit ratings, maturity and weighted-average life. We conduct regular meetings with our pricing services for the purpose of understanding the methodologies, techniques and inputs used by the third-party pricing providers.

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents a summary of the significant inputs used by our pricing services for certain fair value measurements of fixed maturity securities that are classified as Level 2 as of September 30, 2023:

(Amounts in thousands)

Fair value

Primary methodologies

Significant inputs

U.S. government, agencies and GSEs

147,108

Price quotes from trading desk, broker feeds

Bid side prices, trade prices, Option Adjusted Spread (“OAS”) to swap curve, Bond Market Association OAS, Treasury Curve, Agency Bullet Curve, maturity to issuer spread

State and political subdivisions

407,538

Multi-dimensional attribute-based modeling systems, third-party pricing vendors

Trade prices, material event notices, Municipal Market Data benchmark yields, broker quotes

Non-U.S. government

11,123

Matrix pricing, spread priced to benchmark curves, price quotes from market makers

Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources

U.S. corporate

2,149,559

Multi-dimensional attribute-based modeling systems, broker quotes, price quotes from market makers, internal models, OAS-based models

Bid side prices to Treasury Curve, Issuer Curve, which includes sector, quality, duration, OAS percentage and change for spread matrix, trade prices, comparative transactions, Trade Reporting and Compliance Engine (“TRACE”) reports

Non-U.S. corporate

507,400

Multi-dimensional attribute-based modeling systems, OAS-based models, price quotes from market makers

Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources

Residential mortgage-backed

10,233

OAS-based models, single factor binomial models, internally priced

Prepayment and default assumptions, aggregation of bonds with similar characteristics, including collateral type, vintage, tranche type, weighted-average life, weighted-average loan age, issuer program and delinquency ratio, pay up and pay down factors, TRACE reports

Other asset-backed

1,199,321

Multi-dimensional attribute-based modeling systems, spread matrix priced to swap curves, price quotes from market makers

Spreads to daily updated swap curves, spreads derived from trade prices and broker quotes, bid side prices, new issue data, collateral performance, analysis of prepayment speeds, cash flows, collateral loss analytics, historical issue analysis, trade data from market makers, TRACE reports

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Internal models

A portion of our Level 2 U.S. corporate and non-U.S. corporate securities are valued using internal models. The fair value of these fixed maturity securities was $171.6 million and $72.6 million, respectively, as of September 30, 2023. Internally modeled securities are primarily private fixed maturity securities where we use market observable inputs such as an interest rate yield curve, published credit spreads for similar securities based on the external ratings of the instrument and related industry sector of the issuer. Additionally, we may apply certain price caps and liquidity premiums in the valuation of private fixed maturity securities. Price caps and liquidity premiums are established using inputs from market participants.

Short-term investments:

The fair value of short-term investments classified as Level 2 is determined after considering prices obtained by pricing services.

Level 3 measurements

Broker quotes

A portion of our U.S. corporate and other asset-backed securities are valued using broker quotes. Broker quotes are obtained from third-party providers that have current market knowledge to provide a reasonable price for securities not routinely priced by pricing services. Brokers utilized for valuation of assets are reviewed annually. The fair value of our Level 3 fixed maturity securities priced by broker quotes was $14.9 million as of September 30, 2023.

Internal models

A portion of our U.S. corporate and non-U.S. corporate securities are valued using internal models. The primary inputs to the valuation of the bond population include quoted prices for identical assets, or similar assets in markets that are not active, contractual cash flows, duration, call provisions, issuer rating, benchmark yields and credit spreads. Certain private fixed maturity securities are valued using an internal model using market observable inputs such as the interest rate yield curve, as well as published credit spreads for similar securities, which includes significant unobservable inputs. Additionally, we may apply certain price caps and liquidity premiums in the valuation of private fixed maturity securities. Price caps are established using inputs from market participants. For structured securities, the primary inputs to the valuation include quoted prices for identical assets, or similar assets in markets that are not active, contractual cash flows, weighted-average coupon, weighted-average maturity, issuer rating, structure of the security, expected prepayment speeds and volumes, collateral type, current and forecasted loss severity, average delinquency rates, vintage of the loans, geographic region, debt service coverage ratios, payment priority with the tranche, benchmark yields and credit spreads. The fair value of our Level 3 fixed maturity securities priced using internal models was $299.3 million as of September 30, 2023.

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables set forth our assets by class of instrument that are measured at fair value on a recurring basis as of the dates indicated:


	September 30, 2023
(Amounts in thousands)	Total		Level 1		Level 2		Level 3
Fixed maturity securities:
U.S. government, agencies and GSEs	$	147,108	$	—	$	147,108	$	—
State and political subdivisions	407,538		—		407,538		—
Non-U.S. government	11,123		—		11,123		—
U.S. corporate	2,557,480		—		2,321,156		236,324
Non-U.S. corporate	655,284		—		580,016		75,268
Residential mortgage-backed	10,233		—		10,233		—
Other asset-backed	1,201,926		—		1,199,321		2,605
Total fixed maturity securities	4,990,692		—		4,676,495		314,197
Short-term investments	18,173		—		18,173		—
Total	$	5,008,865	$	—	$	4,694,668	$	314,197


	December 31, 2022
(Amounts in thousands)	Total		Level 1		Level 2		Level 3
Fixed maturity securities:
U.S. government, agencies and GSEs	$	44,769	$	—	$	44,769	$	—
State and political subdivisions	419,856		—		419,856		—
Non-U.S. government	9,349		—		9,349		—
U.S. corporate	2,646,863		—		2,426,237		220,626
Non-U.S. corporate	652,844		—		557,690		95,154
Residential mortgage-backed	11,043		—		11,043		—
Other asset-backed	1,100,036		—		1,096,555		3,481
Total fixed maturity securities	4,884,760		—		4,565,499		319,261
Short-term investments	3,047		—		3,047		—
Total	$	4,887,807	$	—	$	4,568,546	$	319,261

We had no liabilities recorded at fair value as of September 30, 2023, and December 31, 2022.

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present additional information about assets measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:


	Beginning balance as of July 1, 2023		Total realized and unrealized gains (losses)				Purchases		Sales		Settlements		Transfer into Level 3 (1)		Transfer out of Level 3 (1)		Ending balance as of September 30, 2023			Total gains (losses) attributable to assets still held
(Amounts in thousands)			Included in net income		Included in OCI														Included in net income			Included in OCI
Fixed maturity securities:
U.S. corporate	$	222,301	$	(7)	$	(3,625)	$	18,001	$	(2)	$	(344)	$	—	$	—	$	236,324		$	(7)		$	(3,627)
Non-U.S. corporate	72,724		6		(1,288)		2		—		(105)		11,377		(7,448)		75,268			6			(1,043)
Other asset-backed	10,952		14		(108)		1,655		(1)		(57)		—		(9,850)		2,605			6			(4)
Total	$	305,977	$	13	$	(5,021)	$	19,658	$	(3)	$	(506)	$	11,377	$	(17,298)	$	314,197		$	5		$	(4,674)

	Beginning balance as of July 1, 2022		Total realized and unrealized gains (losses)				Purchases		Sales		Settlements		Transfer into Level 3 (1)		Transfer out of Level 3 (1)		Ending balance as of September 30, 2022			Total gains (losses) attributable to assets still held
(Amounts in thousands)			Included in net income		Included in OCI														Included in net income			Included in OCI
Fixed maturity securities:
U.S. corporate	$	216,654	$	(14)	$	(9,292)	$	9,999	$	—	$	(410)	$	—	$	—	$	216,937		$	(14)		$	(9,293)
Non-U.S. corporate	83,305		(86)		(2,498)		8,000		—		(10,105)		—		—		78,616			(86)			(2,501)
Other asset-backed	15,054		—		(523)		7,823		—		—		—		(14,711)		7,643			—			(180)
Total	$	315,013	$	(100)	$	(12,313)	$	25,822	$	—	$	(10,515)	$	—	$	(14,711)	$	303,196		$	(100)		$	(11,974)

______________

(1)The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads.

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Beginning balance as of January 1, 2023		Total realized and unrealized gains (losses)				Purchases		Sales		Settlements		Transfer into Level 3 (1)		Transfer out of Level 3 (1)		Ending balance as of September 30, 2023			Total gains (losses) attributable to assets still held
(Amounts in thousands)			Included in net income		Included in OCI														Included in net income			Included in OCI
Fixed maturity securities:
U.S. corporate	$	220,626	$	(28)	$	(3,622)	$	39,001	$	(6,901)	$	(12,752)	$	—	$	—	$	236,324		$	(23)		$	(4,720)
Non-U.S. corporate	95,154		(711)		170		3,761		(3,543)		(23,492)		11,377		(7,448)		75,268			22			(921)
Other asset-backed	3,481		19		(118)		11,646		(1)		(58)		—		(12,364)		2,605			11			(32)
Total	$	319,261	$	(720)	$	(3,570)	$	54,408	$	(10,445)	$	(36,302)	$	11,377	$	(19,812)	$	314,197		$	10		$	(5,673)

(Amounts in thousands)	Beginning balance as of January 1, 2022		Total realized and unrealized gains (losses)				Purchases		Sales		Settlements		Transfer into Level 3 (1)		Transfer out of Level 3 (1)		Ending balance as of September 30, 2022			Total gains (losses) attributable to assets still held
			Included in net income		Included in OCI														Included in net income			Included in OCI
Fixed maturity securities:
U.S. corporate	$	220,733	$	(42)	$	(39,462)	$	49,968	$	—	$	(850)	$	—	$	(13,410)	$	216,937		$	(42)		$	(38,970)
Non-U.S. corporate	83,664		(254)		(11,768)		21,009		—		(10,316)		—		(3,719)		78,616			(254)			(11,476)
Other asset-backed	24,223		—		(2,090)		22,820		—		—		—		(37,310)		7,643			—			(123)
Total	$	328,620	$	(296)	$	(53,320)	$	93,797	$	—	$	(11,166)	$	—	$	(54,439)	$	303,196		$	(296)		$	(50,569)

______________

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Purchases, sales, issuances and settlements represent the activity that occurred during the period that results in a change of the asset but does not represent changes in fair value for the instruments held at the beginning of the period.

The amount presented for realized and unrealized gains (losses) included in net income for fixed maturity securities primarily represents amortization and accretion of premiums and discounts on certain fixed maturity securities recorded within net investment income.

The following table presents a summary of the significant unobservable inputs used for certain asset fair value measurements that are based on internal models and classified as Level 3 as of September 30, 2023:

(Amounts in thousands)

Valuation

technique

Fair value (1)

Unobservable

input

Range (bps)

Weighted-

average (2) (bps)

Fixed maturity securities:

U.S. corporate

Internal models

234,263

Credit spreads

14 - 241

131

Non-U.S. corporate

Internal models

65,052

Credit spreads

91 - 182

133

______________

(1)Certain classes of instruments classified as Level 3 are excluded as a result of not being material or due to limitations in being able to obtain the underlying inputs used by certain third-party sources, such as broker quotes, used as an input in determining fair value.

(2)Unobservable inputs weighted by the relative fair value of the associated instrument.

We have certain financial instruments that are not recorded at fair value, including cash and cash equivalents and accrued investment income, the carrying value of which approximate fair value due to the short-term nature of these instruments. They are not included in this disclosure.

Liabilities not required to be carried at fair value

The following represents our estimated fair value of financial liabilities that are not required to be carried at fair value, classified as Level 2, as of the dates indicated:


	September 30, 2023				December 31, 2022
(Amounts in thousands)	Carrying amount		Fair value		Carrying amount		Fair value
Long-term borrowings	$	744,752	$	739,178	$	742,830	$	739,020

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(5)Loss reserves

Activity for the liability for loss reserves for the nine months ended September 30, is summarized as follows:


(Amounts in thousands)	2023		2022
Loss reserves, beginning balance	$	519,008	$	641,325
Reinsurance recoverable, beginning balance	—		—
Run-off reserves	(678)		(681)
Net loss reserves, beginning balance	518,330		640,644

Losses and LAE incurred related to current accident year	198,732		138,504
Losses and LAE incurred related to prior accident years	(195,898)		(250,799)
Total incurred (1)	2,834		(112,295)

Losses and LAE paid related to current accident year	(697)		(1,005)
Losses and LAE paid related to prior accident years	(20,458)		(17,772)
Total paid (1)	(21,155)		(18,777)

Net loss reserves, ending balance	500,009		509,572
Reinsurance recoverable, ending balance	429		—
Run-off reserves	655		665
Loss reserves, ending balance	$	501,093	$	510,237

______________

(1)Losses and loss adjustment expenses (“LAE”) incurred and paid exclude losses related to our run-off business.

The liability for loss reserves represents our current best estimate; however, there may be future adjustments to this estimate and related assumptions. Such adjustments, reflecting any variety of new and adverse trends, could possibly be significant, and result in future increases to reserves by amounts that could be material to our results of operations, financial condition and liquidity.

Losses incurred related to insured events of the current accident year relate to defaults that occurred in that year and represent the estimated ultimate amount of losses to be paid on such defaults. Losses incurred related to insured events of prior accident years represent the (favorable) or unfavorable development of reserves as a result of the actual rates at which delinquencies go to claim (“claim rates”) and claim amounts being different than those we estimated when originally establishing the reserves. Such estimates are based on our historical experience, which we believe is representative of expected future losses at the time of estimation. As a result of the extended period of time that may exist between the reporting of a delinquency and the claim payment, as well as changes in economic conditions and the real estate market, significant uncertainty and variability exist on amounts ultimately paid.

A portion of delinquencies in the periods presented were from borrowers participating in deferred or reduced payments (“forbearance”) as a result of COVID-19. When establishing loss reserves for borrowers in forbearance from 2020 to 2022, we assumed a lower rate of delinquencies becoming active claims, which had the effect of producing a lower reserve compared to delinquencies that were not in forbearance. Historical experience with localized natural disasters, such as hurricanes, indicates a higher cure rate for borrowers in forbearance. Loss reserves recorded on these new delinquencies have a high

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

degree of estimation due to the level of uncertainty regarding whether delinquencies in forbearance will ultimately cure or result in claim payments as well as the timing and severity of those payments.

For the nine months ended September 30, 2023, losses and LAE incurred of $199 million related to insured events of the current accident year was primarily attributable to new delinquencies compared to $139 million for the nine months ended September 30, 2022. During the first nine months of September 2022, losses related to the current accident year were also impacted by $25 million of reserve strengthening due to uncertainty in the economic environment.

We also recorded favorable reserve adjustments primarily on prior accident year reserves of $188 million, which were driven primarily by cure performance of delinquencies from 2022 and earlier, including a portion of those as a result of COVID-19. During the peak of COVID-19, we experienced elevated new delinquencies subject to forbearance plans. Those delinquencies have continued to perform at levels above our reserve expectations. A component of the reserve release also related to delinquencies from 2022, as uncertainty in the economic environment has not negatively impacted cure performance to the extent initially expected. During the first nine months of 2022, we released $251 million of reserves primarily related to COVID-19 delinquencies from 2020.

(6)Reinsurance

We reinsure a portion of our policy risks in order to reduce our ultimate losses, diversify our exposures and comply with regulatory requirements. We also assume certain policy risks written by other companies.

Reinsurance does not relieve us from our obligations to policyholders. In the event that the reinsurers are unable to meet their obligations, we remain liable for the reinsured claims. We monitor both the financial condition of individual reinsurers and risk concentrations arising from similar geographic regions, activities and economic characteristics of reinsurers to lessen the risk of default by such reinsurers.

The following table sets forth the effects of reinsurance on premiums written and earned for the periods indicated:


	Three months ended September 30,				Nine months ended September 30,
(Amounts in thousands)	2023		2022		2023		2022
Net premiums written:
Direct	$	250,044	$	243,655	$	736,143	$	732,079
Assumed	577		64		892		198
Ceded	(20,256)		(20,453)		(61,198)		(58,884)
Net premiums written	$	230,365	$	223,266	$	675,837	$	673,393

Net premiums earned:
Direct	$	263,025	$	255,449	$	777,280	$	765,411
Assumed	577		64		892		198
Ceded	(20,256)		(20,453)		(61,198)		(58,884)
Net premiums earned	$	243,346	$	235,060	$	716,974	$	706,725

The difference between written premiums of $230.4 million and earned premiums of $243.3 million represents the decrease in unearned premiums for the three months ended September 30, 2023. The difference between written premiums of $675.8 million and earned premiums of $717.0 million represents the decrease in unearned premiums for the nine months ended September 30, 2023. The decrease in

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

unearned premiums was primarily the result of premium earned over time coupled with low originations of our single premium mortgage insurance product.

Excess-of-loss reinsurance

We engage in excess-of-loss (“XOL”) insurance transactions either through a panel of traditional reinsurance providers or through collateralized reinsurance with unaffiliated special purpose insurers (“Triangle Re Entities”). During the respective coverage periods of these agreements, EMICO retains the first layer of aggregate loss exposure on covered policies while the reinsurer provides the second layer of coverage, up to the defined reinsurance coverage amount. EMICO retains losses in excess of the respective reinsurance coverage amount.

The Triangle Re Entities fully collateralize their coverage by issuing insurance-linked notes (“ILNs”) to eligible capital market investors in unregistered private offerings. Traditional reinsurance providers collateralize a portion of their coverage by holding funds in trust. We believe that the risk transfer requirements for reinsurance accounting were met as these XOL insurance transactions assume significant insurance risk and a reasonable possibility of significant loss.

EMICO has rights to terminate the ILNs or traditional XOL reinsurance agreements upon the occurrence of certain events.

The following table presents the issue date, policy dates, initial and current first layer retained aggregate loss and initial and current reinsurance coverage amount under each reinsurance transaction. Current amounts are presented as of September 30, 2023:


Mortgage insurance-linked notes
(Amounts in millions)	Issue date	Policy dates	Initial first layer retained loss	Current first layer retained loss	Initial reinsurance coverage	Current reinsurance coverage
Triangle Re 2021-1 Ltd.	3/02/2021	1/01/2014 - 12/31/2018, 10/01/2019 - 12/31/2019	$212	$211	$495	$85
Triangle Re 2021-2 Ltd.	4/16/2021	9/01/2020 - 12/31/2020	$189	$188	$303	$193
Triangle Re 2021-3 Ltd.	9/02/2021	1/01/2021 - 6/30/2021	$304	$303	$372	$278
Total						$556

Traditional excess-of-loss reinsurance
(Amounts in millions)	Issue date	Policy dates	Initial first layer retained loss	Current first layer retained loss	Initial reinsurance coverage	Current reinsurance coverage
2020 XOL	1/01/2020	1/01/2020 - 12/31/2020	$691	$690	$168	$26
2021 XOL	2/04/2021	1/01/2021 - 12/31/2021	$671	$670	$206	$148
2022-1 XOL	1/27/2022	1/01/2022 - 12/31/2022	$462	$462	$196	$196
2022-2 XOL	1/27/2022	1/01/2022 - 12/31/2022	$385	$385	$25	$25
2022-3 XOL	3/24/2022	7/01/2021 - 12/31/2021	$317	$316	$289	$250
2022-4 XOL	3/24/2022	7/01/2021 - 12/31/2021	$264	$263	$36	$36
2022-5 XOL	9/15/2022	1/01/2022 - 6/30/2022	$256	$256	$201	$193
2023-1 XOL	3/08/2023	1/01/2023 - 12/31/2023	$313	$313	$137	$137
Total						$1,011

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On March 8, 2023, we executed an excess of loss reinsurance transaction with a panel of reinsurers, which provides up to $180 million of reinsurance coverage on a portion of current and expected new insurance written for the 2023 book year, effective January 1, 2023.

Quota Share Reinsurance

On June 30, 2023, EMICO engaged in a quota share reinsurance agreement with a panel of third-party reinsurers. Under the agreement, we cede premiums earned on all eligible policies in exchange for reimbursement of ceded claims and claims expenses on covered policies, a specific ceding commission and profit commission determined based on ceded claims. EMICO has rights to terminate the reinsurance agreement upon the occurrence of certain events. Reinsurance recoverables are recorded in Other assets on the consolidated balance sheets.

Agreement

Issue date

Policy dates

Ceding percentage

Ceding commission

Profit commission

QS 2023-1

6/30/2023

1/01/2023 - 12/31/2023

13.125%

20%

up to 55%

(7)Borrowings

In 2020, we issued $750 million aggregate principal amount of 6.5% senior notes due in 2025 (the “2025 Senior Notes”). Interest on the 2025 Senior Notes is payable semi-annually in arrears on February 15 and August 15 of each year. The 2025 Senior Notes mature on August 15, 2025.

The following table sets forth long-term borrowings as of the dates indicated:


(Amounts in thousands)	September 30, 2023		December 31, 2022
6.5% Senior Notes, due 2025	$	750,000	$	750,000
Deferred borrowing charges	(5,248)		(7,170)
Total	$	744,752	$	742,830

Revolving Credit Agreement

On June 30, 2022, we entered into a credit agreement with a syndicate of lenders that provides for a five-year, unsecured revolving credit facility (the “Facility”) in the initial aggregate principal amount of $200 million, including the ability for EHI to increase the commitments under the Facility, on an uncommitted basis, by an additional aggregate principal amount of up to $100 million. Borrowings under the Facility will accrue interest at a floating rate tied to a standard short-term borrowing index, selected at EHI’s option, plus an applicable margin. The applicable margin is based on the ratings established by certain debt rating agencies for EHI’s senior unsecured debt.

We may use borrowings under the Facility for working capital needs and general corporate purposes, including the execution of dividends to our shareholders and capital contributions to our insurance subsidiaries. The Facility contains several covenants, including financial covenants relating to minimum net worth, capital and liquidity levels, maximum debt to capitalization level and PMIERs compliance. We are in compliance with all covenants of the Facility and the Facility remained undrawn as of September 30, 2023.

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(8)Income taxes

We compute the provision for income taxes on a separate return with benefits-for-loss method. If during the three- and nine-month periods ended September 30, 2023 and 2022, we had computed taxes using the separate return method, the provision for income taxes would have been unchanged.

Our ability to realize deferred tax assets is largely dependent upon generating sufficient taxable income and capital gains in future years. We recorded a valuation allowance of $2.6 million through continuing operations and $10.0 million through accumulated other comprehensive income (loss) during the nine months ended September 30, 2023. These changes are due to realized losses on sales of securities and the increase in unrealized losses on fixed maturity securities available-for-sale in accumulated other comprehensive income for the Company and the consolidated tax group during the period.

(9)Related party transactions

We have various agreements with Genworth that provide for reimbursement to and from Genworth of certain administrative and operating expenses that include, but are not limited to, information technology services and administrative services (such as finance, human resources and employee benefit administration). These agreements provide for an allocation of corporate expenses to all Genworth businesses or subsidiaries. We incurred costs for these services of $4.2 million and $7.5 million for the three months ended September 30, 2023 and 2022, respectively. We incurred costs for these services of $13.4 million and $22.9 million for the nine months ended September 30, 2023 and 2022, respectively.

The investment portfolios of our insurance subsidiaries are managed by Genworth. Under the terms of the investment management agreement, we are charged a fee by Genworth. All fees paid to Genworth are charged to investment expense and are included in net investment income in the condensed consolidated statements of income. The total investment expenses paid to Genworth were $1.1 million and $1.4 million for the three months ended September 30, 2023 and 2022, respectively. The total investment expenses paid to Genworth were $4.4 million and $4.2 million for the nine months ended September 30, 2023 and 2022, respectively.

Our employees participate in certain benefit plans sponsored by Genworth and certain share-based compensation plans that utilize shares of Genworth common stock and other incentive plans.

We provide certain information technology and administrative services (such as facilities and maintenance) to Genworth. We charged Genworth $0.1 million and $0.2 million for these services for the three months ended September 30, 2023 and 2022, respectively. We charged Genworth $0.3 million and $0.6 million for these services for the nine months ended September 30, 2023 and 2022, respectively.

We have a tax sharing agreement in place with Genworth, such that we participate in a single U.S. consolidated income tax return filing. All intercompany balances related to this agreement are settled at least annually.

The condensed consolidated financial statements include the following amounts due to and from Genworth relating to recurring service and expense agreements as of:


(Amounts in thousands)	September 30, 2023		December 31, 2022
Amounts payable to Genworth	$	9,949	$	9,291
Amounts receivable from Genworth	$	153	$	167

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(10)Net income per common share

The basic earnings per share computation is based on the weighted average number of shares of common stock outstanding. For the nine months ended September 30, 2023 and 2022, the calculation of dilutive weighted average shares considers the impact of restricted stock units and performance stock units issued to employees as well as deferred stock units issued to our directors.

The calculation of basic and diluted net income per share is as follows:


	Three months ended September 30,				Nine months ended September 30,
(Amounts in thousands, except per share amounts)	2023		2022		2023		2022
Net income available to EHI common stockholders	$	164,195	$	190,986	$	508,203	$	560,351
Net income per common share:
Basic	$	1.03	$	1.17	$	3.15	$	3.44
Diluted	$	1.02	$	1.17	$	3.13	$	3.43
Weighted average common shares outstanding:
Basic	160,066		162,843		161,275		162,842
Diluted	161,146		163,376		162,165		163,219

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(11)Changes in accumulated other comprehensive income

The following tables present a roll forward of accumulated other comprehensive income for the three months indicated:


(Amounts in thousands)	Net unrealized investment gains (losses)		Foreign currency translation		Total
Balance as of July 1, 2023, net of tax	$	(345,386)	$	143	$	(345,243)

Other comprehensive income (loss) before reclassifications	(57,746)		12		(57,734)
Amounts reclassified from other comprehensive income (loss)	2,628		—		2,628
Total other comprehensive income (loss)	(55,118)		12		(55,106)
Balance as of September 30, 2023, net of tax	$	(400,504)	$	155	$	(400,349)

(Amounts in thousands)	Net unrealized investment gains (losses)		Foreign currency translation		Total
Balance as of July 1, 2022, net of tax	$	(293,113)	$	86	$	(293,027)

Other comprehensive income (loss) before reclassifications	(134,135)		44		(134,091)
Amounts reclassified from other comprehensive income (loss)	33		—		33
Total other comprehensive income (loss)	(134,102)		44		(134,058)
Balance as of September 30, 2022, net of tax	$	(427,215)	$	130	$	(427,085)

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present a roll forward of accumulated other comprehensive income for the nine months indicated:


(Amounts in thousands)	Net unrealized investment gains (losses)		Foreign currency translation		Total
Balance as of January 1, 2023, net of tax	$	(382,896)	$	152	$	(382,744)

Other comprehensive income (loss) before reclassifications	(30,593)		3		(30,590)
Amounts reclassified from other comprehensive income (loss)	12,985		—		12,985
Total other comprehensive income (loss)	(17,608)		3		(17,605)
Balance as of September 30, 2023, net of tax	$	(400,504)	$	155	$	(400,349)

(Amounts in thousands)	Net unrealized investment gains (losses)		Foreign currency translation		Total
Balance as of January 1, 2022, net of tax	$	83,588	$	(7)	$	83,581

Other comprehensive income (loss) before reclassifications	(511,541)		137		(511,404)
Amounts reclassified from other comprehensive income (loss)	738		—		738
Total other comprehensive income (loss)	(510,803)		137		(510,666)
Balance as of September 30, 2022, net of tax	$	(427,215)	$	130	$	(427,085)

The following table presents the effect of the reclassifications of significant items out of accumulated other comprehensive income on the respective line items of the consolidated statements of income, for the periods indicated:


	Amount reclassified from accumulated other comprehensive income								Affected line item in the condensed consolidated statements of income
	Three months ended September 30,				Nine months ended September 30,
(Amounts in thousands)	2023		2022		2023		2022
Net unrealized gains (losses) on investments	$	(36)	$	(42)	$	(13,146)	$	(935)	Net investment gains (losses)
Benefit (expense) from income taxes	(2,592)		9		161		197		Provision for income taxes

(12)Stockholders’ equity

Share Repurchase Program

On November 1, 2022, our Board of Directors approved a share repurchase program authorizing the Company to spend up to $75 million, excluding commissions, to repurchase EHI common stock in the open market or in privately negotiated transactions, based on market and business conditions, stock price and other factors. EHI generally operates its share repurchase programs pursuant to a trading plan under Rule 10b5-1 of the Exchange Act, which permits the Company to purchase shares, at predetermined price targets, when it may otherwise be precluded from doing so. In August 2023, we announced a new

ENACT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

share repurchase authorization which allows for the purchase of an additional $100 million of EHI common stock.

During the three months ended September 30, 2023, the Company purchased 241,946 shares at an average price of $25.96 per share, excluding commissions. During the nine months ended September 30, 2023, the Company purchased 2,863,891 shares at an average price of $24.30 per share, excluding commissions. As of September 30, 2023, $103.9 million remained available under the share repurchase programs. All treasury stock has been retired as of September 30, 2023.

Subsequent to quarter end, the Company purchased 294,876 shares at an average price of $27.13 through October 31, 2023.

Cash Dividends

We paid a quarterly cash dividend of $0.16 per share in the third quarter and second quarter of 2023 and $0.14 in the first quarter of 2023. In each of the second and third quarter of 2022, we paid dividends of $0.14 per share.

Subsequent to quarter end, we announced our quarterly dividend of $0.16 per share along with a special cash dividend of $113 million, or $0.71 per share to be paid during the fourth quarter of 2023.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes for the nine months ended September 30, 2023 and 2022, and our audited consolidated financial statements and related notes for the years ended December 31, 2022 and 2021 within our Annual Report on Form 10-K for the fiscal year ending December 31, 2022 (the “Annual Report”).

In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections entitled “Cautionary Note Regarding Forward-Looking Statements” above and Part I, Item 1A “Risk Factors” in our Annual Report. Future results could differ significantly from the historical results presented in this section. References to “EHI,” “Enact,” “Enact Holdings,” the “Company,” “we” or “our” herein are, unless the context otherwise requires, to EHI on a consolidated basis.

Key Factors Affecting Our Results

There have been no material changes to the factors affecting our results, as compared to those disclosed in the Annual Report, other than the impact of items as discussed below in “—Trends and Conditions.”

Trends and Conditions

During the third quarter of 2023, the United States economy faced uncertainty due to continued but lessening inflationary pressure, the geopolitical environment and persistent concerns around a possible recession.

Inflationary pressures have moderated in 2023, with the Bureau of Labor Statistics reporting in September that the Consumer Price Index was down to 3.7% year-over-year. The Federal Reserve has taken an aggressive approach towards addressing inflation through interest rate increases and a reduction of its balance sheet. The Federal Reserve raised rates by 25 basis points in July 2023, between pauses on interest rate hikes in November, September and June 2023. The Federal Reserve had previously announced 25 basis point increases in interest rates in both May and March 2023 and eight interest rate increases in 2022. Mortgage rates have continued to rise and reached more than 20-year highs during the third quarter of 2023.

Mortgage origination activity remained slow during the third quarter of 2023 in response to elevated mortgage rates and sustained low housing supply. The refinance market is likely to remain suppressed in the near to mid-term. Housing affordability continues to deteriorate due to high interest rates and elevated home prices, only marginally offset by rising median family income according to the National Association of Realtors Housing Affordability Index. After sustained periods of strong home price appreciation, national housing prices began to decline in late 2022, but have recovered and continued to rise throughout 2023, according to the FHFA Monthly Purchase-Only House Price Index.

The unemployment rate as of September 30, 2023, was 3.8%, up slightly from June 30, 2023. As of September 30, 2023, the number of unemployed Americans stands at approximately 6.4 million and the number of long-term unemployed Americans (over 26 weeks out of the workforce) was approximately 1.2 million. Both metrics remain relatively in line with February 2020 levels.

For mortgages insured by the federal government (including those purchased by Fannie Mae and Freddie Mac), forbearance has allowed borrowers impacted by COVID-19 to temporarily suspend mortgage payments up to 18 months subject to certain limits. An initial forbearance period is typically up to six months and can be extended for another six months if requested by the borrower to its mortgage servicer. However, the Biden Administration ended the national emergency for COVID-19 in April 2023,

so the deadline for requesting a COVID-19 related forbearance under the CARES Act ended in August of 2023. During the third quarter of 2023, the GSEs announced that their COVID-19 servicing-related policies with respect to forbearance would retire in November 2023.

Further, in March 2023 the GSEs announced new loss mitigation programs that would allow for six-month payment deferrals for borrowers facing financial hardship. Servicers were encouraged to start evaluating borrowers for the new mitigation programs as early as July 1, 2023, but no later than October 1, 2023. Even though most foreclosure moratoriums expired at the end of 2021, federal laws and regulations continue to require servicers to discuss loss mitigation options with borrowers before proceeding with foreclosures. These requirements could further extend the foreclosure timeline, which could negatively impact the severity of loss on loans that go to claim.

Although it is difficult to predict the future level of reported forbearance and how many of the policies in a forbearance plan that remain current on their monthly mortgage payment will go delinquent, servicer-reported forbearances have generally declined. As of September 30, 2023, approximately 1.2%, or 12,135, of our active primary policies were reported in a forbearance plan, of which approximately 30% were reported as delinquent.

Total delinquencies increased during the third quarter of 2023 as a result of new delinquencies outpacing cures. The new delinquency rate for the third quarter of 2023 was 1.2%, up slightly from the second quarter of 2023.

The full impact of COVID-19 and its ancillary economic effects on our future business results continue to be difficult to predict. Given the maximum length of forbearance plans, the resolution of a delinquency in a plan may not be known for several quarters. We continue to monitor regulatory and government actions and the resolution of forbearance delinquencies. While the associated risks have moderated and delinquencies have declined, it is possible that COVID-19 related forbearance programs could have an adverse impact on our future results of operations and financial condition.

The Federal Housing Finance Agency (“FHFA”) and the GSEs are focused on increasing the accessibility and affordability of homeownership, in particular for low- and moderate-income borrowers and underserved minority communities. In June 2022, the FHFA announced the release of Fannie Mae’s and Freddie Mac’s respective Equitable Housing Finance Plans. In April 2023, FHFA announced updates to Fannie Mae and Freddie Mac’s Equitable Housing Finance Plans which build upon the inaugural plans first announced last year and make adjustments based on initial research and findings. The proposals included many initiatives, including language discussing potential changes that could impact the mortgage insurance industry. We will continue to work with the FHFA, the GSEs, and the broader housing finance industry as these proposals develop and to the extent they are implemented. We cannot predict whether or when any new practices or programs will be implemented under the GSEs’ Equitable Housing Finance Plans or other affordability initiatives, and if so in what form, nor can we predict what effect, if any, such practices or programs may have on our business, results of operations or financial condition.

Private mortgage insurance market penetration and eventual market size are affected in part by actions that impact housing or housing finance policy taken by the GSEs and the U.S. government, including but not limited to, the Federal Housing Administration (“FHA”) and the FHFA. In the past, these actions have included announced changes, or potential changes, to underwriting standards, including changes to the GSEs’ automated underwriting systems, FHA pricing, GSE guaranty fees, loan limits and alternative products.

On October 24, 2022, the FHFA announced two initiatives: 1) targeted changes to the GSEs’ guarantee fee pricing by eliminating upfront fees for certain borrowers and affordable mortgage products, while implementing targeted increases to the upfront fees for most cash-out refinance loans; and 2) the validation and approval of both the FICO 10T credit score model and the VantageScore 4.0 credit score model for use by the GSEs as well as changing the requirement that lenders provide credit reports from

all three nationwide consumer reporting agencies and instead only requiring credit reports from two of the three nationwide credit reporting agencies.

The upfront fees were eliminated for certain first-time home buyers with income at or below area median income and certain other GSE affordable housing products. The fee reductions went into effect in the fourth quarter of 2022, while the new fees on cash-out refinance loans began on February 1, 2023. We expect these price changes to be a net positive to the mortgage insurance market, but we believe the impact is limited to date. The validation of the new credit scores requires lenders to deliver both credit scores for each loan sold to the GSEs. The FHFA has announced preliminary implementation expectations, but this is expected to be a multiple year process that will require system and process updates along with coordination across stakeholders of the industry.

In January 2023, the FHFA announced additional updates to its upfront fee structure and a recalibration and reformatting of their entire pricing matrix. The changes marked the third iteration of the FHFA’s ongoing pricing review since early last year and impact purchase and rate-term refinance loans. Pricing grids are now broken out by loan purpose and are recalibrated to new credit score and loan-to-value ratio categories along with associated loan attributes. The new pricing matrix initially included new upfront fees for loans with debt to income (“DTI”) ratios greater than 40%, but those fees were rescinded prior to implementation. The remaining changes became effective May 1, 2023.

On February 22, 2023, the Department of Housing and Urban Development announced a 30-basis point reduction of the annual insurance premium charged to borrowers with FHA-insured mortgages. This action is designed to reduce the cost of borrowing for lower- and middle-class homebuyers who are eligible for the federal program. The price reduction, which went into effect on March 20, 2023, is expected to have a negative impact on the private mortgage insurance market but will be partially offset by the effects of the recent FHFA pricing changes referenced above. We do not believe this net impact has been or will be material.

The U.S. private mortgage insurance industry is highly competitive. Our market share is influenced by the execution of our go to market strategy, including but not limited to, pricing competitiveness relative to our peers and our selective participation in forward commitment transactions. We continue to manage the quality of new business through pricing and our underwriting guidelines, which are modified from time to time when circumstances warrant. We see the market and underwriting conditions, including the pricing environment, as being within our risk-adjusted return appetite enabling us to write new business at attractive returns. Ultimately, we expect our new insurance written with its strong credit profile and attractive pricing to positively contribute to our future profitability and return on equity.

New insurance written of $14.4 billion in the third quarter of 2023 decreased 4% compared to the third quarter of 2022 primarily due to a decline in originations driven by elevated mortgage rates. Our primary persistency rate was 84% during the third quarter of 2023 compared to 82% during the third quarter of 2022. The increase in persistency was primarily driven by a decline in the percentage of our in-force policies with mortgage rates above current mortgage rates. Elevated persistency has continued to offset the decline in new insurance written, leading to an increase in primary insurance in-force (“IIF”) of $13.8 billion since December 31, 2022.

Net earned premiums increased approximately 4% in the third quarter of 2023 compared to the third quarter of 2022 primarily as a result of insurance in-force growth, partially offset by the lapse of older, higher priced policies and a decrease in single premium cancellations. The total number of delinquent loans has declined from the COVID-19 peak in the second quarter of 2020 as forbearance exits continue and new forbearances decline. During this time and consistent with prior years, servicers continued the practice of remitting premiums during the early stages of default, and we refund the post-delinquent premiums to the insured party if the delinquent loan goes to claim. We record a liability and a reduction to net earned premiums for the post-delinquent premiums we expect to refund. The post-delinquent premium liability recorded since the beginning of COVID-19 in the second quarter of 2020 through the third quarter of 2023 was not significant to the change in earned premiums for those periods.

Our loss ratio for the three months ended September 30, 2023, was 7% as compared to (17)% for the three months ended September 30, 2022. Both periods were impacted by favorable reserve adjustments. In the third quarter of 2023, we released $55 million of reserves primarily on delinquencies from prior years, related to favorable cure performance on delinquencies from 2022 and earlier, including a portion of those as a result of COVID-19. During the peak of COVID-19, we experienced elevated new delinquencies subject to forbearance plans. Those delinquencies have continued to cure at levels above our reserve expectations. Another component of the reserve release also related to delinquencies from 2022, as uncertainty in the economic environment has not negatively impacted cure performance to the extent initially expected. This compares to the third quarter of 2022, where we recorded a $105 million reserve release primarily related to cure performance of 2020 delinquencies. Losses during the third quarter of 2022 were also impacted by $25 million of reserve strengthening related to current accident year delinquencies due to uncertainty in the economic environment.

Borrowers who have experienced a financial hardship including, but not limited to, the loss of income due to the closing of a business or the loss of a job, continue to take advantage of available loss mitigation options, including forbearance programs, payment deferral options and other modifications. Loss reserves recorded on these delinquencies have a high degree of estimation due to the level of uncertainty regarding whether delinquencies in forbearance will ultimately cure or result in claim payments, as well as the timing and severity of those payments.

The severity of loss on loans that do go to claim may be negatively impacted by the extended forbearance and foreclosure timelines, the associated elevated expenses and the higher loan amount of the recent new delinquencies. These negative influences on loss severity could be mitigated, in part, by embedded home price appreciation. For loans insured on or after October 1, 2014, our mortgage insurance policies limit the number of months of unpaid interest and associated expenses that are included in the mortgage insurance claim amount to a maximum of 36 months.

New delinquencies in the third quarter of 2023 increased compared to the third quarter of 2022 primarily due to the aging of large, new books of business. Current period primary delinquencies of 11,107 contributed $72 million of loss expense in the third quarter of 2023. We incurred $39 million of losses from 9,121 current period delinquencies in the third quarter of 2022. In determining the loss expense estimate, considerations were given to recent cure and claim experience and the prevailing and prospective economic conditions. Approximately 12% of our primary new delinquencies in the third quarter of 2023 were subject to a forbearance plan as compared to 18% in the third quarter of 2022. Due to the declining number of new delinquencies in forbearance, we no longer differentiate the expected claim rates applied to new delinquencies in forbearance versus those not in forbearance.

As of September 30, 2023, EMICO’s risk-to-capital ratio under the current regulatory framework as established under North Carolina law and enforced by the North Carolina Department of Insurance (“NCDOI”), EMICO’s domestic insurance regulator, was approximately 11.6:1, compared with a risk-to-capital ratio of 12.9:1 and 12.3:1 as of December 31, 2022, and September 30, 2022, respectively. EMICO’s risk-to-capital ratio remains below the NCDOI’s maximum risk-to-capital ratio of 25:1. North Carolina’s calculation of risk-to-capital excludes the risk-in-force for delinquent loans given the established loss reserves against all delinquencies. EMICO’s ongoing risk-to-capital ratio will depend principally on the magnitude of future losses incurred by EMICO, the effectiveness of ongoing loss mitigation activities, new business volume and profitability, the impact of quota share reinsurance, the amount of policy lapses and the amount of additional capital that is generated or distributed by the business.

Under PMIERs, we are subject to operational and financial requirements that private mortgage insurers must meet in order to remain eligible to insure loans that are purchased by the GSEs. Additionally, in September 2020, subsequent to the issuance of our senior notes due in 2025, the GSEs imposed certain restrictions (the “GSE Restrictions”) with respect to capital on our business. In May 2021, in connection with their conditional approval of the then potential partial sale of EHI, the GSEs confirmed the GSE Restrictions would remain in effect until certain conditions (“GSE Conditions”) were met. These

conditions were met as of December 31, 2022, and the GSEs have confirmed that Enact is no longer subject to GSE Restrictions and Conditions.

As of September 30, 2023, we had estimated available assets of $5,268 million against $3,251 million net required assets under PMIERs compared to available assets of $5,093 million against $3,135 million net required assets as of June 30, 2023. The sufficiency ratio as of September 30, 2023, was 162%, or $2,017 million, above the PMIERs requirements, compared to 162%, or $1,958 million, above the PMIERs requirements as of June 30, 2023. PMIERs sufficiency for the quarter was flat as compared to June 30, 2023. Our PMIERs required assets as of September 30, 2023, and June 30, 2023, benefited from the application of a 0.30 multiplier applied to the risk-based required asset amount factor for certain non-performing loans as defined under PMIERs. The application of the 0.30 multiplier to all eligible delinquencies provided $86 million of benefit to our September 30, 2023, PMIERs required assets compared to $107 million of benefit as of June 30, 2023. These amounts are gross of any incremental reinsurance benefit from the elimination of the 0.30 multiplier. Our PMIERs required assets also benefited from a reinsurance credit of $1,505 million and $1,524 million related to third-party reinsurance as of September 30, 2023, and June 30, 2023, respectively.

During the second quarter of 2023, we contributed $250 million into Enact Re Ltd. (“Enact Re”), our wholly owned Bermuda-based subsidiary. Enact Re is expected to create value by addressing the opportunity for compelling risk-adjusted returns in the GSE credit risk transfer market and leverage affiliate quota share reinsurance for ratings and capital efficiency. We expect Enact Re to have a minimal impact on our overall expense structure and to contribute to increasing statutory dividend capacity over time. As of September 30, 2023, Enact Re assumed excess of loss reinsurance relating to GSE risk share and reinsures EMICO’s new and existing insurance in-force under quota share reinsurance agreements.

On February 16, 2023, S&P Global Ratings upgraded the long-term financial strength and issuer credit ratings of EMICO from BBB to BBB+. Moody’s Investors Service also upgraded the insurance financial strength rating of EMICO from Baa1 to A3 on March 1, 2023. On April 25, 2023, Fitch upgraded the insurance financial strength rating of EMICO from BBB+ to A-. These ratings reflect our continued strong performance including our credit profile, market position, profitability, capital adequacy and financial flexibility.

On August 1, 2023, A.M. Best initiated public ratings of EMICO and Enact Re. Both entities received A- ratings with stable outlooks.

On June 30, 2023, we executed a quota share reinsurance contract with a panel of reinsurers. Under the agreement, we cede 13.125% of a portion of NIW written from January 1, 2023, through December 31, 2023.

On April 26, 2022, our Board of Directors approved the initiation of a dividend program under which the Company intends to pay a quarterly cash dividend, subject to approval by our Board of Directors each quarter. We paid quarterly dividends of $0.14 per share in March of 2023 and May, September and December of 2022. On May 1, 2023, we announced an increase of our quarterly dividend to $0.16 per share which was paid in June and September 2023. Future dividend payments are subject to quarterly review and approval by our Board of Directors and Genworth and will be targeted to be paid in the third month of each subsequent quarter. In April 2023, our primary mortgage insurance operating company, EMICO, completed a distribution to EHI that supports our ability to pay a quarterly dividend. We intend to use these proceeds and future EMICO distributions to fund the quarterly dividend as well as to bolster our financial flexibility and potentially return additional capital to shareholders.

On August 1, 2023, we announced the authorization of a new share repurchase program which allows for the repurchase of up to an additional $100 million of EHI’s common stock. Under the program,

share repurchases may be made at our discretion from time to time in open market transactions, privately negotiated transactions, or by other means, including through Rule 10b5-1 trading plans. In conjunction with this authorization, we have entered into an agreement with Genworth Holdings, Inc. to repurchase its EHI shares on a pro rata basis as part of the program. The share repurchase program is not expected to change Genworth’s ownership interest in Enact post completion. We expect the timing and amount of any future share repurchases will be opportunistic and will depend on a variety of factors, including EHI’s share price, capital availability, business and market conditions, regulatory requirements, and debt covenant restrictions. The program does not obligate EHI to acquire any amount of common stock, it may be suspended or terminated at any time at the Company’s discretion without prior notice, and it does not have a specified expiration date.

Subsequent to quarter end on November 1, 2023, we announced our quarterly dividend of $0.16 per share along with a special cash dividend of $113 million, or $0.71 per share to be paid during the fourth quarter of 2023.

Returning capital to shareholders, balanced with our growth and risk management priorities, remains a key commitment as we look to drive shareholder value through time. Future return of capital will be shaped by our capital prioritization framework: supporting our existing policyholders, growing our mortgage insurance business, funding attractive new business opportunities and returning capital to shareholders. Our total return of capital will also be based on our view of the prevailing and prospective macroeconomic conditions, regulatory landscape and business performance.

Results of Operations and Key Metrics

Results of Operations

Three months ended September 30, 2023, compared to three months ended September 30, 2022

The following table sets forth our consolidated results for the periods indicated:


	Three months ended September 30,						Increase (decrease) and percentage change
(Amounts in thousands)	2023			2022			2023 vs. 2022
Revenues:
Premiums	$	243,346		$	235,060		$	8,286	4	%
Net investment income	54,952			39,493			15,459		39	%
Net investment gains (losses)	(23)			(42)			19		(45)	%
Other income	760			564			196		35	%
Total revenues	299,035			275,075			23,960		9	%
Losses and expenses:
Losses incurred	17,847			(40,309)			58,156		(144)	%
Acquisition and operating expenses, net of deferrals	52,339			54,523			(2,184)		(4)	%
Amortization of deferred acquisition costs and intangibles	2,803			3,338			(535)		(16)	%
Interest expense	12,941			12,879			62		—	%
Total losses and expenses	85,930			30,431			55,499		182	%
Income before income taxes	213,105			244,644			(31,539)		(13)	%
Provision for income taxes	48,910			53,658			(4,748)		(9)	%
Net income	$	164,195		$	190,986		$	(26,791)	(14)	%
Loss ratio (1)	7		%	(17)		%
Expense ratio (2)	23		%	25		%
Net earned premium rate (3)	0.37		%	0.39		%

_______________

(1)Loss ratio is calculated by dividing losses incurred by net earned premiums.

(2)Expense ratio is calculated by dividing acquisition and operating expenses, net of deferrals, plus amortization of deferred acquisition costs and intangibles by net earned premiums.

(3)Net earned premium rate is calculated by dividing earned premium by average primary IIF.

Revenues

Premiums increased for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily as a result of insurance in-force growth, partially offset by the lapse of older, higher priced policies and a decrease in single premium cancellations. The net earned premium rate decreased to 0.37% for the three months ended September 30, 2023, from 0.39% for the three months ended September 30, 2022, primarily as a result of this lapse of higher priced policies and lower single policy cancellations partially offset by the impact of ceded premiums.

Net investment income increased for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to higher yields as a result of rising interest rates coupled with higher average invested assets.

Net investment losses in the third quarter of 2023 and 2022 were driven by realized losses on the sale of fixed maturity securities.

Losses and expenses

Losses incurred during the third quarter of 2023 and 2022 were both impacted by prior year development. In the third quarter of 2023, we recorded a reserve release of $55 million primarily related to better than expected cure performance on delinquencies from 2022 and earlier, including a portion of those as a result of COVID-19. A component of the reserve release also related to delinquencies from 2022, as uncertainty in the economic environment has not negatively impacted cure performance to the extent initially expected. In the third quarter of 2022, we recorded a $105 million reserve release primarily related to 2020 delinquencies. Losses from the third quarter of 2022 were also impacted by $25 million of reserve strengthening related to current accident year delinquencies due to uncertainty in the economic environment. Current period primary delinquencies of 11,107 contributed $72 million of loss expense in the three months ended September 30, 2023. This compares to $39 million of loss expense from 9,121 primary delinquencies in the third quarter of 2022.

The following table shows incurred losses related to current and prior accident years for the three months ended September 30,:


(Amounts in thousands)	2023		2022
Losses and LAE incurred related to current accident year	$	78,557	$	62,942
Losses and LAE incurred related to prior accident years	(60,532)		(103,241)
Total incurred (1)	$	18,025	$	(40,299)

_______________

(1)Excludes run-off business.

Acquisition and operating expenses, net of deferrals, decreased for the three months ended September 30, 2023, driven by the impact of our cost reduction initiatives, including the impact from our previously announced renegotiated shared services agreement with Genworth and our voluntary separation program executed in the fourth quarter of 2022.

The expense ratio decreased in the current quarter due to a decline in expenses.

Interest expense primarily relates to our 2025 Senior Notes. For additional details see Note 7 to our unaudited condensed consolidated financial statements for the three months ended September 30, 2023 and 2022.

Provision for income taxes

The effective tax rate was 23.0% and 21.9% for the three months ended September 30, 2023 and 2022, respectively. The tax rate in the third quarter of 2023 was impacted by the valuation allowance against deferred tax assets associated with realized losses on fixed maturity securities during 2023.

Nine months ended September 30, 2023, compared to nine months ended September 30, 2022

The following table sets forth our consolidated results for the periods indicated:


	Nine months ended September 30,						Increase (decrease) and percentage change
(Amounts in thousands)	2023			2022			2023 vs. 2022
Revenues:
Premiums	$	716,974		$	706,725		$	10,249	1	%
Net investment income	151,208			110,415			40,793		37	%
Net investment gains (losses)	(13,146)			(762)			(12,384)		1625	%
Other income	2,460			1,826			634		35	%
Total revenues	857,496			818,204			39,292		5	%
Losses and expenses:
Losses incurred	2,793			(112,318)			115,111		(102)	%
Acquisition and operating expenses, net of deferrals	155,931			166,986			(11,055)		(7)	%
Amortization of deferred acquisition costs and intangibles	8,088			9,658			(1,570)		(16)	%
Interest expense	38,919			38,441			478		1	%
Total losses and expenses	205,731			102,767			102,964		100	%
Income before income taxes	651,765			715,437			(63,672)		(9)	%
Provision for income taxes	143,562			155,086			(11,524)		(7)	%
Net income	$	508,203		$	560,351		$	(52,148)	(9)	%
Loss ratio (1)	—		%	(16)		%
Expense ratio (2)	23		%	25		%
Net earned premium rate (3)	0.37		%	0.40		%

_______________

(1)Loss ratio is calculated by dividing losses incurred by net earned premiums.

(2)Expense ratio (net earned premiums) is calculated by dividing acquisition and operating expenses, net of deferrals, plus amortization of DAC and intangibles by net earned premiums.

(3)Net earned premium rate is calculated by dividing earned premium by average primary IIF.

Revenues

Premiums increased for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily attributable to insurance in-force growth, partially offset by the continued lapse of older, higher priced policies and a decrease in single premium cancellations. The net earned premium rate decreased to 0.37% for the nine months ended September 30, 2023 from 0.40% for the nine months ended September 30, 2022 as a result of this lapse of higher priced policies and lower single premium cancellations.

Net investment income increased for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily attributable to an increase in investment yields in the current year and higher average invested assets.

Net investment losses in the current year were primarily driven by the sale of fixed income securities as part of an investment strategy designed to optimize yield on our portfolio over time.

Losses and expenses

Losses incurred during the first nine months of 2023 and 2022 were both impacted by favorable reserve adjustments. During the first nine months of 2023, we released reserves of $188 million primarily due to better than expected cure experience on delinquencies from 2022 and earlier, including a portion of those related to the emergence of COVID-19. A component of the reserve release also related to delinquencies from 2022, as uncertainty in the economic environment has not negatively impacted cure performance to the extent initially expected. During the first nine months of 2022, we recorded $251 million of reserve releases. Losses from the first nine months of 2022 were also impacted by $25 million of reserve strengthening related to current accident year delinquencies due to uncertainty in the economic environment. New primary delinquencies of 29,911 contributed $188 million of loss expense in the first nine months of 2023. This compares to $113 million of loss expense from 25,692 new primary delinquencies in the first nine months of 2022.

The following table shows incurred losses related to current and prior accident years for the nine months ended September 30,:


(Amounts in thousands)	2023		2022
Losses and LAE incurred related to current accident year	$	198,732	$	138,504
Losses and LAE incurred related to prior accident years	(195,898)		(250,799)
Total incurred (1)	$	2,834	$	(112,295)

_______________

(1)Excludes run-off business.

Acquisition and operating expenses, net of deferrals, decreased primarily attributable to the impact of our cost reduction initiatives, including the impact from our previously announced renegotiated shared services agreement with Genworth and our voluntary separation program executed in the fourth quarter of 2022.

The expense ratio decreased in the current quarter due to a decline in expenses.

Interest expense primarily relates to our 2025 Senior Notes and increased as the notes were outstanding for only a portion of the nine months ended September 30, 2023. For additional details see Note 7 to our unaudited condensed consolidated financial statements for the nine months ended September 30, 2023 and 2022.

Provision for income taxes

The effective tax rate was 22.0% and 21.7% for the nine months ended September 30, 2023 and 2022, respectively, consistent with the United States corporate federal income tax rate.

Use of Non-GAAP Financial Measures

We use a non-U.S. GAAP (“non-GAAP”) financial measure entitled “adjusted operating income.” This non-GAAP financial measure aligns with the way our business performance is evaluated by both management and our Board of Directors. This measure has been established in order to increase transparency for the purposes of evaluating our core operating trends and enabling more meaningful comparisons with our peers. Although “adjusted operating income” is a non-GAAP financial measure, for the reasons discussed above we believe this measure aids in understanding the underlying performance of our operations. Our senior management, including our chief operating decision maker (who is our Chief Executive Officer), use “adjusted operating income” as the primary measure to evaluate the fundamental financial performance of our business and to allocate resources.

“Adjusted operating income” is defined as U.S. GAAP net income excluding the effects of (i) net investment gains (losses) and (ii) restructuring costs and infrequent or unusual non-operating items.

(i)Net investment gains (losses) — 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.

(ii)Restructuring costs and infrequent or unusual non-operating items are also excluded from adjusted operating income if, in our opinion, they are not indicative of overall operating trends.

In reporting non-GAAP measures in the future, we may make other adjustments for expenses and gains we do not consider reflective of core operating performance in a particular period. We may disclose other non-GAAP operating measures if we believe that such a presentation would be helpful for investors to evaluate our operating condition by including additional information.

Adjusted operating income is not a measure of total profitability, and therefore should not be considered in isolation or viewed as a substitute for U.S. GAAP net income. Our definition of adjusted operating income may not be comparable to similarly named measures reported by other companies, including our peers.

Adjustments to reconcile net income to adjusted operating income assume a 21% tax rate (unless otherwise indicated).

The following table includes a reconciliation of net income to adjusted operating income for the periods indicated:


	Three months ended September 30,
(Amounts in thousands)	2023		2022
Net income	$	164,195	$	190,986
Adjustments to net income:
Net investment (gains) losses	23		42
Costs associated with reorganization	3		(156)
Taxes on adjustments	(5)		24
Adjusted operating income	$	164,216	$	190,896

Adjusted operating income decreased for the three months ended September 30, 2023, as compared to September 30, 2022, primarily due to the larger reserve release in the third quarter of 2022, partially offset by higher revenues and lower operating expenses during the third quarter of 2023.


	Nine months ended September 30,
(Amounts in thousands)	2023		2022
Net income	$	508,203	$	560,351
Adjustments to net income:
Net investment (gains) losses	13,146		762
Costs associated with reorganization	(539)		170
Taxes on adjustments	(2,647)		(196)
Adjusted operating income	$	518,163	$	561,087

Adjusted operating income decreased for the nine months ended September 30, 2023, as compared to September 30, 2022, primarily due to the larger reserve release in 2022, partially offset by higher revenues and lower operating expenses during 2023.

Key Metrics

Management reviews the key metrics included within this section when analyzing the performance of our business. The metrics provided in this section exclude activity related to our run-off business, which is immaterial to our consolidated results.

The following table sets forth selected operating performance measures on a primary basis as of or for the periods indicated:


	Three months ended September 30,
(Dollar amounts in millions)	2023		2022
New insurance written	$14,391		$15,069
Primary insurance in-force(1)	$262,014		$241,813
Primary risk in-force	$67,056		$61,124
Persistency rate	84	%	82	%
Policies in-force (count)	977,832		949,052
Delinquent loans (count)	19,241		18,856
Delinquency rate	1.97	%	1.99	%

	Nine months ended September 30, 2023
(Dollar amounts in millions)	2023		2022
New insurance written	$42,628		$51,340
Persistency rate	84	%	79	%

_______________

(1)Represents the aggregate unpaid principal balance for loans we insure.

New insurance written (“NIW”)

NIW for the three months ended September 30, 2023, decreased 4% compared to the three months ended September 30, 2022. The decrease was primarily due to lower originations in the current period largely driven by elevated mortgage rates. We manage the quality of new business through pricing and our underwriting guidelines, which we modify from time to time as circumstances warrant.

The following table presents NIW by product for the periods indicated:


	Three months ended September 30,								Nine months ended September 30,
(Amounts in millions)	2023				2022				2023				2022
Primary	$	14,391	100	%	$	15,069	100	%	$	42,628	100	%	$	51,340	100	%
Pool	—		—		—		—		—		—		—		—
Total	$	14,391	100	%	$	15,069	100	%	$	42,628	100	%	$	51,340	100	%

The following table presents primary NIW by underlying type of mortgage for the periods indicated:


	Three months ended September 30,								Nine months ended September 30,
(Amounts in millions)	2023				2022				2023				2022
Purchases	$	14,073	98	%	$	14,634	97	%	$	41,554	97	%	$	48,762	95	%
Refinances	318		2		435		3		1,074		3		2,578		5
Total	$	14,391	100	%	$	15,069	100	%	$	42,628	100	%	$	51,340	100	%

The following table presents primary NIW by policy payment type for the periods indicated:


	Three months ended September 30,								Nine months ended September 30,
(Amounts in millions)	2023				2022				2023				2022
Monthly	$	14,099	98	%	$	14,138	94	%	$	41,682	98	%	$	47,378	92	%
Single	269		2		890		6		868		2		3,798		8
Other	23		—		41		—		78		—		164		—
Total	$	14,391	100	%	$	15,069	100	%	$	42,628	100	%	$	51,340	100	%

We have seen a decline in NIW on single policies as a result of a reduction in the market for single policies driven by higher mortgage rates.

The following table presents primary NIW by FICO score for the periods indicated:


	Three months ended September 30,
(Amounts in millions)	2023				2022
Over 760	$	6,679	46	%	$	6,948	46	%
740-759	2,438		17		2,554		17
720-739	1,928		13		2,106		14
700-719	1,422		10		1,531		10
680-699	974		7		1,085		7
660-679 (1)	592		4		527		3
640-659	282		2		234		2
620-639	74		1		79		1
<620	2		—		5		—
Total	$	14,391	100	%	$	15,069	100	%


	Nine months ended September 30,
(Amounts in millions)	2023				2022
Over 760	$	19,594	46	%	$	23,288	45	%
740-759	7,314		17		8,555		17
720-739	5,842		14		7,151		14
700-719	4,217		10		5,400		10
680-699	2,988		7		3,500		7
660-679 (1)	1,677		4		2,056		4
640-659	771		2		1,017		2
620-639	215		—		358		1
<620	10		—		15		—
Total	$	42,628	100	%	$	51,340	100	%

______________

(1)Loans with unknown FICO scores are included in the 660-679 category.

LTV ratio is calculated by dividing the original loan amount, excluding financed premium, by the property’s acquisition value or fair market value at the time of origination. The following table presents primary NIW by LTV ratio for the periods indicated:


	Three months ended September 30,
(Amounts in millions)	2023				2022
95.01% and above	$	2,677	18	%	$	1,741	11	%
90.01% to 95.00%	5,431		38		6,184		41
85.01% to 90.00%	4,568		32		5,094		34
85.00% and below	1,715		12		2,050		14
Total	$	14,391	100	%	$	15,069	100	%

	Nine months ended September 30,
(Amounts in millions)	2023				2022
95.01% and above	$	7,475	17	%	$	7,064	14	%
90.01% to 95.00%	16,102		38		20,324		39
85.01% to 90.00%	13,711		32		15,921		31
85.00% and below	5,340		13		8,031		16
Total	$	42,628	100	%	$	51,340	100	%

DTI ratio is calculated by dividing the borrower’s total monthly debt obligations by total monthly gross income. The following table presents primary NIW by DTI ratio for the periods indicated:


	Three months ended September 30,
(Amounts in millions)	2023				2022
45.01% and above	$	4,437	31	%	$	3,728	25	%
38.01% to 45.00%	4,936		34		5,681		38
38.00% and below	5,018		35		5,660		37
Total	$	14,391	100	%	$	15,069	100	%

	Nine months ended September 30,
(Amounts in millions)	2023				2022
45.01% and above	$	12,442	29	%	$	12,247	24	%
38.01% to 45.00%	15,090		35		18,478		36
38.00% and below	15,096		36		20,615		40
Total	$	42,628	100	%	$	51,340	100	%

We have seen an increase in concentrations of loans with higher DTI ratios. This is in line with market trends as rising mortgage rates and recent home price appreciation have put pressure on affordability. We believe the levels are in line with our current risk appetite as we consider layered risk across multiple risk attributes, pricing and our portfolio credit mix.

Insurance in-force (“IIF”) and Risk in-force (“RIF”)

IIF increased as a result of NIW. Higher interest rates and the low refinance market led to lower lapse and cancellations during the third quarter of 2023 driving continued elevated persistency. The primary persistency rate was 84% and 82% for the three months ended September 30, 2023 and 2022, respectively. RIF increased primarily as a result of higher IIF.

The following table sets forth IIF and RIF as of the dates indicated:


(Amounts in millions)	September 30, 2023				December 31, 2022				September 30, 2022
Primary IIF	$	262,014	100	%	$	248,262	100	%	$	241,813	100	%
Pool IIF	451		—		505		—		531		—
Total IIF	$	262,465	100	%	$	248,767	100	%	$	242,344	100	%

Primary RIF	$	67,056	100	%	$	62,791	100	%	$	61,124	100	%
Pool RIF	70		—		79		—		84		—
Total RIF	$	67,126	100	%	$	62,870	100	%	$	61,208	100	%

The following table sets forth primary IIF and primary RIF by origination as of the dates indicated:


(Amounts in millions)	September 30, 2023				December 31, 2022				September 30, 2022
Purchases IIF	$	228,431	87	%	$	207,827	84	%	$	199,322	82	%
Refinances IIF	33,583		13		40,435		16		42,491		18
Total IIF	$	262,014	100	%	$	248,262	100	%	$	241,813	100	%

Purchases RIF	$	59,640	89	%	$	54,165	86	%	$	52,134	85	%
Refinances RIF	7,416		11		8,626		14		8,990		15
Total RIF	$	67,056	100	%	$	62,791	100	%	$	61,124	100	%

The following table sets forth primary IIF and primary RIF by product as of the dates indicated:


(Amounts in millions)	September 30, 2023				December 31, 2022				September 30, 2022
Monthly IIF	$	232,150	88	%	$	216,831	87	%	$	211,062	87	%
Single IIF	27,853		11		29,275		12		28,550		12
Other IIF	2,011		1		2,156		1		2,201		1
Total IIF	$	262,014	100	%	$	248,262	100	%	$	241,813	100	%

Monthly RIF	$	60,498	90	%	$	55,879	89	%	$	54,247	89	%
Single RIF	6,050		9		6,370		10		6,324		10
Other RIF	508		1		542		1		553		1
Total RIF	$	67,056	100	%	$	62,791	100	%	$	61,124	100	%

The following table sets forth primary IIF by policy year as of the dates indicated:


(Amounts in millions)	September 30, 2023				December 31, 2022				September 30, 2022
2008 and prior	$	5,859	2	%	$	6,596	3	%	$	6,849	3	%
2009 to 2015	3,819		1		5,025		2		5,426		2
2016	4,948		2		6,296		2		6,772		3
2017	5,582		2		6,495		3		6,818		3
2018	5,993		2		6,839		3		7,133		3
2019	14,372		6		16,352		7		17,070		7
2020	46,881		18		55,358		22		58,497		24
2021	73,141		28		81,724		33		83,740		35
2022	60,258		23		63,577		25		49,508		20
2023	41,161		16		—		—		—		—
Total	$	262,014	100	%	$	248,262	100	%	$	241,813	100	%

The following table sets forth primary RIF by policy year as of the dates indicated:


(Amounts in millions)	September 30, 2023				December 31, 2022				September 30, 2022
2008 and prior	$	1,510	2	%	$	1,699	3	%	$	1,764	3	%
2009 to 2015	1,004		2		1,341		2		1,449		2
2016	1,327		2		1,681		3		1,805		3
2017	1,471		2		1,708		3		1,792		3
2018	1,535		2		1,736		3		1,806		3
2019	3,676		5		4,143		7		4,313		7
2020	12,228		18		14,158		22		14,891		25
2021	18,524		28		20,418		32		20,848		34
2022	15,129		23		15,907		25		12,456		20
2023	10,652		16		—		—		—		—
Total	$	67,056	100	%	$	62,791	100	%	$	61,124	100	%

The following table presents the development of primary IIF for the periods indicated:


	Three months ended September 30,
(Amounts in millions)	2023		2022
Beginning balance	$	257,816	$	237,563
NIW	14,391		15,069
Cancellations, principal repayments and other reductions (1)	(10,193)		(10,819)
Ending balance	$	262,014	$	241,813


	Nine months ended September 30,
(Amounts in millions)	2023		2022
Beginning balance	$	248,262	$	226,514
NIW	42,628		51,340
Cancellations, principal repayments and other reductions (1)	(28,876)		(36,041)
Ending balance	$	262,014	$	241,813

______________

(1)Includes the estimated amortization of unpaid principal balance of covered loans.

The following table sets forth primary IIF by LTV ratio at origination as of the dates indicated:


(Amounts in millions)	September 30, 2023				December 31, 2022				September 30, 2022
95.01% and above	$	44,071	17	%	$	39,509	16	%	$	38,099	16	%
90.01% to 95.00%	109,019		42		103,618		42		101,164		42
85.01% to 90.00%	77,121		29		72,132		29		69,803		29
85.00% and below	31,803		12		33,003		13		32,747		13
Total	$	262,014	100	%	$	248,262	100	%	$	241,813	100	%

The following table sets forth primary RIF by LTV ratio at origination as of the dates indicated:


(Amounts in millions)	September 30, 2023				December 31, 2022				September 30, 2022
95.01% and above	$	12,595	19	%	$	11,136	18	%	$	10,809	18	%
90.01% to 95.00%	31,696		47		30,079		48		29,379		48
85.01% to 90.00%	18,945		28		17,621		28		17,019		28
85.00% and below	3,820		6		3,955		6		3,917		6
Total	$	67,056	100	%	$	62,791	100	%	$	61,124	100	%

The following table sets forth primary IIF by FICO score at origination as of the dates indicated:


(Amounts in millions)	September 30, 2023				December 31, 2022				September 30, 2022
Over 760	$	109,701	42	%	$	102,467	41	%	$	99,177	41	%
740-759	42,899		16		40,097		16		38,731		16
720-739	36,889		14		34,916		14		33,874		14
700-719	29,818		12		28,867		12		28,384		12
680-699	21,993		9		21,554		9		21,294		9
660-679 (1)	11,351		4		10,926		4		10,842		4
640-659	6,166		2		6,095		3		6,115		3
620-639	2,548		1		2,630		1		2,663		1
<620	649		—		710		—		733		—
Total	$	262,014	100	%	$	248,262	100	%	$	241,813	100	%

______________

(1)Loans with unknown FICO scores are included in the 660-679 category.

The following table sets forth primary RIF by FICO score at origination as of the dates indicated:


(Amounts in millions)	September 30, 2023				December 31, 2022				September 30, 2022
Over 760	$	28,014	42	%	$	25,807	41	%	$	24,965	41	%
740-759	11,009		17		10,154		16		9,808		16
720-739	9,553		14		8,931		14		8,656		14
700-719	7,615		12		7,317		12		7,200		12
680-699	5,582		8		5,428		9		5,356		9
660-679 (1)	2,901		4		2,767		5		2,739		4
640-659	1,569		2		1,540		2		1,541		3
620-639	647		1		665		1		672		1
<620	166		—		182		—		187		—
Total	$	67,056	100	%	$	62,791	100	%	$	61,124	100	%

______________

(1)Loans with unknown FICO scores are included in the 660-679 category.

The following table sets forth primary IIF by DTI score at origination as of the dates indicated:


(Amounts in millions)	September 30, 2023				December 31, 2022				September 30, 2022
45.01% and above	$	51,810	20	%	$	43,831	18	%	$	40,846	17	%
38.01% to 45.00%	93,228		35		87,816		35		85,226		35
38.00% and below	116,976		45		116,615		47		115,741		48
Total	$	262,014	100	%	$	248,262	100	%	$	241,813	100	%

The following table sets forth primary RIF by DTI score at origination as of the dates indicated:


(Amounts in millions)	September 30, 2023				December 31, 2022				September 30, 2022
45.01% and above	$	13,369	20	%	$	11,176	18	%	$	10,393	17	%
38.01% to 45.00%	23,846		36		22,268		35		21,603		35
38.00% and below	29,841		44		29,347		47		29,128		48
Total	$	67,056	100	%	$	62,791	100	%	$	61,124	100	%

Delinquent loans and claims

Our delinquency management process begins with notification by the loan servicer of a delinquency on an insured loan. “Delinquency” is defined in our master policies as the borrower’s failure to pay when due an amount equal to the scheduled monthly mortgage payment under the terms of the mortgage. Generally, the master policies require an insured to notify us of a delinquency if the borrower fails to make two consecutive monthly mortgage payments prior to the due date of the next mortgage payment. We generally consider a loan to be delinquent and establish required reserves after the insured notifies us that the borrower has failed to make two scheduled mortgage payments. Borrowers may cure delinquencies by making all of the delinquent loan payments, agreeing to a loan modification, or by selling the property in full satisfaction of all amounts due under the mortgage. In most cases, delinquencies that are not cured result in a claim under our policy.

The following table sets forth a roll forward of the number of primary loans in default for the periods indicated:


	Nine months ended September 30,
(Loan count)	2023	2022
Number of delinquencies, beginning of period	19,943	24,820
New defaults	29,911	25,692
Cures	(30,158)	(31,254)
Claims paid	(429)	(384)
Rescissions and claim denials	(26)	(18)
Number of delinquencies, end of period	19,241	18,856

The following table sets forth changes in our direct primary case loss reserves for the periods indicated:


	Nine months ended September 30,
(Amounts in thousands) (1)	2023		2022
Loss reserves, beginning of period	$	479,343	$	606,102
Claims paid	(21,155)		(18,777)
Change in reserve	1,728		(111,262)
Loss reserves, end of period	$	459,916	$	476,063

______________

(1)Direct primary case reserves exclude LAE, IBNR and reinsurance reserves.

The following tables set forth primary delinquencies, direct case reserves and RIF by aged missed payment status as of the dates indicated:


	September 30, 2023
(Dollar amounts in millions)	Delinquencies	Direct primary case reserves (1)		Risk in-force		Reserves as % of risk in-force
Payments in default:
3 payments or less	9,398	$	80	$	568	14	%
4 - 11 payments	6,381	192		426		45	%
12 payments or more	3,462	188		201		94	%
Total	19,241	$	460	$	1,195	38	%


	December 31, 2022
(Dollar amounts in millions)	Delinquencies	Direct primary case reserves (1)		Risk in-force		Reserves as % of risk in-force
Payments in default:
3 payments or less	8,920	$	69	$	509	14	%
4 - 11 payments	6,466	166		390		43	%
12 payments or more	4,557	244		248		98	%
Total	19,943	$	479	$	1,147	42	%


	September 30, 2022
(Dollar amounts in millions)	Delinquencies	Direct primary case reserves (1)		Risk in-force		Reserves as % of risk in-force
Payments in default:
3 payments or less	7,446	$	48	$	401	12	%
4 - 11 payments	6,119	146		358		41	%
12 payments or more	5,291	282		295		96	%
Total	18,856	$	476	$	1,054	45	%

______________

(1)Direct primary case reserves exclude LAE, incurred but not reported and reinsurance reserves.

Reserves as a percentage of RIF as of September 30, 2023, decreased compared to December 31, 2022, and September 30, 2022 as long-term delinquencies with higher reserves have continued to cure. The number of loans that are delinquent for 12 months or more has decreased to be more in line with pre-COVID-19 levels. Due to continued forbearance options, foreclosure moratoriums and the uncertainty around the lack of progression through the foreclosure process there is still uncertainty around the likelihood and timing of delinquencies going to claim.

Primary insurance delinquency rates differ from region to region in the United States at any one time depending upon economic conditions and cyclical growth patterns. Delinquency rates are shown by region based upon the location of the underlying property, rather than the location of the lender.

The table below sets forth our primary delinquency rates for the ten largest states by our primary RIF as of September 30, 2023:


	Percent of RIF		Percent of direct primary case reserves		Delinquency rate
By State:
California	13	%	12	%	2.10	%
Texas	8		8		2.12	%
Florida (1)	8		9		2.16	%
New York (1)	5		12		2.89	%
Illinois (1)	4		6		2.40	%
Arizona	4		2		1.74	%
Michigan	4		3		1.72	%
Georgia	3		3		2.14	%
North Carolina	3		2		1.41	%
Washington	3		2		1.64	%
All other states (2)	45		41		1.84	%
Total	100	%	100	%	1.97	%

______________

(1)Jurisdiction predominantly uses a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.

(2)Includes the District of Columbia.

The table below sets forth our primary delinquency rates for the ten largest states by our primary RIF as of December 31, 2022:


	Percent of RIF		Percent of direct primary case reserves		Delinquency rate
By State:
California	12	%	10	%	2.09	%
Texas	8		7		2.12	%
Florida (1)	8		8		2.54	%
New York (1)	5		13		2.95	%
Illinois (1)	5		6		2.54	%
Arizona	4		2		1.78	%
Michigan	4		3		1.79	%
North Carolina	3		3		1.59	%
Georgia	3		3		2.23	%
Washington	3		3		1.92	%
All Other States (2)	45		42		1.94	%
Total	100	%	100	%	2.08	%

______________

(1)Jurisdiction predominantly uses a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.

(2)Includes the District of Columbia.

The table below sets forth our primary delinquency rates for the ten largest Metropolitan Statistical Areas (“MSA”) or Metro Divisions (“MD”) by our primary RIF as of September 30, 2023:


	Percent of RIF		Percent of direct primary case reserves		Delinquency rate
By MSA or MD:
Phoenix, AZ MSA	3	%	2	%	1.77	%
Chicago-Naperville, IL MD	3		4		2.67	%
Atlanta, GA MSA	3		3		2.32	%
New York, NY MD	2		8		3.62	%
Washington-Arlington, DC MD	2		2		1.75	%
Houston, TX MSA	2		3		2.69	%
Los Angeles-Long Beach, CA MD	2		2		2.28	%
Riverside-San Bernardino, CA MSA	2		3		2.71	%
Dallas, TX MD	2		1		1.69	%
Denver-Aurora-Lakewood, CO MSA	2		1		1.07	%
All Other MSAs/MDs	77		71		1.88	%
Total	100	%	100	%	1.97	%

The table below sets forth our primary delinquency rates for the ten largest MSAs or MDs by our primary RIF as of December 31, 2022:


	Percent of RIF		Percent of direct primary case reserves		Delinquency rate
By MSA or MD:
Chicago-Naperville, IL MD	3	%	5	%	2.84	%
Phoenix, AZ MSA	3		2		1.83	%
New York, NY MD	3		8		3.75	%
Atlanta, GA MSA	2		3		2.42	%
Washington-Arlington, DC MD	2		2		1.85	%
Houston, TX MSA	2		3		2.60	%
Riverside-San Bernardino, CA MSA	2		2		2.89	%
Los Angeles-Long Beach, CA MD	2		2		2.18	%
Dallas, TX MD	2		1		1.86	%
Denver-Aurora-Lakewood, CO MSA	2		1		1.12	%
All Other MSAs/MDs	77		71		2.00	%
Total	100	%	100	%	2.08	%

The frequency of delinquencies may not correlate directly with the number of claims received because delinquencies may cure. The rate at which delinquencies cure is influenced by borrowers’ financial resources and circumstances and regional economic differences. Whether a delinquency leads to a claim correlates highly with the borrower’s equity at the time of delinquency, as it influences the borrower’s willingness to continue to make payments, the borrower’s or the insured’s ability to sell the home for an amount sufficient to satisfy all amounts due under the mortgage loan and the borrower’s financial ability to continue making payments. When we receive notice of a delinquency, we use our proprietary model to determine whether a delinquent loan is a candidate for a modification. When our model identifies such a candidate, our loan workout specialists prioritize cases for loss mitigation based upon the likelihood that the loan will result in a claim. Loss mitigation actions include loan modification,

extension of credit to bring a loan current, foreclosure forbearance, pre-foreclosure sale and deed-in-lieu. These loss mitigation efforts often are an effective way to reduce our claim exposure and ultimate payouts.

The following table sets forth the dispersion of primary RIF and direct primary case reserves by policy year and delinquency rates as of September 30, 2023:


	Percent of RIF		Percent of direct primary case reserves		Delinquency rate		Cumulative delinquency rate (1)
Policy Year:
2008 and prior	2	%	20	%	8.67	%	5.56	%
2009-2015	2		5		4.20	%	0.64	%
2016	2		4		3.07	%	0.68	%
2017	2		6		3.62	%	0.90	%
2018	2		6		4.18	%	0.99	%
2019	5		9		2.58	%	0.81	%
2020	18		15		1.53	%	0.84	%
2021	28		21		1.48	%	1.19	%
2022	23		13		1.28	%	1.20	%
2023	16		1		0.25	%	0.24	%
Total portfolio	100	%	100	%	1.97	%	4.19	%

______________

(1)Calculated as the sum of the number of policies where claims were ever paid to date and number of policies for loans currently in default divided by policies ever in-force.

The following table sets forth the dispersion of primary RIF and loss reserves by policy year and delinquency rates as of December 31, 2022:


	Percent of RIF		Percent of direct primary case reserves		Delinquency rate		Cumulative delinquency rate (1)
Policy Year:
2008 and prior	3	%	26	%	9.61	%	5.57	%
2009-2014	1		4		5.01	%	0.69	%
2015	1		3		3.61	%	0.71	%
2016	3		6		3.17	%	0.81	%
2017	3		7		3.78	%	1.01	%
2018	3		9		4.63	%	1.18	%
2019	7		11		2.71	%	0.93	%
2020	22		17		1.47	%	0.92	%
2021	32		14		1.20	%	1.06	%
2022	25		3		0.54	%	0.52	%
Total portfolio	100	%	100	%	2.08	%	4.26	%

______________

(1)Calculated as the sum of the number of policies where claims were ever paid to date and number of policies for loans currently in default divided by policies ever in-force.

Loss reserves in policy years 2008 and prior are outsized compared to their representation of RIF. The size of these policy years at origination combined with the significant decline in home prices led to significant losses in these policy years. Although uncertainty remains with respect to the ultimate losses we will experience on these policy years, they have become a smaller percentage of our total mortgage insurance portfolio. Loss reserves has shifted to newer book years, largely 2020 and later, given their significant representation of RIF. As of September 30, 2023, our 2016 and newer policy years represented approximately 96% of our primary RIF and 75% of our total direct primary case reserves.

Investment Portfolio

Our investment portfolio is affected by factors described below, each of which in turn may be affected by current macroeconomic conditions as noted above in “—Trends and Conditions.” The investment portfolios of our insurance subsidiaries are directed by the Enact Investment Committee, a management-level committee, with Genworth serving as the investment manager. The investment portfolio of EHI is directed by a separate management-level EHI Investment Committee with a third-party investment manager. These parties, with oversight from our Board of Directors and our senior management team, are responsible for the execution of our investment strategy. Our investment portfolio is an important component of our consolidated financial results and represents our primary source of claims paying resources. Our investment portfolio primarily consists of a diverse mix of highly rated fixed income securities and is designed to achieve the following objectives:

•Meet policyholder obligations through maintenance of sufficient liquidity;

•Preserve capital;

•Generate investment income;

•Maximize statutory capital; and

•Increase shareholder value, among other objectives.

To achieve our portfolio objectives, our investment strategy focuses primarily on:

•Our business outlook, including current and expected future investment conditions;

•Investment selection based on fundamental, research-driven strategies;

•Diversification across a mix of fixed income, low-volatility investments while actively pursuing strategies to enhance yield;

•Regular evaluation and optimization of our asset class mix;

•Continuous monitoring of investment quality, duration, and liquidity;

•Regulatory capital requirements; and

•Restriction of investments correlated to the residential mortgage market.

Fixed Maturity Securities Available-for-Sale

The following table presents the fair value of our fixed maturity securities available-for-sale as of the dates indicated:


	September 30, 2023				December 31, 2022
(Amounts in thousands)	Fair value		% of total		Fair value		% of total
U.S. government, agencies and GSEs	$	147,108	3	%	$	44,769	1	%
State and political subdivisions	407,538		8		419,856		9
Non-U.S. government	11,123		—		9,349		—
U.S. corporate	2,557,480		52		2,646,863		54
Non-U.S. corporate	655,284		13		652,844		13
Residential mortgage-backed	10,233		—		11,043		—
Other asset-backed	1,201,926		24		1,100,036		23
Total available-for-sale fixed maturity securities	$	4,990,692	100	%	$	4,884,760	100	%

Our investment portfolio did not include any direct residential real estate or whole mortgage loans as of September 30, 2023 or December 31, 2022. We have no derivative financial instruments in our investment portfolio.

As of both September 30, 2023, and December 31, 2022, 98% of our investment portfolio was rated investment grade. The following table presents the security ratings of our fixed maturity securities as of the dates indicated:


	September 30, 2023		December 31, 2022
AAA	11	%	10	%
AA	19		16
A	33		34
BBB	35		38
BB & below	2		2
Total	100	%	100	%

The table below presents the effective duration and investment yield on our investments available-for-sale, excluding cash and cash equivalents as of the dates indicated:


	September 30, 2023		December 31, 2022
Duration (in years)	3.5		3.6
Pre-tax yield (% of average investment portfolio assets)	3.5	%	3.1	%

We manage credit risk by analyzing issuers, transaction structures and any associated collateral. We also manage credit risk through country, industry, sector and issuer diversification and prudent asset allocation practices.

We primarily mitigate interest rate risk by employing a buy and hold investment philosophy that seeks to match fixed income maturities with expected liability cash flows in modestly adverse economic scenarios.

Liquidity and Capital Resources

Cash Flows

The following table summarizes our consolidated cash flows for the periods indicated:


	Nine months ended September 30,
(Amounts in thousands)	2023		2022
Net cash provided by (used in):
Operating activities	$	441,982	$	402,071
Investing activities	(133,983)		(246,528)
Financing activities	(143,784)		(45,596)

Net increase in cash and cash equivalents	$	164,215	$	109,947

Our most significant source of operating cash flows is from premiums received from our insurance policies, while our most significant uses of operating cash flows are generally for claims paid on our insured policies and our operating expenses. Net cash from operating activities increased largely due higher net investment income and lower expenses. Cash flows from operations were also impacted by changes in reserves and unearned premiums, net investment losses and stock-based compensation expense.

Investing activities are primarily related to purchases, sales and maturities of our investment portfolio. Net cash used by investing activities increased as a result of purchases of fixed maturity securities outpacing maturities and sales in the current year.

During the nine months ended September 30, 2023, our cash flows from financing activities included dividends paid of $74.1 million and share repurchases of $69.7 million. The amount and timing of future dividends is discussed within “—Trends and Conditions” as well as below. During the nine months ended September 30, 2022, our cash flows from financing activities included dividends paid of $45.6 million.

Capital Resources and Financing Activities

We issued our 2025 Senior Notes in 2020 with interest payable semi-annually in arrears on February 15 and August 15 of each year. The 2025 Senior Notes mature on August 15, 2025. We may redeem the 2025 Senior Notes, in whole or in part, at any time prior to February 15, 2025, at our option, by paying a make-whole premium, plus accrued and unpaid interest, if any. At any time on or after February 15, 2025, we may redeem the 2025 Senior Notes, in whole or in part, at our option, at 100% of the principal amount, plus accrued and unpaid interest. The 2025 Senior Notes contain customary events of default, which subject to certain notice and cure conditions, can result in the acceleration of the principal and accrued interest on the outstanding 2025 Senior Notes if we breach the terms of the indenture.

On June 30, 2022, we entered into a credit agreement with a syndicate of lenders that provides for a five-year, unsecured revolving credit facility (the “Facility”) in the initial aggregate principal amount of $200 million. We may use borrowings under the Facility for working capital needs and general corporate purposes, including the execution of dividends to our shareholders and capital contributions to our insurance subsidiaries. The Facility contains several covenants, including financial covenants relating to minimum net worth, capital and liquidity levels, maximum debt to capitalization level and PMIERs compliance. We are in compliance with all covenants of the Facility and the Facility remained undrawn as of September 30, 2023.

Restrictions on the Payment of Dividends

The ability of our regulated insurance operating subsidiaries to pay dividends and distributions to us is restricted by certain provisions of North Carolina insurance laws. Our insurance subsidiaries may pay

dividends only from unassigned surplus; payments made from sources other than unassigned surplus, such as paid-in and contributed surplus, are categorized as distributions. Notice of all dividends must be submitted to the Commissioner of the NCDOI (the “Commissioner”) within 5 business days after declaration of the dividend or distribution, and at least 30 days before payment thereof. No dividend may be paid until 30 days after the Commissioner has received notice of the declaration thereof and (i) has not within that period disapproved the payment or (ii) has approved the payment within the 30-day period. Any distribution, regardless of amount, requires that same 30-day notice to the Commissioner, but also requires the Commissioner’s affirmative approval before being paid. Based on our estimated statutory results and in accordance with applicable dividend restrictions, our insurance subsidiaries have the capacity to pay dividends from unassigned surplus of $349 million as of September 30, 2023, with 30-day advance notice to the Commissioner of the intent to pay. In addition to dividends and distributions, alternative mechanisms, such as share repurchases, subject to any requisite regulatory approvals, may be utilized from time to time to upstream surplus.

In addition, we review multiple other considerations in parallel to determine a prospective dividend strategy for our regulated insurance operating subsidiaries. Given the regulatory focus on the reasonableness of an insurer’s surplus in relation to its outstanding liabilities and the adequacy of its surplus relative to its financial needs for any dividend, our insurance subsidiaries consider the minimum amount of policyholder surplus after giving effect to any contemplated future dividends. Regulatory minimum policyholder surplus is not codified in North Carolina law and limitations may vary based on prevailing business conditions including, but not limited to, the prevailing and future macroeconomic conditions. We estimate regulators would require a minimum policyholder surplus of approximately $300 million to meet their threshold standard. Given (i) we are subject to statutory accounting requirements that establish a contingency reserve of at least 50% of net earned premiums annually for ten years, after which time it is released into policyholder surplus and (ii) that no material 10-year contingency reserve releases are scheduled before 2024, we expect modest growth in policyholder surplus through 2024 before distributions. As a result, minimum policyholder surplus could be a limitation on the future dividends of our regulated operating subsidiaries.

Another consideration in the development of the dividend strategies for our regulated insurance operating subsidiaries is our expected level of compliance with PMIERs. Prior to the satisfaction of the GSE Conditions, the GSE Restrictions required EMICO to maintain 120% of PMIERs Minimum Required Assets through 2022. In addition, under PMIERs, EMICO is subject to other operational and financial requirements that approved insurers must meet in order to remain eligible to insure loans purchased by the GSEs. Refer to “—Trends and Conditions” for recent updates related to these requirements.

Our regulated insurance operating subsidiaries are also subject to statutory “risk-to-capital” (“RTC”) requirements that affect the dividend strategies of our regulated operating subsidiaries. EMICO’s domiciliary regulator, the NCDOI, requires the maintenance of a statutory RTC ratio not to exceed 25:1. See “—Risk-to-Capital Ratio” for additional RTC trend analysis.

We consider potential future dividends compared to the prior year statutory net income in the evaluation of dividend strategies for our regulated operating subsidiaries. We also consider the dividend payout ratio, or the ratio of potential future dividends compared to the estimated U.S. GAAP net income, in the evaluation of our dividend strategies. In either case, we do not have prescribed target or maximum thresholds, but we do evaluate the reasonableness of a potential dividend relative to the actual or estimated income generated in the proceeding or preceding calendar year after giving consideration to prevailing business conditions including, but not limited to the prevailing and future macroeconomic conditions. In addition, the dividend strategies of our regulated operating subsidiaries are made in consultation with our Parent.

In April 2023, EMICO completed a distribution of approximately $158 million that will primarily be used to support our ability to return capital to shareholders and bolster financial flexibility. We intend to continue to use future EMICO distributions for these purposes.

The credit agreement entered into in connection with the Facility contains customary restrictions on EHI’s ability to pay cash dividends. Under the credit agreement, EHI is permitted to make cash distributions (1) so long as no Default or Event of Default (as each are defined in the credit agreement) has occurred and is continuing and EHI is in pro forma compliance with its financial covenants as described below, at the time of and after giving effect to such payment, (2) within 60 days of declaration of any cash dividend so long as the payment was permitted under the credit agreement at the time of such declaration and (3) other customary exceptions as more fully set forth in the credit agreement.

The credit agreement requires EHI to maintain the following financial covenants: a minimum consolidated net worth equal to the sum of (i) 72.5% of EHI’s consolidated net worth as of June 30, 2022 (“the Closing Date”), (ii) 50% of EHI’s positive consolidated net income for each fiscal quarter after the Closing Date and (iii) 50% of any increase in EHI’s consolidated net worth after the Closing Date resulting from equity issuances or capital contributions; in respect of EMICO, a minimum total adjusted capital amount equal to 72.5% of EMICO’s total adjusted capital as of the Closing Date; a maximum debt-to-total capitalization ratio of 0.35 to 1.00; a minimum liquidity level of $25,000,000; and compliance with all applicable financial requirements under the Private Mortgage Insurer Eligibility Requirements published by the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association. For purposes of determining EHI’s compliance with the foregoing financial covenants, the consolidated net worth metric, total adjusted capital metric, debt-to-capitalization ratio and liquidity metric (including, in each case, any component thereof) are each calculated as set forth in the credit agreement.

In addition to the restrictions described above, all dividends from EHI are subject to Parent consent and EHI Board of Directors approval.

Risk-to-Capital Ratio

We compute our RTC ratio on a separate company statutory basis, as well as for our combined insurance operations. The RTC ratio is net RIF divided by policyholders’ surplus plus statutory contingency reserve. Our net RIF represents RIF, net of reinsurance ceded, and excludes risk on policies that are currently delinquent and for which loss reserves have been established. Statutory capital consists primarily of statutory policyholders’ surplus (which increases as a result of statutory net income and decreases as a result of statutory net loss and dividends paid), plus the statutory contingency reserve. The statutory contingency reserve is reported as a liability on the statutory balance sheet.

Certain states have insurance laws or regulations that require a mortgage insurer to maintain a minimum amount of statutory capital (including the statutory contingency reserve) relative to its level of RIF in order for the mortgage insurer to continue to write new business. While formulations of minimum capital vary in certain states, the most common measure applied allows for a maximum permitted RTC ratio of 25:1.

The following table presents the calculation of our RTC ratio for our combined insurance subsidiaries as of the dates indicated:


(Dollar amounts in millions)	September 30, 2023		December 31, 2022
Statutory policyholders’ surplus	$	1,134	$	1,136
Contingency reserves	3,923		3,551
Combined statutory capital	$	5,057	$	4,687
Adjusted RIF(1)	$	58,622	$	60,061
Combined risk-to-capital ratio	11.6		12.8

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(1)Adjusted RIF for purposes of calculating combined statutory RTC differs from RIF presented elsewhere herein. In accordance with NCDOI requirements, adjusted RIF excludes delinquent policies.

The following table presents the calculation of our RTC ratio for our principal insurance company, EMICO, as of the dates indicated:


(Dollar amounts in millions)	September 30, 2023		December 31, 2022
Statutory policyholders’ surplus	$	1,076	$	1,084
Contingency reserves	3,917		3,548
EMICO statutory capital	$	4,993	$	4,632
Adjusted RIF(1)	$	58,150	$	59,663
EMICO risk-to-capital ratio	11.6		12.9

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(1)Adjusted RIF for purposes of calculating EMICO statutory RTC differs from RIF presented elsewhere herein. In accordance with NCDOI requirements, adjusted RIF excludes delinquent policies.

Liquidity

As of September 30, 2023, we maintained liquidity in the form of cash and cash equivalents of $678 million compared to $514 million as of December 31, 2022, and we also held significant levels of investment-grade fixed maturity securities and short-term investments that can be monetized should our cash and cash equivalents be insufficient to meet our obligations.

Additionally, on June 30, 2022, we entered into a five-year, unsecured revolving credit facility with a syndicate of lenders in the initial aggregate principal amount of $200 million. The Facility may be used for working capital needs and general corporate purposes, including the execution of dividends to our shareholders and capital contributions to our insurance subsidiaries. The Facility remains undrawn as of September 30, 2023.

The principal sources of liquidity in our business currently include insurance premiums, net investment income and cash flows from investment sales and maturities. We believe that the operating cash flows generated by our mortgage insurance subsidiary will provide the funds necessary to satisfy our claim payments, operating expenses and taxes in both the short term and long term. However, our subsidiaries are subject to regulatory and other capital restrictions with respect to the payment of dividends. We currently have no material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years, other than the 2025 Senior Notes and the Facility.

Financial Strength Ratings

The following EMICO financial strength ratings have been independently assigned by third-party rating organizations and represent our current ratings, which are subject to change.

Name of Agency

Rating

Outlook

Action

Date of Rating

Moody’s Investor Service, Inc.

Stable

Upgrade

March 1, 2023

Fitch Ratings, Inc.

A-

Stable

Upgrade

April 25, 2023

S&P Global Ratings

BBB+

Stable

Upgrade

February 16, 2023

A.M. Best

A-

Stable

Initial

August 1, 2023

On August 1, 2023, Enact Re, was independently assigned a rating of A- by third-party rating organization A.M. Best.

Contractual Obligations and Commitments

Our loss reserves have a high degree of estimation due to macroeconomic uncertainty along with delinquencies from borrower forbearance programs and foreclosure delays as a result of COVID-19. Therefore, it is possible we could have higher contractual obligations related to these loss reserves if they

do not cure or progress to claim as we expect. Other than changes in our aforementioned loss reserves, there have been no material additions or changes to our contractual obligations or other off-balance sheet arrangements as compared to the amounts disclosed within our audited consolidated financial statements for the years ended December 31, 2022 and 2021.

Critical Accounting Estimates

As of the filing date of this report, there were no significant changes in our critical accounting estimates from those discussed in our Annual Report.

New Accounting Standards

Refer to Note 2 in our unaudited condensed consolidated financial statements for the nine months ended September 30, 2023 and 2022, and in our audited consolidated financial statements for the years ended December 31, 2022 and 2021, for a discussion of recently adopted and not yet adopted accounting standards.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We own and manage a large investment portfolio of various holdings, types and maturities. Investment income is one of our material sources of revenue and the investment portfolio represents the primary resource supporting operational and claim payments. The assets within the investment portfolio are exposed to the same factors that affect overall financial market performance. While our investment portfolio is exposed to factors affecting markets worldwide, it is most sensitive to fluctuations in the drivers of United States markets.

We manage market risk via our defined investment policy guidelines implemented by our investment managers with oversight from our Board of Directors and our senior management. Important drivers of our market risk exposure that we monitor and manage include but are not limited to:

•Changes to the level of interest rates. Increasing interest rates may reduce the value of certain fixed-rate bonds held in the investment portfolio. Higher rates may cause variable-rate assets to generate additional income. Decreasing rates will have the reverse impact. Significant changes in interest rates can also affect persistency and claim rates that may require that the investment portfolio be restructured to better align it with future liabilities and claim payments. Such restructuring may cause investments to be liquidated when market conditions are adverse.

•Changes to the term structure of interest rates. Rising or falling rates typically change by different amounts along the yield curve. These changes may have unforeseen impacts on the value of certain assets.

•Market volatility/changes in the real or perceived credit quality of investments. Deterioration in the quality of investments, identified through changes to our own or third-party (e.g., rating agency) assessments, will reduce the value and potentially the liquidity of investments.

•Concentration risk. If the investment portfolio is highly concentrated in one asset, or in multiple assets whose values are highly correlated, the value of the total portfolio may be greatly affected by the change in value of just one asset or a group of highly correlated assets.

•Prepayment risk. Bonds may have call provisions that permit debtors to repay prior to maturity when it is to their advantage. This typically occurs when rates fall below the interest rate of the debt.

Market risk is measured for all investment assets at the individual security level. Market risks that are not fully captured by the quantitative analysis and material market risk changes that occur from the last reporting period to the current are discussed within “—Trends and conditions” and “—Investment Portfolio” in “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

As of September 30, 2023, the effective duration of our investments available-for-sale was 3.5 years, which means that an instantaneous parallel shift (movement up or down) in the yield curve of 100 basis points would result in a change of 3.5% in fair value of our investments available-for-sale.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of September 30, 2023, an evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023.

Changes in Internal Control Over Financial Reporting During the Quarter Ended September 30, 2023

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

We are not subject to any pending material legal proceedings.

Item 1A. Risk Factors

We have disclosed within Part I, Item 1A in our Annual Report the risk factors that could have a material adverse effect on our business, results of operations and/or financial condition. There have been no material changes from the risk factors previously disclosed. You should carefully consider the risk factors set forth in the Annual Report and the other information set forth elsewhere in this Form 10-Q. These risk factors and other information may not describe every risk that we face. The occurrence of any additional risks and uncertainties that are currently immaterial or unknown could have a material adverse effect on our business, results of operations and/or financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The table below sets forth information regarding repurchases of our common shares during the three months ended September 30, 2023:


Period (Dollar amounts in thousands except per share amounts)	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet be Purchased under Plans or Programs (1)
July 1 - July 31, 2023	241,946	$	25.96	241,946	$	3,859
August 1 - August 31, 2023	0	$	—	0	$	103,859
September 1 - September 30, 2023	0	$	—	0	$	103,859
Total	241,946	$	25.96	241,946	$	103,859

(1) On November 1, 2022, the Company announced authorization to repurchase up to $75 million of its common shares. The authorization has no expiration date. In August 2023, we also announced a new share repurchase authorization which allows for the purchase of an additional $100 million of EHI common stock (also with no expiration date).

Subsequent to quarter end, the Company purchased 294,876 shares at an average price of $27.13 through October 31, 2023.

Item 5. Other Information

Trading Plans

During the quarter ended September 30, 2023, no director or Section 16 officer adopted or terminated any “Rule 10b5-1 trading arrangements” or “non-Rule 10b5-1 trading arrangements” (in each case, as defined in Item 408(a) of Regulation S-K).

Item 6. Exhibits and Financial Statement Schedules


Exhibit Number						Description of Exhibit






10.1						Share Repurchase Agreement, dated August 1, 2023, by and between Enact Holdings, Inc. and Genworth Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2023).
10.2*						Amended and Restated Master Agreement, dated August 29, 2023, between Genworth Financial and Enact Holdings, Inc.
31.1*						Certification of Principal Executive Officer
31.2*						Certification of Principal Financial Officer
32.1**						Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code — Principal Executive Officer
32.2**						Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code — Principal Financial Officer
101.INS						Inline XBRL Instance Document
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

______________

+ Indicates management contract and compensatory plan

* Filed herewith

** Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended

SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized.

ENACT HOLDINGS, INC.

(Registrant)

Dated: November 2, 2023


By:			/s/ Hardin Dean Mitchell
			Hardin Dean Mitchell
			Executive Vice President, Chief Financial Officer and Treasurer
			(Principal Financial Officer)


By:			/s/ James McMullen
			James McMullen
			Vice President, Controller and Principal Accounting Officer