Enact Aktie

Hello, and welcome to Enact's Third Quarter Earnings Call. Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your first speaker, Daniel Kohl, Vice President of Finance. You may begin.

Thank you, and good morning. Welcome to our third quarter earnings call. Joining me today are Rohit Gupta, President and Chief Executive Officer; and Dean Mitchell, Chief Financial Officer and Treasurer. Rohit will provide an overview of our business performance and progress against our strategy. Dean will then discuss the details of our quarterly results before turning the call back to Rohit for closing remarks. We will then take your questions.

The earnings materials we issued after market closed yesterday contain our financial results for the quarter, along with a comprehensive set of financial and operational metrics. These are available on the Investor Relations section of our website. Today's call is being recorded and will include the use of forward-looking statements. These statements are based on current assumptions, estimates, expectations and projections as of today's date.

Additionally, they are subject to risks and uncertainties, which may cause actual results to be materially different, and we undertake no obligation to update or revise such statements as a result of new information. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release as well as in our filings with the SEC, which will be available on our website.

Please keep in mind that earnings materials and management's prepared remarks today include certain non-GAAP measures. Reconciliations of these measures to the most relevant GAAP metrics can be found in the press release, our earnings presentation and our upcoming SEC filing on our website.

With that, I'll turn the call over to Rohit.

Thank you, Daniel. Good morning, everyone. Before I cover Enact's results, I would like to take a moment to recognize Tom McInerney, who recently announced his intention to retire as President and CEO of Genworth and step down from the Enact Board at the end of the year. Tom has played an important role in Enact's journey from his support through our IPO in 2021 to his valued partnership as a member of our Board.

On a personal level, Tom has been a trusted mentor to me for many years, and I have benefited enormously from his counsel. I know I speak for our Board and our entire team in thanking him for his commitment to Enact and wishing him all the best in his retirement. We look forward to continuing our strong relationship with Genworth and working with Jerome Upton as he steps into his new role.

Turning to the business. I'm pleased to be with you today to discuss our performance. Our third quarter results build on a solid first half and demonstrate the resilience of Enact's business model as we approach year-end. Our strong results, favorable credit performance and strong balance sheet support an increase in our capital return guidance. We now expect 2026 capital returns to be approximately $600 million. For the third quarter, we reported adjusted operating income of $164 million or $1.19 per diluted share. Adjusted return on equity was 12%, and we generated new insurance written of $14 billion, resulting in total insurance in force of $275 billion, up 1% year-over-year.

Turning to the operating environment. Mortgage rates moved higher during the quarter, putting additional pressure on housing activity and mortgage demand. At the same time, housing supply continue to normalize and home prices continue to appreciate nationwide supporting borrower equity and mortgage credit performance. Labor market conditions remain generally healthy, although affordability continues to be a headwind for prospective homebuyers despite strong demographic demand.

Looking ahead, we believe the long-term drivers of housing demand remain intact and continue to reinforce the important role private mortgage insurance plays in responsibly expanding access to sustainable homeownership. Against this backdrop, our insurance in force portfolio continues to demonstrate resilience, supported by prudent underwriting standards, strong borrower credit characteristics and meaningful embedded home equity.

Persistency remained elevated in the quarter at 81% and continues to be supported by the rate environment with approximately 89% of loans in our portfolio, carrying mortgage rates below 7%. At quarter end, the risk-weighted average credit score of our portfolio was 747, while the risk weighted average loan-to-value ratio was 93%. Layered risk remained 1.1% of risk-in-force.

As in the past, pricing in the mortgage insurance market remains competitive, and we remain focused on maintaining prudent underwriting standards and generating attractive risk-adjusted returns for our shareholders. We continue to leverage our dynamic pricing engine, Rate360 to assess risk at a granular level, incorporating borrower characteristics loan attributes and our prospective view of housing market conditions. This capability is particularly important in an environment where economic and housing trends vary meaningfully by geography. Our focus remains selecting the right risk at the right price as market conditions evolve.

We continue to participate in the rollout of VantageScore 4.0. During the quarter, VantageScore volume remained concentrated among a few originators with broader implementation still in the early stages. We will continue to fully support our customers as adoption progresses. From a credit perspective, our portfolio is performing well with recent books performing in line with our expectations. Consistent with seasonal trends, new delinquencies were up 17% and cures were down 1% sequentially, and total delinquencies increased 7%.

Our strong cure performance was driven by favorable credit trends and effective loss mitigation efforts. This drove a reserve release of $37 million in the quarter, resulting in a loss ratio of 20%. Overall, credit performance remains strong, and we believe we are well reserved across a range of scenarios. We delivered another quarter of prudent expense management with operating expenses down year-over-year despite the inflationary environment. As a result, we now expect to end the year at the low end of our expense expectations. Dean will discuss the key drivers of our expense performance and provide more detail shortly.

Turning to capital. We continue to execute against our priorities, maintaining a strong and resilient balance sheet to support existing policyholders, investing to drive organic growth and operating efficiencies funding attractive new business opportunities and returning excess capital to shareholders. At the end of the quarter, our PMIERs sufficiency ratio was 158%, and our credit and investment portfolios were in excellent shape. Our strong capital position is further reinforced by our CRT program and the backing of our undrawn credit facility.

During the quarter, we entered into a new quota share agreement that will cover approximately 35% of expected 2028 new insurance written, further advancing our programmatic approach to CRT and our ability to secure cost-efficient capital and balance sheet protection. During the quarter, A.M. Best upgraded EMIC and EMIC NC's financial strength rating to A from A-, and Enact Holding, Inc.'s issuer credit rating to BBB from BBB-, all with stable outlooks.

We are also making progress against our strategic growth and diversification priorities. Enact Re delivered another quarter of strong performance, generating attractive risk-adjusted returns while remaining both capital and expense efficient. We are pleased with the progress of this business and continue to view it as a long-term growth and diversification opportunity. Finally, our strong performance supports continued returns to shareholders. During the quarter, we returned $151 million through share repurchases and dividends. As I mentioned earlier, we have increased our 2026 capital return expectations to approximately $600 million.

Before wrapping up, I'd like to comment on the recent presidential executive order on decreasing housing costs for the American people. We support the administration's focus on lowering the cost of homeownership and look forward to helping advance that goal. We are committed to expanding access to affordable homeownership while protecting taxpayers and supporting the safety and soundness of the housing finance system. We look forward to working constructively with the GSEs, the FHFA and our lending partners.

Overall, we are pleased with our performance this quarter and year-to-date. The strength of our portfolio disciplined capital management and continued focus on execution leave us well positioned to navigate the current environment, support sustainable growth and deliver long-term shareholder value.

With that, I will now hand the call over to Dean.

Thanks, Rohit, and good morning, everyone. We delivered another strong quarter of performance. Adjusted operating income was $164 million or $1.19 per diluted share compared to $1.12 per diluted share in the same period last year and $1.26 per diluted share in the second quarter of 2026. Adjusted operating return on equity was 12.4%. A detailed reconciliation of GAAP net income to adjusted operating income can be found in our earnings release.

Turning to revenue drivers. New insurance written was $14 billion in the quarter, down 7% sequentially as higher mortgage rates reduced refinance activity and flat year-over-year. Persistency was 81% in the quarter, up 1 point sequentially on higher prevailing mortgage rates that exited the quarter above 7% and down 2 points year-over-year. Persistency remains elevated relative to our long-term historical average of 78%, supported in part by 89% of our loans in our insured portfolio having rates below 7%.

Primary insurance in force was $275 billion in the quarter, up $1 billion from the second quarter of 2026 and up $3 billion or approximately 1% year-over-year. Total net premiums earned were $242 million, down $3 million sequentially and year-over-year. The sequential decrease is primarily driven by higher ceded premiums from reduced profit commissions on our quota share reinsurance transactions. This reduction was partially offset by premium growth from attractive adjacencies and growth in primary insurance in force.

Our base premium rate of 38.9 basis points was down 0.2 basis points sequentially. As a reminder, our base premium rate is impacted by several factors, including new insurance written, persistency, credit mix and premium refund estimates that fluctuate quarter-to-quarter. Our net earned premium rate was 33.4 basis points, down 0.7 basis points sequentially and primarily driven by the impact of higher ceded premiums from reduced profit commissions on our quota share reinsurance transactions. Investment income in the quarter was $74 million, up $1 million or 2% sequentially and up $5 million or 9% year-over-year.

Our new money investment yield was over 5.5% and contributed to a 10 basis point increase in the average portfolio book yield to 4.7% for the quarter. As of quarter end, unrealized losses in our investment portfolio increased by $248 million to $345 million, driven by interest rate increases. Although we generally hold these investments to maturity, we may selectively realize losses to pursue income enhancement opportunities. During the quarter, we sold certain assets that will allow us to recoup realized losses through future higher net investment income. We'll continue to evaluate similar opportunities to maximize the value of our portfolio but this does not change our view that our investment portfolio's unrealized loss position is materially noneconomic.

Turning to credit. We continue to see strong loss performance across our portfolio. New delinquencies increased sequentially and year-over-year to 14,400 in the quarter from 12,300 in the second quarter of 2026 and from 13,000 in the prior year quarter. The sequential increase was aligned with seasonal trends and the year-over-year increase was primarily driven by newer books progressing along their normal loss development curve. Our cure rate was flat sequentially at 50% and in line with seasonal trends and remains elevated. We maintained our claim rate on new delinquencies at 8%. Total delinquencies in the third quarter increased sequentially to 26,100 from 24,300 and the delinquency rate increased 20 basis points sequentially to 2.8%.

Losses in the third quarter of 2026 were $47 million and the loss ratio was 20% compared to $33 million and 14% in the second quarter of 2026, and driven primarily by higher new delinquencies and $36 million and 15% in the third quarter of 2025, driven by differences in new delinquencies and reserve releases offset partially by a lower claim rate in the current quarter. The current quarter reserve release of $37 million from favorable cure performance and loss mitigation activities compares to a reserve release of $37 million in the second quarter of 2026 and $45 million in the third quarter of 2025. Overall, we remain pleased with the credit performance of the portfolio and continue to believe our reserves appropriately reflect both current credit performance and the uncertainty in the broader macroeconomic environment.

Operating expenses in the third quarter of 2026 were $50 million, and the expense ratio was 21% compared to $52 million and 21% in the second quarter of 2026, and $53 million and 22% in the third quarter of 2025 as we continue to manage expenses prudently in the current originations market. To that end, we currently operate at our lowest head count in over a decade. As part of the second quarter 2026 reorganization, we incurred a $1 million charge that is excluded from adjusted operating income. Based on our year-to-date performance, and full year 2026 outlook, we now forecast 2026 expenses, excluding reorganization costs to be at the lower end of the $205 million to $210 million range we provided last quarter.

We continue to operate from a strong capital and liquidity position, underpinned by our robust PMIERs sufficiency and the successful execution of our diversified CRT program. Our PMIERs sufficiency was 158% or $1.8 billion above PMIERs requirements at the end of the third quarter. During the quarter, we entered into a new forward quota share reinsurance agreement which will cede approximately 35% of our 2028 new insurance written to a broad panel of highly rated reinsurers. This transaction demonstrates our commitment to disciplined risk management while providing certainty of coverage at favorable market terms. Our third-party CRT program provides $2 billion of PMIERs capital credit at the end of the quarter.

Turning now to capital allocation. During the quarter, we paid out approximately $33 million or $0.24 per share through our quarterly dividend and bought back 2.4 million shares at an average share price of $48.19, or $118 million. As Rohit mentioned earlier, we are increasing our 2026 total capital return guidance to approximately $600 million reflecting our continued strong business results and confidence in our business. As in the past, the final amount and form of capital return to shareholders will ultimately depend on business performance, market conditions and regulatory approvals.

Overall, we are pleased with our performance through the first 9 months of 2026. Our improved expense outlook and increased capital return expectations reflect disciplined execution, continued financial strength and confidence in the underlying performance of our business. As we look ahead, we remain focused on prudently managing risk, maintaining a strong balance sheet and delivering attractive returns for our shareholders.

With that, let me turn the call back to Rohit.

Thanks, Dean. Looking ahead to the remainder of 2026 and beyond, our priorities are unchanged: support our customers, maintain a strong balance sheet and execute with discipline. The consistency of that approach, combined with the strength of our portfolio gives us confidence in our ability to continue to deliver attractive returns for shareholders over time.

Operator, we are now ready for Q&A.

[Operator Instructions] Your first question comes to the line of Doug Harter with BTIG.

Rohit, I know you spoke a little bit about kind of the persistency in your prepared remarks. But hoping we could just talk more -- and whether you see -- kind of given the increased focus on this by the FHFA, maybe some more media attention to it. What -- do you think you will see any change in cancellation activity due to home price appreciation?

Doug, thank you for the question. So as I said in my prepared remarks, we support the administration's focus on lowering the cost of homeownership and looking forward to helping advance that goal. We are also committed to expanding access to affordable homeownership while protecting the taxpayers and supporting safety and soundness.

That being said, I would say, when you think about the executive order, it's essentially direct FHFA to set up a pilot focused on mortgage originations going forward after the establishment of the pilot. So as of right now, that's what we are focused on from a consumer behavior perspective, that is tough to predict. From a social media activity perspective or policy discussion perspective, those topics typically do not get reflected in consumer behavior, but too early to tell.

Great. And then just sticking on persistency, if you could just remind us kind of where we are in the 2020, 2021 vintages as far as kind of hitting the contractual termination points.

Sure, Doug. I'm going to pass that question to Dean or Daniel.

Doug, this is Daniel. Happy to take it. Thanks for the question. Yes. In terms of the 2020 and 2021 book years, as you know, very large books when they were written collectively about $200 billion in NIW. And actually, there's only about -- you can see this in the QFS, there's only about 30% of that remaining of those 2 books. And so we've actually seen those start rolling off our portfolio for some time now. And I think you need to take that into consideration when you think about where our persistency has been.

And as Dean mentioned, we consider anything over 78% to be what we call elevated. And this actually marks the 18th straight quarter of persistency actually being over 80%. And so despite the fact those books being very large, have high refi, thus a little bit lower running off through our portfolio and through our financials, you're still seeing elevated persistency throughout this time period.

Your next question comes from the line of Bose George with KBW.

I just wanted to ask on buybacks. The -- I mean you guys have obviously done well in terms of performance or the stock has done well, and it's trading, looks like, $1.26 of book value. does that play into how you view capital return just for the breakout between dividends and buybacks? And also when you look at book value on buybacks, you look at that number ex AOCI or how do you kind of treat that piece?

Yes, Bose, it's Dean. Thanks for the question. As you made reference to, we do have several ways to return capital to shareholders, and we think about them kind of in this waterfall type mindset start with quarterly dividends. Those are obviously the most certain. When we set our quarterly dividend, we focus on making sure that those are durable across various scenarios, including meaningful stress scenarios.

I think getting to -- more to your point around share repurchases, they're more opportunistic based on market conditions. It's an ongoing assessment looking at current share price vis-a-vis book value, we look at it both on a book value with an ex AOCI. We obviously also compare that to intrinsic value, what we think the company's long-term potential value is. And just to complete the story in terms of ways to return capital, we also can return capital via special dividends. That's kind of the plug. It's the means to return capital when those other options aren't available.

Kind of getting a little bit to your point on share buybacks in light of current valuations. We still believe share repurchases are a compelling use of capital at current valuations. It's a dynamic assessment based on our day-to-day assessment and share buyback activity varies based on price fluctuations. But just speaking at a high level, we still believe that repurchasing shares at current valuation creates long-term shareholder value. And so that's been our assessment and you've seen that in our practices, including the share repurchases through October and the beginning of November.

Okay. Great. That's helpful. And then in terms of the AOCI in the portfolio now, is there a way -- like what's the average sort of duration or the time line where that AOCI kind of rolls back into earnings, all else equal?

Yes. So AOCI really fluctuated by about -- well, $250 million on a pretax basis, $200 million on an after-tax basis, almost all of that is driven by change in interest rates and the mark-to-market change in our investment portfolio. So I think that's more rate driven than anything else. Obviously, our effective duration on the portfolio is 5 years. So those -- the weighted average life is probably a little bit longer than that effective duration. So it might have a 5- to 6-year life. But I think the change in interest rates between now and the next reporting period will be a major driver, probably more so than our holding those investments to maturity.

Your next question comes from the line of Rowland Mayor with RBC Capital Markets.

I wanted to kind of go with the regulatory item from a different angle. Could you help me understand how much capital you have to hold against kind of high HPA loan books from 2022 or prior. I assume if there was some mass unlocked event, there'd be a significant amount of capital you guys are able to release?

Rowland, thank you for the question. So as I said in my prepared remarks, we are very supportive of the executive order, which specifically focuses on a prospective implementation for loans originated after the pilot is established. So from a disclosure perspective, I do not believe that we disclose our capital allocated by book year. But if you go into our financial supplement, you can find disclosures on our risk in force, insurance in-force policies by book year.

And then in aggregate, we also disclosed home price appreciation by book year, so embedded equity kind of concepts. So I would say there are disclosures out there. But given the fact that the executive order is focused primarily on prospective loans, that's what we are focused on right now.

And then I wanted some help understanding the pace of capital return you moved the guidance up through the year and the pace accelerated. It was kind of similar last year. What drives that? Is it credit dividend approvals or something else?

Yes, Rowland, thanks for the question. This is Dean. So what we look at to evaluate return of capital throughout the year is really how the business is performing. And as you've seen, the business continues to perform very, very well. But embedded in that business performance is also what are the market opportunities to deploy capital for new insurance written.

We're obviously operating in a smaller originations market. That has the effect of reallocating capital that we might otherwise deploy to production to other means, including potentially returning capital to shareholders. Beyond that, we look at the macroeconomic environment, the prevailing and prospective, how do we think that's going to impact both business performance today and in the future.

And then lastly, we think about the regulatory environment that's been pretty stable from a PMIERs perspective, from a state regulatory perspective. So really, it's been business performance that has driven the increased confidence to increase our return of capital, both last quarter to the range and now this quarter to the top of that range to $600 million.

And then if I could just ask one more. How long is the typical cycle time from a new default to a cure? And is that cycle time changing?

Yes. That's a good question, Rowland. I don't have a particularly great answer. We'll go back and take a look at that offline and see if we can give you some insights into how quickly delinquencies are curing and whether that's changing? I think from -- yes, go ahead.

I think Rowland, one way to think about it, and I don't think we have a number handy to give you in aggregate. And even if we had, I would say, it would be constructed off very different dynamics. So if you just think about first-time news, first-time news cure at a different pace than repeat delinquencies. And Dean has talked about this in the past that repeat delinquencies, which sometimes we refer to in the business as chronic delinquencies, are cash managers who go in and out of delinquencies and have higher cure rates.

And then on top of it, given the difference in embedded equity by vintage, that could heavily impact cure rates because consumers have different options in terms of getting out of a delinquency. So I think there are a lot of factors that probably create a range around it. But let us come back to you offline to maybe just give you the factors that impacted.

Yes. And Rowland, maybe just to get you started, if you look at our earnings presentation on Page 11, you can see intra-period cures, intra-quarter cures, those typically range between 25% and 30-ish percent you see this quarter in that range as well. And then as you progress through time, you can see those cumulative cures continue to increase. Typically, we've been seeing around at the fifth quarter mark, cumulative cures in the high 80s, maybe below 90%, 90%. You're continuing to see cure patterns continue at that similar pace.

So the more I think about your question, I think that disclosure and piecing that disclosure through time can give you a sense of the velocity of cures and whether that's changing? And I guess, as I think about that, it's -- there might be some modest moderation but staying -- like we've talked about, cure performance remains elevated to our expectations, which is driving the reserve releases that we've had through time.

Your next question comes from the line of Rick Shane with JPMorgan.

Interesting to see the quota share agreement for 2028, and I'm sitting here kind of trying to wrap my mind around 2028 and that far out, but I appreciate you guys are working that far ahead. Look, we saw during the third quarter, companies that make and sell loans across different verticals experienced some disruption in pricing dislocations. Obviously, you guys aren't working that far ahead. and take an adverse market. But I am curious what quota share partners are looking at right now. And if there was any discussion about sort of the uncertainty that we experienced in the third quarter impacting terms of those agreements or anything that we should be thinking about?

Yes, Rick, thanks. It's Dean. It's a good question. I would describe the demand for mortgage credit default risk across the reinsurance market as very strong. It's one of the reasons why we continue to pursue 2-year forward transactions on what we believe to be attractive terms. I think you go back several years, maybe 3, 4 years ago, that type of 2-year forward demand didn't exist in the market or if it existed, it existed at prices that were less appealing.

So we continue to be able to source all of our reinsurance needs through the traditional reinsurance market, and we're doing so at attractive terms. We've talked about those terms through time being in the low to mid-single digits cost of capital. If you look at today's transactions just in general over the last 12 to 24 months, it's on the low end of that range. And I think that's indicative of ongoing strong demand in the market.

Yes, Rick, Dean covered it very nicely. Just to add to Dean's point, from reinsurance markets and our credibility and relationship with reinsurance players. We have been a programmatic player in this market consistently since 2015, and we have proven with our risk selection pricing to our reinsurance partners that as different markets go through different conditions, we adjust our pricing and risk appetite through that.

So when you think about credit risk, different geographies going through different unemployment or economic events or home price paths, which are different from each other, we adjust our pricing pretty regularly for that. And when we back test it, we are able to show our reinsurance partners that we have an ability to navigate those markets differently based on market conditions. So we have a strong track record, and I think that gives us good credibility with our partners for them to rely on our underwriting and pricing discipline.

The last point I'll make on this, Rick, is we do have steps in our reinsurance contracts that kind of provide guardrail guardrails for the reinsurers, minimum FICOs, maximum LTVs and concentrations in those things, DTI, MAXs as well. So there is some boundary conditions that we collaborate on and give the reinsurers' confidence in providing immediate coverage or coverage on a 2-year forward basis.

Your last question comes to the line of Mihir Bhatia with Bank of America.

I wanted to start with actually credit performance. I think you've talked about -- everyone has seen credit performance has been quite exceptional for a few years. But I was wondering, 2022, 2023, some of those vintages are moving up to like 3.4%, 3.5% delinquency rates. Are those the levels that you typically would expect at this point in their life cycle, how are they performing versus -- like how is vintage performance versus what you had planned for at pricing, let's say?

And then just related to that, I'm thinking about -- starting to think about next year and as the loan season, reserve releases have started to fade a little bit. I think you're down to $37 million versus like maybe $40 million mid $40s million last year? And I understand loss ratio is an outcome, but as you're thinking about 2027 and planning for 2027, what's the right underwriting ratio we should be thinking about? Does it start drifting higher towards the mid-20s? Or is 20 percentage is the right way to think about it?

Yes, Mihir. Thanks for the question. This is Dean. So as it relates to book year performance, we're not really seeing anything different than what we talked about in the past. And I would -- just starting off at the highest level, I would agree with your characterization of credit. Overall credit performance remains really strong across the portfolio through Q3.

If we disaggregate and get down into the vintage level, and this really applies quite honestly, any type of borrower attribute, loan attribute and even geography. We're really not seeing anything different than what we expected. These newer books are purchase-heavy books, so they have modestly higher risk attributes. So think higher LTVs, higher DTIs, they're also aging through a much more moderate home price appreciation path. And when we think about the performance, those are things that we price for. And when we evaluate how those book years are doing relative to how we price. We're seeing performance very much in line with our pricing expectations, I think that's what we talked about in the past. That's continuing. That type of performance is continuing through third quarter.

If we think about what that means for credit performance for delinquencies, for delinquency rates on a kind of prospective basis I think as we head into the fourth quarter, much like we had in the third quarter, we have some unfavorable seasonality. So as I'm thinking about kind of delq rate for Q4, I think you could see that just simply tick up based on normal seasonality. I think beyond that, I think it's certainly possible that we continue to see an increase, let's just talk in delq rate turns for a second and we continue to see those gradually increase. into 2027 as those recent book years continue to season, up their normal loss development curve.

And again, anything I say as it relates to forward loss development is going to be predicated on macroeconomic environment. I'm giving you kind of the lens into more of a stable macroeconomic environment, if that trajectory were to change, obviously, the trajectory of delinquencies delq rate loss ratio changes as well.

Yes, Mihir, a few things to add to Dean's point. So I completely agree that the kind of summary of that is from a book year perspective, performance of recent vintages, including '22, '23 that had higher purchase originations, so higher risk attributes from loan-to-value, debt-to-income perspective, they're performing in line with or better than pricing expectations and that also is driven by strong cure rates that Dean referred to.

I think one thing to just also think about this environment, given the persistency in some of the books, loans are staying around longer in aggregate. The books are staying longer than original expectations. And when that happens, those repeat delinquencies that go in and out of delinquency status do impact cure rate calculation. So we are very mindful of that, that when you think about delinquency rate, it might look like delinquency rate is trending up. But then we do look at cure ratios, which, to Dean's previous point, continue to hold up nicely.

And I think you asked a question about loss ratio and how to think about it. We don't provide guidance on loss ratio from a pricing perspective. What I would say, your question on reserve releases versus prior year and future years. I think part of it is when we have made a change in our assumptions on roll rate, that does reduce the opportunity set. So what that means is our losses on news will be lower because we have reduced the rate like last year by a point, and that means our losses on news on a dollar basis will be lower compared to last year if accounts were same. And on the flip side, your reserve release will be lower because there's less opportunity, everything else being held constant. So some of that is more geography that as we see more evidence of performance we take those things into consideration as we think about what our roll rate assumptions are.

Yes. And Mihir, I thought I heard you say $27 million of reserve release. It was actually $37 million of reserve releases.

$37 million, yes.

Perfect. And I totally agree with what Rohit said about the opportunity for future reserve releases being tied to the roll rate assumption.

Got it. And then just going to the housing yield, and I appreciate you don't want -- like it's forward looking on new policies, maybe just talk about some of the guardrails that you would be encouraging the FHA to consider putting in even as it pertains to newer policies and how to go about doing it and your response or your -- like, I mean I assume you're going to still want to earn the return -- the mid-teens return that you have been pricing for. So to the extent that this gets automated or they're using AVM and automatic cancellation, does that then get reflected in just price upfront? I don't know if there's anything more you can say on it, but maybe just talk -- just prospectively about what -- what is Enact's position and what are you advocating for? Or what is the industry going to the FHFA and explaining to them.

Yes. So I would say, Mihir, just from a process and timing perspective, it's too early to tell. We have not received guidance from FHFA or GSEs at this point of time on the parameters. But I would say we've been pretty explicit on in the past that key factors as you think about prospective cancellations or new loans include mark-to-market LTV, it includes seasoning requirements many of these factors are already factored into the existing criteria.

When you think about GSE guidelines, there are requirements on how a consumer can actually cancel loans based on appraisals and then obviously, valuation methods buffers, how much risk is being transferred to taxpayers versus us putting that private capital in front of tax taxpayer risk. So those are typical considerations but we look forward to engaging with the FHFA and GSEs as and when those conversations start.

You have a question from Geoffrey Dunn with Dowling & Partners.

I'm not sure these details are available yet, but I had a couple of questions on this pilot because obviously, the ability to cancel has been there for decades. And the borrower could always go out and pay for an appraisal. Who's bearing the cost of the AVM under this pilot? Are the GSEs just assuming that cost? Or are they going to put it onto the borrower? And secondly, what is the incentive of servicer to reach out to a borrower to try to cancel it.

Yes, Geoff. Thank you for the question. So very good questions. Unfortunately, at this point of time, we don't have a lot of information beyond what you have seen in the executive order. We have seen the same thing. We have not received guidance from GSEs or FHFA on what the scope of the pilot would be, what the parameters would be and whether it's an automated valuation model or it's an FHFA price index. So governance, transparency of whatever the methodology would be is very important in setting up the criteria and its resilience through cycles would be definitely part of the discussion. So all those questions are still open, including who bears the cost of pulling these appraisals or pulling these AVMs. So that's answer to your first question.

Second question, I think servicers are very much aligned with borrower motivation. So if a consumer is looking for a cancellation, the consumer reaches out and applies for a cancellation based on an appraisal or whatever GSE conditions there are. So at this point of time, servicers will comply with the scope of the pilot and then operationalize it using their own SOPs.

Do you have any data on historically the percent of borrowers that are smart enough and educated enough to realize they could cancel and reach out to get an appraisal and cancel?

Yes. So Geoff, we can think about offline on what that data might look like, but I would just point to our appraisal-based cancellation data, which is embedded in our lapse already. So when you think about our lapse performance through different interest rate cycles, different home price appreciation cycles, that factor is already included in it. And I would say it's very parallel to what happens in refinance market. that when rates drop, even if there's a portion of consumer population that is in the money from a refinanceability perspective, not every single consumer goes and refinances.

I don't know if we have a breakdown of our lapse in our disclosures, but I'll ask Daniel.

We don't have a disclosure, but we do have -- what we've talked about, Geoff, in the past, having about $1.5 billion of borrower initiated cancellations per quarter. That's about 5,000 policies, if you think that our average loan size across the portfolio is about $300,000 are canceled every quarter. So that represents about 2% of our annualized lapse on the portfolio on an annualized basis. So from our perspective, there is -- these borrower-initiated cancellations are working for many borrowers every quarter under the current design.

I'm showing no further questions at this time. I would now like to turn it back to Rohit Gupta for closing remarks.

Thank you, Kathy, and thank you, everyone. We appreciate your interest in Enact, and I would like to wrap up the call by thanking our -- all of our employees for their hard work and dedication in fulfilling our mission to help people buy and keep their homes. Thank you.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.

Hello, and welcome to Enact's Second Quarter Earnings Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Daniel Kohl, Vice President of Finance. You may begin.

Thank you, and good morning. Welcome to our second quarter earnings call. Joining me today are Rohit Gupta, President and Chief Executive Officer; and Dean Mitchell, Chief Financial Officer and Treasurer. Rohit will provide an overview of our business performance and progress against our strategy. Dean will then discuss the details of our quarterly results before turning the call back to Rohit for closing remarks. We will then take your questions.

The earnings materials we issued after market close yesterday contain our financial results for the quarter, along with a comprehensive set of financial and operational metrics. These are available on the Investor Relations section of our website. Today's call is being recorded and will include the use of forward-looking statements. These statements are based on current assumptions, estimates, expectations and projections as of today's date. Additionally, they are subject to risks and uncertainties, which may cause actual results to be materially different, and we undertake no obligation to update or revise such statements as a result of new information.

For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release as well as in our filings with the SEC, which will be available on our website. Please keep in mind the earnings materials and management's prepared remarks today include certain non-GAAP measures. Reconciliations of these measures to the most relevant GAAP metrics can be found in the press release, our earnings presentation and our upcoming SEC filing on our website. With that, I'll turn the call over to Rohit.

Thank you, Daniel. Good morning, everyone. Before discussing our second quarter results, I would like to begin by saying that our thoughts are with Tom McInerney, who is a valued member of our Board and strong supporter of Enact. We wish Tom a full and speedy recovery.

I also want to express my support for Jerome Upton as he steps into the role of Interim President and CEO of Genworth. Jerome has been an important member of Genworth's leadership team as well as Enact's Board of Directors for many years, and I'm confident he will provide thoughtful and steady leadership during this time, and I look forward to our continued partnership.

Turning to our results. Enact closed the first half of 2026 with another strong quarter, reflecting the disciplined execution of our strategy, resilient credit performance and our continued focus on long-term sustainable value creation. As a result of our strong performance, we are updating our 2026 capital return expectations to between $550 million and $600 million, up from our prior guidance of $500 million. I will discuss this in more detail shortly. For the second quarter, we reported adjusted operating income of $177 million or $1.26 per diluted share.

Adjusted return on equity was 13%, and we generated strong new insurance written of $15 billion, resulting in total insurance in force of $274 billion. The macro and housing environment remained dynamic as elevated interest rates, geopolitical developments and policy uncertainty continued to contribute to market volatility. At the same time, the U.S. economy was resilient, supported by a healthy labor market and generally stable household balance sheets.

Within housing, underlying demand fundamentals are strong. And while higher mortgage rates continue to temper overall transaction volumes, purchase application activity benefited from the spring selling season. From a credit perspective, our portfolio is performing well with recent books performing in line with our expectations. Persistency remained elevated at 80% during the quarter. This is supported by the rate environment with approximately 57% of loans in our portfolio carrying mortgage rates below 6%.

Looking ahead, we continue to believe the long-term fundamentals supporting the housing market remain intact, and we are confident that private mortgage insurance will continue to play a critical role in responsibly expanding access to sustainable homeownership while creating attractive opportunities for Enact.

Our Insurance in-force portfolio remains resilient with a risk-weighted average credit score of 746 and a risk-weighted average loan-to-value ratio of 93%. Layered risk was 1.1% of risk in-force. Pricing remained constructive in the quarter, while our participation was strong and our dynamic risk-adjusted pricing engine is enabling us to prudently target the right risk at the right price on a granular level as market conditions evolve.

As we continue to leverage technology to enable better risk selection and improve operational efficiency, we are pleased to announce that in addition to our pricing engine, we recently launched our Enact Loan Level Assistant, or ELLA. This new tool is our internal underwriting innovation that applies generative AI to help underwriters make smarter underwriting decisions. By reviewing loan documents, identifying inconsistencies and surfacing relevant insights more efficiently, ELLA reduces repetitive tasks, improves risk selection and allows our underwriters to spend more time applying their expertise to making underwriting decisions. While it's still early in its launch, adoption has grown rapidly, and we believe ELLA will create a strong foundation for future efficiency improvement.

Turning to losses. New delinquencies were down 9% and cures were down 9% sequentially, consistent with seasonal trends, and total delinquencies declined 1%. Our strong cure performance was driven by favorable credit trends and effective loss mitigation efforts. This drove a reserve release of $37 million in the quarter, resulting in a loss ratio of 14%. Credit performance remains strong, and we are well reserved across a range of scenarios. We delivered another quarter of prudent expense management with operating expenses down year-over-year despite the inflationary environment. Dean will discuss the key drivers of this strong performance and our improved expectations for 2026. We continue to execute against our capital allocation priorities: maintaining a strong and resilient balance sheet to support existing policyholders, investing to drive organic growth and operating efficiencies, funding attractive new business opportunities such as Enact Re and returning excess capital to shareholders.

At the end of the quarter, our PMIERs sufficiency ratio was 161%, providing significant financial flexibility, and our credit and investment portfolios were in excellent shape. Our strong capital position is further reinforced by our CRT program and the backing of our undrawn credit facility. We also continue to execute on our growth and diversification strategy. Enact Re delivered another quarter of strong performance, generating attractive risk-adjusted returns while remaining both capital and expense efficient.

Finally, our strong performance supports continued robust returns to shareholders. During the quarter, we returned $127 million through share repurchases and dividends. As I mentioned, we have now increased our capital return expectations to between $550 million to $600 million for 2026. This upward revision reflects our commitment to returning excess capital to shareholders while maintaining a strong balance sheet.

I'd now like to take a moment to recognize our culture and our people. For the fourth time since our IPO, Enact was recognized as one of the best places to work by the Triangle Business Journal. We have always taken pride in fostering an environment where teams can do their best work for our customers and stakeholders and are pleased to have received this recognition again.

Turning to recent housing policy announcements. As I mentioned last quarter, Enact supports the FHFA and GSEs' ongoing efforts to modernize credit evaluation in ways that responsibly expands access to sustainable homeownership. During the quarter, we began participating in the market's limited rollout of VantageScore 4, although its financial impact during the quarter was immaterial. We remain committed to supporting our customers and staying operationally aligned as initiatives are implemented and scaled in the market. Overall, we've had a great first half of 2026 that positions Enact for long-term success.

With that, I will now hand the call over to Dean.

Thanks, Rohit, and good morning, everyone. We delivered another strong quarter of performance. Adjusted operating income was $177 million or $1.26 per diluted share compared to $1.15 per diluted share in the same period last year and $1.21 per diluted share in the first quarter of 2026. Adjusted operating return on equity was 13.2%. A detailed reconciliation of GAAP net income to adjusted operating income can be found in our earnings release.

Turning to revenue drivers. New insurance written was $15 billion in the quarter, up 19% sequentially and up 15% year-over-year as rates remained elevated and seasonal dynamics played out across the period. Persistency was 80% in the quarter, flat sequentially and down 2 points year-over-year on lower prevailing mortgage rates. While rates increased over the quarter, our portfolio remains resilient with 12% of our mortgages in our portfolio having rates at least 50 basis points above June's average of 6.5%. At the same time, 57% of loans in our portfolio carry rates below 6%.

Primary insurance in-force was $274 billion in the quarter, up $1 billion or approximately 1% from the first quarter of 2026 and up $4 billion or approximately 2% year-over-year. Total net premiums earned were $245 million, up $2 million sequentially and flat year-over-year. The sequential increase is primarily driven by premium growth from attractive adjacencies and growth in primary insurance in-force. Our base premium rate of 39.1 basis points was down 0.3 basis points sequentially. As a reminder, our base premium rate is impacted by several factors, including macro factors driving refinancing activity and tends to modestly fluctuate from quarter-to-quarter. Our net earned premium rate was 34.1 basis points, down 0.2 basis points sequentially and aligned with the decrease in base premium rate.

Investment income in the second quarter was $73 million, up $2 million or 3% sequentially and up $7 million or 11% year-over-year. Our new money investment yield was over 5% and contributed to an increase in the average portfolio book yield to 4.6% for the quarter. While we typically hold investments to maturity, we may selectively pursue income enhancement opportunities. During the quarter, we sold certain assets that will allow us to recoup realized losses through future higher net investment income.

Turning to credit. We continue to see strong loss performance across our portfolio. New delinquencies decreased sequentially to 12,300 in the quarter from 13,600 in the first quarter of 2026, in line with expected seasonal trends. Our new delinquency rate for the quarter remained consistent with pre-pandemic levels at 1.3%, down 20 basis points from the first quarter of 2026 and an increase of 10 basis points from the second quarter of 2025.

Our cure rate decreased 4 percentage points sequentially to 50%, in line with seasonal trends and remains elevated. We maintained our claim rate on new delinquencies at 8%. Total delinquencies in the second quarter decreased sequentially to 24,300 from 24,700 and the delinquency rate was flat sequentially at 2.6%.

Losses in the second quarter of 2026 were $33 million and the loss ratio was 14% compared to $37 million and 15% in the first quarter of 2026 and $25 million and 10% in the second quarter of 2025. The current quarter reserve release of $37 million from favorable cure performance and loss mitigation activities compares to a reserve release of $39 million in the first quarter of 2026, and $48 million in the second quarter of 2025.

Operating expenses in the second quarter of 2026 were $52 million, and the expense ratio was 21% compared to $49 million and 20% in the first quarter of 2026 and $53 million and 22% in the second quarter of 2025. In the second quarter of 2026, we took actions that resulted in a $1 million reorganization charge that is excluded from our adjusted operating income. Based on first half performance and full year 2026 outlook, we now forecast 2026 expenses, excluding reorganization costs to be in the range of $205 million to $210 million. We continue to operate from a strong capital and liquidity position, underpinned by our robust PMIERs sufficiency and the successful execution of our diversified CRT program. Our PMIERs sufficiency was 161%, or $1.9 billion above PMIERs requirements and our third-party CRT program provides $1.9 billion of PMIERs capital credit at the end of the quarter.

Turning now to capital allocation. During the quarter, we paid out approximately $34 million or $0.24 per share through our quarterly dividend and bought back 2.2 million shares at an average price of $42.58 for $93 million. Through July 31, we have repurchased an additional 0.7 million shares for $30 million. Today, we announced the third quarter dividend of $0.24 per common share payable September 17, 2026.

As Rohit mentioned earlier, we're increasing our 2026 total capital return guidance to be in the range of $550 million to $600 million, reflecting our continued strong financial position and confidence in our business. As in the past, the final amount and form of capital return to shareholders will ultimately depend on business performance, market conditions and regulatory approvals. Overall, we are pleased with our performance through the first half of the year.

As we look ahead, our disciplined approach to risk management, strong balance sheet and financial flexibility position us well to navigate the evolving environment while continuing to deliver value to our shareholders.

With that, let me turn the call back to Rohit.

Thanks, Dean. Enact is positioned to succeed through market cycles. And by combining disciplined underwriting, a strong balance sheet, thoughtful capital allocation and continued investment in innovation, we are building an even stronger franchise for the long term.

As always, our mission to responsibly help more people achieve the dream of homeownership remains at the center of everything we do.

Operator, we are now ready for Q&A.

[Operator Instructions] Your first question comes from the line of Mihir Bhatia with Bank of America.

I wanted to start by just asking maybe about the base premium yield. I mean it's relatively steady, but it is inside maybe the third decimal coming down a little bit through the -- for the last few quarters. Where do you expect that to settle out? And just any expectations you could guide us for like the rest of the year? Just -- and maybe related to that, if you want to just comment on competitive intensity, too, that you're seeing?

Yes, Mihir, it's Dean. I'll start with the answer on base premium rate trajectory and Rohit will, I'm sure, pick up from a competitive perspective in the market. I would say, despite the modest first half pressure, our base premium rate outlook really remains consistent with our 2026 guidance that we gave at the beginning of the year that we expect it to be relatively flat versus 2025. I think you know that could have a slight downward tilt kind of like we saw in 2025, but I would characterize that very much in line with the original guidance of relatively flat.

I think we've talked about in prior periods that there's always going to be some quarter-over-quarter volatility. That metric is influenced by a bunch of different variables. We've talked about NIW levels. We've talked about NIW mix, specifically as it relates to purchase refi, which can change the nature of the risk and change the nature of the pricing, lapse, what book years are lapsing and then things that aren't always associated with premium rate like delinquent premium accrual. I think we saw some of that volatility play out this quarter. But overall, in terms of the impact on our overall guidance, I think it remains consistent to generally flat versus 2025. Rohit, do you want to take competitive environment?

Yes. Thanks, Dean. Thank you for your question. So I would just say MI market continues to be dynamic, but remains constructive from our vantage point. Pricing, as we have mentioned in the past, was competitive, but remains at levels that, in our view, still reflect somewhat elevated levels of economic uncertainty. And from a pricing return perspective, they remain attractive from our vantage point on a risk-adjusted basis and accretive to economic value. So we are very happy with the $15-plus billion of NIW we wrote in the quarter and the returns at which we wrote that NIW.

Can I just follow up on that, Rohit? Could you -- maybe like quantify the ROE on new business today? And how does that compare to, I don't know, maybe the 2023, 2024 vintages?

Mihir, I think I'm going to have a tough time giving any ROE guidance. We have not been providing ROE guidance either in a range or any kind of point estimate. I would say that we find the ROE is accretive to shareholder value. And we've talked about this in the past that we price NIW on a conditional basis, so not only from a consumer and loan attribute perspective, but down to each geography.

So just given the granularity of our pricing and returns as well as the competitive nature of the market and the opaque pricing environment, it's tough to provide guidance on ROE quantitatively. But hopefully, the qualitative color helps.

Yes. Okay. Maybe I'll ask one more and then just jump back in the queue. Just on the credit outlook from here. I think new notices fell, default rate was down a little bit. I guess any guidance, any commentary on how you expect that to trend from here? Just talk some of the factors that are driving that strength and if we should -- how you expect default rates to trend from here?

Yes. Thanks, Mihir. I'll take that. This is Dean again. I think you characterized the market -- the credit market appropriately. We see credit performance remaining strong, and that is across both new delinquency development and cures. Both news and cures were down sequentially. I think in our prepared remarks, we made the reference that that's really consistent with normal seasonality as you transition from Q1 to Q2 of any particular year. If we peel the onion back a little bit, we continue to assess performance across a variety of borrower and loan attributes. We don't see any material deviation from our pricing expectations when we set price and onboard the risk. So I think across the risk continuum, we continue to see performance remain strong and really, again, not deviate from our expectations when we onboard the risk and price and ultimately price the policy.

I guess it's one of the -- certainly one of the underpinnings of strong cure performance has been home price appreciation. That's a key driver of cure performance to date. I think we continue to see strong embedded HPA across our policies in-force as well as our delinquencies. So 88% of our delinquencies continue to have mark-to-market equity of 10% or more. And I'd say just as you think about short to medium term, I think that underpins ongoing strong cure performance, again, in the kind of in the short to medium term. We talked about delq rate a little bit last quarter as it relates to both the impact of some of the newer vintages contributing more delinquencies as they age up their normal loss development pattern.

And of course, some of those newer vintages don't have as much HPA -- embedded HPA. I think that can be a contributor to an uptick in delinquency rate as we move forward in time. And then just in the short term from a delq rate perspective, while we got the benefit of seasonality over the first half of the year, second half seasonality tends to -- you see an uptick in new delinquencies. And so I think it's reasonable to expect an uptick in delq rate from at least first half levels in the short term from a delq rate perspective.

Your next question comes from the line of Bose George with KBW.

Actually just a follow-up on credit. Can you just talk about when you see delinquencies peaking just from a normalized seasoning of the portfolio?

Yes, Bose, it's Dean again. I think much like we talked about just on that last answer, I think second half seasonality, you're going to see an uptick in delq rate or potentially an uptick in delq rate given the second half seasonality that we would expect vis-a-vis the first half.

And then as you transition into 2027, you have different seasonality. So start to have a positive impact on cures, new delq's and ultimately, that having an influence on delq rate. So from a timing perspective, I think you're going to see a little bit of pressure to delq rate over the course of the second half of 2026. And then from there, a lot of that's going to be dictated by macroeconomic drivers, what the macroeconomic trajectory is, and that will be a pretty big influence on delq inventory and ultimately delq rate go forward.

But from a seasonality perspective, you're going to see those 2 seasonality kind of drivers play out, a little bit of pressure in the second half and then a pivot as we enter into 2027.

Okay. No, that makes sense. But if the macro remains stable, just with the newer books that have less HPA for you and everyone in the industry, does it suggest that there is going to be sort of an uptrend just in normalized delinquencies as these -- as they become a bigger part of the inventory? Is that fair?

Yes. I think we've talked about the more recent books having aged through a more moderate home price appreciation path. They've also been originated in a purchase-heavy market, which has modestly higher risk characteristics, a little higher LTVs, a little higher DTIs. So I think it's fair to expect those vintages to produce more new delinquencies as they age up their normal loss development curve.

Again, like you posed the question, all things being equal. The good news there is we price for that risk when we onboard it. And to date, from a new vintage perspective, I think Rohit made reference in his prepared remarks, we're not really seeing any deviation from our pricing expectations. But yes, I think those new books are going to produce more delinquencies given their makeup and given the macroeconomic environment that they've aged through to date vis-a-vis what we saw in 2020 and 2021 vintages just by way of example, they have a tremendous amount of embedded HPA.

Okay. Great. And then just actually one on the VantageScore loans that you mentioned. Actually, do these loans just have VantageScore? Or do they also have a FICO? And then when you underwrite these loans, how do you -- what do you do differently just given, I guess, there is less history, et cetera?

Yes. Thank you for the question. So I would say these Vantage loans typically come with just VantageScore. But I would also say that we are in the early innings of the rollout of VantageScore. As you might remember, there was a limited market rollout and then it was rolled out subsequently for high LTV consumers. So number of lenders who are actually sending volume, especially volume in second quarter was very small. So we will see how lender adoption changes. And depending on which lenders are submitting loans, are they sending one score or both scores. So that's the answer to your first question.

From our side, from underwriting perspective, our kind of -- if you think about our guiding principles, our first guiding principle was right price for the right risk, which is our risk philosophy, and we've been talking about that since our IPO. So making sure that as we are switching from Classic FICO to Vantage, we have an ability to assess the capital, the losses, expenses for that loan and then apply it as accurately as we were applying it on Classic FICO. So we are making -- we made progress and we rolled out with high confidence on that. And then also making sure that from an operational and financial perspective, we have the right controls, and we were supporting our lender partners and consumers. So at this point of time, we are in the market with VantageScore pricing, accurate down to a loan level. And as the FICO 10T, data is coming out, we are getting ready to basically build the same capabilities on FICO 10T so we can support that rollout as and when it happens. So that's our mindset and hope that context helps.

Your next question comes from the line of Richard Shane with JPMorgan.

Both Bose and Mihir asked a lot of great questions, and it's a pretty straightforward quarter. So there's not a ton left to discuss. But conceptually, I'd love to talk about one thing. HPA is kind of a multifaceted challenge and opportunity for you guys. Obviously, it helps with credit on the back book. It potentially drives TAM expansion because it impacts affordability and people's ability to make down payments.

But ultimately, there is an affordability issue that it creates. I'm curious where you guys think we really are in that cycle. We've been through this sort of really unprecedented period of HPA 4 or 5 years ago, and it started to moderate and probably been for the last year or 2 below historic average. How do we think about the dynamics for you guys related to that?

Yes, Rick, thank you for the question. So I would say that's a very complex and also a question that has different implications for our business in short term and long term. I would say we focus on affordability as a key metric when we think about the balance of all the components you talked about. So I would think about home prices, I would definitely think about interest rates, and then I would add income or wage growth over that same time period.

If you combine those 3 components, you essentially get the Housing Affordability Index that we monitor both at the national level and then specifically at a geography level. To your point, in 2020, 2021, we saw a significant increase in home prices, but affordability was still in a good place because we were seeing historically low interest rates in mortgages and wage growth was still good coming out of COVID. So I think that helped affordability. But the combination of home prices staying elevated and interest rates doubling coming out of COVID, obviously has kind of created this affordability pressure that we have felt for 3, 3.5 years now.

So in our mind, it's a relationship between wage growth and home price appreciation that matters in how affordability gets better. So it's not that home price appreciation is bad. Historically, a 3% to 5% home price appreciation was seen as very normal, and that did not impact affordability because wage growth was about the same or wage growth was slightly above that home price appreciation. And then at the same time, interest rates contributed in a constructive way because they are within a narrow range.

I think the fact that we are operating in a higher rate environment in addition to continued elevated home prices leads to that affordability challenge that you're referring to. With current conditions, obviously, it's going to take a lot longer for that affordability challenge to get solved. But if we get relief in rates, which the administration is focused on, FHFA is focused on, if we get relief on either the underlying yield or the spreads, then you could see rates coming into a range where consumers find those rates affordable enough. I'm not saying affordability will be back to 2020 levels, but affordability is good enough for consumers who are on the sidelines to come off the sidelines and participate in the homeownership journey. And we have seen proof points of that.

If you look at the current affordability levels and if you think about the pent-up demand that continues to exist in the market for homeownership, when rates come into that 6% range for 30-year fixed mortgage, we have seen a lot of first-time home-ready consumers come to market and become homeowners. So that's the way we look at the entire picture. Hopefully, that provides some context.

No, it's very helpful. And then just one sort of related follow-up. If we go back to '23, '24 time frame, I asked you guys some tough questions about loans with one or temporary rate buydowns. And I think you guys at the time said that you underwrite to life of loan.

I'm sort of the view that a lot of those buyers were in the position -- had expectations, all mortgage brokers and all mortgage borrowers are rate falls. And I think all those folks thought they were going to be able to refinance those loans down. Clearly, rates have held up a lot higher. We haven't seen anything in the credit to suggest that was a -- that your strategy was riskier than your thought. But I am curious as you sort of think back now, was that -- was your view really validated and were we overly cautious at the time?

Yes, Rick, thank you again for another great question. I would say, as a reminder, when we talked about rate buydowns, I think it was '23, '24 and even maybe later than that. First, just out of the gate, there were 2 components of it, the temporary rate buydowns, but a lot of builder-originated loans used to be forward commitments or you can call them permanent buydowns. So if you just think about temporary buydowns, those consumers were qualified at the fully indexed rates.

So from an underwriting perspective, those consumers were qualified at the right ratios, debt-to-income ratios, even if they were to get hit with those rate increases, which, to your point, might have happened or about to happen. So for temporary buydowns, we have not seen a deterioration in performance. The performance has held up pretty well. And then for the forward commitment or permanent rate buydowns, those consumers actually have no rate shock coming because the lender in this case, actually had bought the rate down for the life of loan. So those continue to perform very well.

Your next question comes from the line of Rowland Mayor with RBC Capital Markets.

Just a quick numbers one to start. Does the expense guidance you offered include amortization? Or is it just your acquisition operating expense line?

Thanks, Rowland. This is Daniel. No, that's a good question. It includes both operating expenses and the amortization on our P&L.

Okay. And going on that, could you just help me understand the trade-off between expenses and losses? As the prior year development comes down a bit, is there an expense offset due to lower variable comp?

No. Well, what I'd say is our expense guidance takes into account our expectations for the full year. And we're really happy with the expense guidance and really is just a reflection of our continued journey since the IPO, where we've been able to take out about 15% of our expense base. And that's in a really high inflationary environment.

And in fact, if you adjust for inflation, that's about 30% from an adjusted for inflation basis. And so that's just a continuation of our proven approach to expense management and really does reflect just that approach and that disciplined approach that we've taken in the last several years.

Rowland, as it pertains to impact of any kind of incentives and prior year development and this year's development, that essentially is reset every year anyway. So just think about the short-term incentives are set by the Board every calendar year based on the projections for that calendar year. But to a certain degree, it's not that we are going off year-over-year comparisons. The performance is measured against goals set for calendar year 2026.

That's super helpful. And then if I could just do one more. Can you help us understand the difference between like a $550 million capital return and the $600 million? It said that regulatory approvals were a factor? Or are we waiting on a holdco dividend approval? Or is it something else that would change the end of the range you end up on?

Yes, Rowland, it's Dean again. Thanks for the question. I think we made reference to really 3 dynamics, 3 drivers that we look at and think about as it relates to our total capital return guidance, business performance, macroeconomic environment, so the prevailing and prospective view on how the macroeconomic environment will influence the market and our business and then regulatory environment. What I would say as kind of the fundamental driver for the increase in guidance from our prior $500 million to our new range of $550 million to $600 million is really foundationally integrated into our business performance.

So business performance has been very strong over the first half of the year, gives us an additional -- first of all, it gives us additional excess capital. But in addition to that, gives us additional confidence to return more capital to shareholders. Embedded in that business performance is obviously a picture of the market in NIW. And given that we're in a slightly smaller market than what we anticipated at the beginning of the year, another kind of foundational driver for why the increase in guidance for full year capital return for 2026.

We'll continue to evaluate the other drivers as well. We think the macroeconomic environment has remained resilient, and there's really no change in the regulatory environment. It's still what we believe to be accommodative of the increased return to capital guidance that we gave.

There are no further questions at this time. I will now turn the call back over to Rohit Gupta for closing remarks.

Thank you, Dennis, and thank you, everyone. We appreciate your interest in Enact, and we look forward to seeing many of you at Barclays 24th Annual Global Financial Services Conference on September 14 in New York. Thank you.

That concludes today's call. Thank you all for joining, and you may now disconnect.

Hello, and welcome to Enact's First Quarter Earnings Call. Please be advised that today's call -- conference call is being recorded. I would now like to hand the conference over to your first speaker, David Kohl, Vice President of Finance. You may begin.

Thank you, and good morning. Welcome to our first quarter earnings call. Joining me today are Rohit Gupta, President and Chief Executive Officer; and Dean Mitchell, Chief Financial Officer and Treasurer. Rohit will provide an overview of our business performance and progress against our strategy. Dean will then discuss the details of our quarterly results before turning the call back to Rohit for closing remarks. We will then take your questions.

The earnings materials we issued after market close yesterday contain our financial results for the quarter, along with a comprehensive set of financial and operational metrics. These are available on the Investor Relations section of our website. Today's call is being recorded and will include the use of forward-looking statements. These statements are based on current assumptions, estimates, expectations and projections as of today's date.

Additionally, they are subject to risks and uncertainties, which may cause actual results to be materially different, and we undertake no obligation to update or revise such statements as a result of new information. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release as well as in our filings with the SEC, which will be available on our website.

Please keep in mind the earnings materials and management's prepared remarks today will include certain non-GAAP measures. Reconciliations of these measures to the most relevant GAAP metrics can be found in the press release, our earnings presentation and our upcoming SEC filings on our website.

With that, I'll turn the call over to Rohit.

Thank you, Daniel. Good morning, everyone. Enact delivered a strong start to 2026 amid a volatile rate environment. This performance was underpinned by the disciplined execution of our strategy, resilient credit performance and our clear focus on long-term value creation. For the first quarter, we reported adjusted operating income of $172 million or $1.21 per diluted share. Adjusted return on equity was 13%, and we generated strong new insurance written of $13 billion, resulting in total insurance in force of $272 billion.

The housing market remained dynamic with mortgage rate volatility impacting mortgage activity in the quarter. Overall, purchase application volumes followed seasonal trends, while lower rates early in the quarter supported elevated refinance applications. Additionally, recent loan vintages with lower embedded equity have contributed to increased mortgage insurance penetration in refinance activity. Conversely, as rates increased during March and April, the refinance trend slowed, but we have seen the impact of the spring selling season on purchase applications.

Against this backdrop, persistency remained elevated at 80% in the first quarter. Additionally, across our portfolio, 58% of loans in our book have rates below 6%, providing continued support for elevated persistency. While the macro environment remains uncertain and inflationary pressures accelerated as gas prices have risen, the consumer continues to show resilience. Overall, labor market conditions remain supportive and credit performance remains healthy. Importantly, we are not seeing any meaningful impact within our credit portfolio and overall credit trends remain in line with our expectations.

We will continue to monitor these dynamics closely and believe that the underlying credit fundamentals of our business remain strong. In fact, our Insurance-in-Force portfolio remains resilient with a risk-weighted average FICO score of 746, risk-weighted average loan-to-value ratio of 93% and layered risk was 1.2% of risk in-force. Pricing remained constructive in the quarter, and our dynamic risk-adjusted pricing engine, Rate360, is enabling us to prudently target the right risk for the right price at a granular level with changing market conditions.

Turning to losses. Total delinquencies were down 1% sequentially, with new delinquencies down 1% and cures up 13%, both consistent with seasonal trends. Our strong cure performance was driven by favorable credit trends and our effective loss mitigation efforts. This drove a net reserve release of $39 million in the quarter, and our resulting loss ratio was 15%. Credit performance continues to be strong, and we are well reserved for a range of scenarios.

Turning to expenses. We delivered another quarter of prudent expense management, putting us on track to achieve our 2026 expense guidance range of $215 million to $220 million, excluding reorganizational costs. We continue to execute against our capital allocation priorities, including maintaining a strong and resilient balance sheet to support existing policyholders, investing in our business to drive organic growth and operating efficiencies, funding attractive new business opportunities and returning excess capital to shareholders.

At the end of the quarter, our PMIERs sufficiency ratio was 162%, providing significant financial flexibility and our credit and investment portfolios are in excellent shape. Our strong capital position is further reinforced by our CRT program and the backing of our undrawn credit facility. We continue to execute on our growth and diversification efforts. Our growth efforts in Enact Re continued to deliver consistent and strong performance in the first quarter, generating attractive risk-adjusted returns.

Enact Re remains a long-term growth and diversification opportunity that is both capital and expense efficient. Our strong performance supported robust capital returns to our shareholders. During the first quarter, we returned $123 million through share repurchases and dividends and are pleased to announce that our Board of Directors approved a 14% increase to our dividend from $0.21 to $0.24 per share, which also marks the fourth year that we have increased our quarterly dividend payment. We continue to expect to deliver capital returns in 2026 of approximately $500 million.

Turning to recent housing policy announcements. We applaud the FHFA and the GSEs for their thoughtful approach to credit modernization through the announced limited rollout of VantageScore 4.0. Enact supports ongoing efforts to modernize credit evaluation in ways that responsibly expand access to sustainable homeownership. We remain committed to supporting our customers and to staying operationally aligned as the GSEs advance this initiative and provide additional information.

Overall, we have had a great start in 2026 that positions Enact for long-term success. I want to thank our entire team for their relentless commitment and outstanding performance.

With that, I will now hand the call over to Dean.

Thanks, Rohit, and good morning, everyone. We began 2026 with another quarter of strong results. Adjusted operating income was $172 million or $1.21 per diluted share compared to $1.10 per diluted share in the same period last year and $1.23 per diluted share in the fourth quarter of 2025. Adjusted operating return on equity was 12.9%. A detailed reconciliation of GAAP net income to adjusted operating income can be found in our earnings release.

Turning to revenue drivers. New insurance written was $13 billion in the first quarter, down 11% sequentially and up 30% year-over-year as rate trends and seasonal dynamics played out across the period. Persistency was 80% in the quarter, flat sequentially and down 4 points year-over-year on lower prevailing mortgage rates. While rates were volatile over the quarter, only 21% of mortgages in our portfolio have rates at least 50 basis points above March's average of 6.2%, providing support for continued elevated persistency.

Primary Insurance-in-Force was $272 billion in the quarter, down $1 billion from the fourth quarter of 2025 and up $4 billion or approximately 2% year-over-year. Total net premiums earned were $243 million, down $3 million sequentially and down $2 million year-over-year, primarily driven by higher ceded premiums. Our base premium rate of 39.4 basis points was down 0.2 basis points sequentially, in line with our expectations. As a reminder, our base premium rate is impacted by several factors and tends to modestly fluctuate from quarter-to-quarter.

Our net earned premium rate was 34.3 basis points, down 0.5 basis points sequentially, driven by higher ceded premiums. Investment income in the first quarter was $71 million, up $2 million or 3% sequentially and up $8 million or 12% year-over-year. Our new money investment yield of 5% contributed to an increase in the average portfolio book yield of 4.5% for the quarter. While we typically hold investments to maturity, we may selectively pursue income enhancement opportunities. During the quarter, we sold certain assets that will allow us to recoup realized losses through future higher net investment income.

Turning to credit. We continue to see strong loss performance across our overall portfolio. New delinquencies decreased sequentially to 13,600 in the quarter from 13,700 in the fourth quarter of 2025, in line with expected seasonal trends. Our new delinquency rate for the quarter remained consistent with pre-pandemic levels at 1.5%, flat from the fourth quarter of 2025 and an increase of 20 basis points from the first quarter of 2025.

Additionally, our cure rate increased sequentially 3 percentage points to 54% and remains well above pre-pandemic levels. We maintained our claim rate on new delinquencies at 8%. Total delinquencies in the first quarter decreased sequentially to 24,700 from 24,900 and the delinquency rate was flat sequentially at 2.6%. Losses in the first quarter of 2026 were $37 million, and the loss ratio was 15% compared to $18 million and 7%, respectively, in the fourth quarter of 2025 and $31 million and 12% in the first quarter of 2025.

The current quarter reserve release of $39 million from favorable cure performance and loss mitigation activities compares to a net reserve release of $60 million, inclusive of our claim rate reduction from 9% to 8% in the fourth quarter of 2025 and $47 million in the first quarter of 2025. Operating expenses in the first quarter of 2026 were $49 million and the expense ratio was 20% compared to $59 million and 24%, respectively, in the fourth quarter of 2025 and $53 million and 21% in the first quarter of 2025.

As a reminder, our expenses are typically higher in the back half of the year. For full year 2026, we continue to anticipate operating expenses in the range of $215 million to $220 million, excluding any reorganization costs as we prudently manage our expense base balancing our ongoing focus on driving further efficiencies across the business with continuing to invest in our growth initiatives. We continue to operate from a strong capital and liquidity position, underpinned by our robust PMIERs sufficiency and the successful execution of our diversified CRT program.

Our PMIERs sufficiency was 162% or $1.9 billion above PMIERs requirements, and our third-party CRT program provides $1.9 billion of PMIERs capital credit at the end of the first quarter.

Turning now to capital allocation. During the quarter, we paid out $30 million or $0.21 per share through our quarterly dividend and bought back 2.3 million shares at an average price of $40.66 for $93 million. Through April 30, we have repurchased an additional 0.7 million shares for $30 million as well. Yesterday, we announced a 14% increase to our quarterly dividend from $0.21 per share to $0.24 per share payable June 18, 2026. The increased dividend is consistent with our commitment to returning capital to shareholders and reflects the continued strength of our financial position and confidence in our business.

As Rohit mentioned earlier, our 2026 total capital return guidance remains unchanged at approximately $500 million. As in the past, the final amount and form of capital returned to shareholders will ultimately depend on business performance, market conditions and regulatory approvals. Overall, we are pleased with our start to 2026 and believe we remain well positioned to prudently manage risk, maintain a strong balance sheet and deliver solid returns for our shareholders.

With that, let me turn the call back to Rohit.

Thanks, Dean. Our mission to responsibly help more people achieve the dream of homeownership guides everything we do. Looking ahead, we remain encouraged by the long-term fundamentals in the housing market and are confident that Enact's strategy and durable business model position us to generate compelling performance and attractive returns while continuing to navigate a dynamic operating environment. We appreciate your interest in Enact and your continued support.

Operator, we are now ready for Q&A.

[Operator Instructions]

Our first question comes from the line of Bose George with KBW.

So just wanted to start on credit. Credit looks solid. I'm just curious if there are markets where you're keeping an eye on in terms of home prices and have you had to adjust anything in terms of pricing or your exposures based on home price expectations?

Yes, Bose, this is Dean. Thanks for the question. I'd agree with your general assessment at the macro level, we think overall credit performance remains very strong, both in terms of delinquency development and cure activity. And as you would expect, we continue to assess performance across borrower loan attributes. We really haven't seen any material deviation from our pricing expectations when we set price and ultimately onboard risk. That doesn't mean that there aren't differentiations across different attributes.

And certainly, your question about geographies is on point. In terms of geography, there are areas where housing supply has increased and home prices have moderated or even declined in some parts of the country. We've called out the Sunbelt and particularly markets like Florida and Texas as areas where this dynamic is going on. There's other geographies, obviously, where housing supply remains low and home prices continue to appreciate. The Northeast corridor is a good example of that.

I think in terms of how we handle that, just as a reminder, inside our proprietary pricing engine, Rate360, we have the ability to price across over 300 metropolitan statistical areas, and we price based on our view of the market's future home prices. So what that means is we charge incremental premium when we feel markets are more likely to pull back for the higher risk of the potential for claim, and that's really aligned with our principle of the right risk at the right price.

So the bottom line, from my perspective, Bose, is while there are differences in home prices across geographies and they do affect performance. We really haven't seen performance differ from our pricing expectations in any material market. And again, we still believe we've onboarded the right risk at the right price across geographies based on performance to date.

Okay. Great. And then actually switching over to the VantageScore rollout. Actually, a couple of things there. One, since PMIERs incorporates FICO into setting your capital standards, does PMIERs have to be revisited as part of this whole process as well? And then how do you -- when you're sort of providing mortgage insurance, make the adjustments since, I guess, FICO is kind of the key driver for you guys as well, I would think.

This is Rohit. So thank you for the question. Absolutely, as you mentioned, that PMIERs on classic FICO is the foundation of how we think about one of the pricing regimes that governs our returns. So just given that fact, as we think about Vantage, I first want to say that, as I said in my prepared remarks, we are fully supportive of initiatives that qualify more home-ready consumers to prudently get into homes.

And from an implementation perspective, we have been working very constructively with the FHFA and the GSEs to be operationally ready and we stand ready today to operationally implement VantageScore 4.0. As we think about the next step, I think it's items like PMIERs where we just need further guidance, and we are waiting for GSEs to provide that guidance and look forward to actually serving the market as that becomes available.

And our broader mindset, as we have talked about our risk appetite and the way we price is to always have this principle of charging the right price for the right risk at a very granular level. So aligned with that intent, as we get PMIERs for VantageScore 4.0, we would basically take that PMIERs guidance and incorporate that into our return calculation for loan cohorts across our Rate360 engine, and that would generate pricing for a VantageScore loan versus a classic FICO loan.

And down the road, as FICO 10 gets rolled out, our mindset would be the same. So essentially, the intent here is to support these initiatives, but at the same time, charge the right price for the right risk across any score that is coming to us from lenders.

Our next question comes from the line of Mihir Bhatia with Bank of America.

I wanted to start with just on credit and the delinquency rate expectations going forward. Just any comments on that, just how you expect delinquency rate to trend? Is there upward pressure from portfolio seasoning, et cetera? So just things we should be keeping in mind as we build our models and think about the credit outlook?

Yes. Mihir, it's Dean again. Thanks for the question. Very good question. I think in terms of delinquency rate, it's a little bit hard to project as there's a lot that goes into that. It's going to be dependent upon, of course, the macroeconomic environment and changes in its potential trajectory would have a meaningful impact on delq rate. But it also is impacted by things like NIW levels. So to the extent we write more new insurance written, that could suppress what would otherwise be the delq rate.

And then, of course, it's impacted by claim timing. And as we've seen this quarter and we've seen in prior quarters, that's been de minimis to date. I think that makes it difficult to predict with precision. At the same time and trying to be responsive to your question, I think given some of the aging that we're seeing in the newer purchase heavy books, those books having slightly higher risk attributes, LTV, DTI and a little bit lower FICO. I think it's reasonable to expect the delinquency rate could tick up from the Q1 levels. Again, got to be caveated with all things being equal, macroeconomic, NIW claims and et cetera. But I think it could tick up from the 2.6% that you see in the first quarter.

Got it. And then just if you talk about the premium yield expectations for the rest of the year? Just any call-outs we should keep in mind even quarter-over-quarter. And then maybe just also use the opportunity to talk about competitive intensity that you're seeing.

Yes. So I'll start that off, Mihir, on base premium rate and turn it over to Rohit on the competitive environment. So as we've talked about in prior quarters, base premium rate is affected by a lot of different variables NIW levels, NIW price. This quarter, very importantly, the mix of purchase and refi, which obviously impacts NIW price and other things such as lapse, where that lapse is coming from and things that you might not even consider in the calculation of base premium rate like delinquency premium accruals.

I think at the end of the day, we've guided towards a flattish base premium rate over the quarter, acknowledging that -- over the full year, rather, acknowledging that quarter-to-quarter, you could see some volatility. Some of the volatility that you saw on the sequential quarter basis is what I mentioned, the refi purchase mix. We had an increase in refi mix this quarter. I think if we had normalized that to the prior period, you would have seen that [ 2/10 ] of a basis point decline be something closer to [ 1/10 ] of a basis point decline. So there is going to be quarter-to-quarter volatility, but I think we're still very comfortable with the guidance of flattish base premium rate over the course of the full year 2026.

Yes, Mihir. The second part of your question in terms of market dynamics, I would say, as I said in my prepared remarks, we found pricing to be attractive in the quarter. We believe the market remains constructive. And we like the NIW we wrote almost $13 billion of NIW we wrote in the first quarter and the returns we are getting on that NIW. I would say that we continue to price for some uncertainty, economic uncertainty in the market in our pricing. As Dean said in his previous response, when it comes to geographical markets or some risk attributes, we continue to make sure that we are getting adequately paid for the conditional view that we have down to each geographical area. So I hope that provides you some kind of construct and color on the market.

No, that's helpful. And then just the last question, just I wanted to touch on Washington, specifically on the GSEs. Are you seeing any shifts in GSE behavior? I know you talked about Vantage a little bit, but just in general, any shifts in the housing credit GSE behavior that could affect MI eligibility or volumes? Just anything we should be keeping an eye on?

There, I would say at a macro level, nothing that would actually think of us changing the MI volume or MI penetration. I would say, while the market size numbers are still not finalized, we actually believe that there was a little bit of an uptick in MI penetration in Q1 -- in the Q1 NIW, so [ asserted ] loans, and that was driven by the GSE execution in Q1 being better than FHA execution and that benefiting the MI industry also.

But I would say, outside of that, from a policy perspective, GSE risk appetite continues to stay relatively stable. GSEs continue to look at loan performance, credit characteristics and continue to make kind of minor adjustments to their appetite as they always do, but nothing beyond that in terms of any meaningful changes to report.

Our next question comes from the line of Rick Shane from JPMorgan.

Look, we've had, in the past couple of quarters, a few windows of lower rates. And obviously, at some point, we all expect rates to fall, though that seems to be getting pushed out. I'm curious what insights you can gather from those windows in terms of what we should anticipate for activity. Obviously, we see refis pick up. But I'm curious how that impacts the risk within the portfolio? Are there certain cohorts either that are riskier or less risky that are refinancing at faster rates during those windows? And what types of purchase loans are you seeing? Are they in sort of your risk spectrum? I'm curious to think about what we might see going forward when we get into a real lower rate environment.

Sure, Rick. This is Rohit. I'll get started and then Dean will chime in, in terms of adding color. So I would say a very good point in terms of we have had a few refi windows, as you called it, in the market and those refi windows, although they were short, they've given us insights into how borrower behavior and lender behavior has worked in the last 6, 7 months. I would say these windows have primarily been in time frames when the purchase market just seasonally is not expected to be super large because that's not when people are planning to buy homes.

So we have seen, obviously, more reaction from the refinance part of the market. And what I would kind of share with you is the activity has been very much in line with expectations that the books that were more in the money during those windows, so you would expect post 2022 midyear books to be more in the money when rates fall because July 2022 onwards, we've had higher rates. So consumers who originated their loans in that high rate environment are more likely to refinance when the rates come down to closer to that 6% level.

So that's exactly what we have seen both in Q4 and in Q1 that when rates come to that level, we basically see consumers -- lenders and consumers take advantage of those short refi opportunities to get into a better economic condition. And I would say the impact on lapse has been on those books. So '23 book, 2024 book have been the ones that actually see more lapse. From a risk attribute perspective, as Dean mentioned earlier, those books do have more purchase activity originally with slightly higher LTVs, slightly moderate FICOs and slightly higher debt to income. So as refi activity happens, obviously, that composition changes.

One upside that we see in this business cycle is normally, our refinance penetration in the market is about 4% of every 100 loans that go in the market. Given the fact that some of these books have lower embedded equity, when consumers are refinancing, a good number of times, those consumers are not below 80 LTV. So as a result, they end up refinancing back into MI. So we have seen MI penetration go from that 4% number closer to 6% to 7%, and we see a boost in MI market even coming through the refinance portion of the market.

So that's basically a little bit of color on the refinance side, and I'll quickly pivot to the purchase side. I would simply say that when rates drop during kind of not purchasing season, we see less activity because it's not that consumers can suddenly go and buy a home because rates drop for a 15-day window. So refinance loans can take advantage of that, purchase loans can't. If rates were to drop in the purchase selling season, we do believe that there is a significant amount of pent-up demand on the sidelines that you could see those consumers come to market and that would benefit homeownership rates and that would benefit MI market. But let me pause there and just ask Dean to chime in on anything I left out.

Yes. Rohit, that was -- I agree with everything you said. That was really comprehensive. I don't have much to add to that.

Rohit, it was a great answer. I really do appreciate it. If I can ask a quick follow-up. When you think about that refi activity that we've seen in those windows, do you think it over indexes, under indexes or sort of pari-passu indexes to the layered risk within the portfolio?

Yes. So just naturally, what I would expect, I don't have any specific numbers from the last 6 months, and I can get that to you off-line. But my general take would be, Rick, consumers who are in better credit position when rates are lower are more likely to refinance than consumers who are not. I think that's just kind of how the market is structured. So if you started off as a consumer who was at 720 FICO, but over the last 6 months or over the last 2 years, your FICO has risen to 780 because you manage your credit well, then you are just going to get a better execution when you come to refinance in the market versus if you started with 720 and you drifted down to 640 because when you come back to market, you're going to see an impact of loan level price adjustments in your North rate, so you're less likely to refinance. So I would say it over indexes on lower risk attributes in terms of possibility of refinancing a loan.

Our next question comes from the line of Brian Meredith of UBS.

It's actually Marissa Lobo on for Brian today. With tariffs creating some uncertainty in the labor market, what assumptions are embedded in your reserves around unemployment, HPA and cure rates? And have any of those assumptions changed since the Q4 call?

Marissa, it's Dean. I think our actuarial methods really aren't econometrically driven. So I can't give you expressed macroeconomic assumptions embedded in our reserving, more traditional reserving techniques, chain ladder, things along those lines looking at performance trends through time. What I can say is from a claim rate perspective, we maintained our claim rate at 8%. So we still continue to believe that credit performance is holding up well and that a consistent number, 8 out of every 100 new delinquencies will roll to claim.

Obviously, commensurate with the reserve release that we took, $39 million this quarter, we continue to see on prior period reserves cure performance above our expectations. And as a result, we're -- we have in the past and we did this quarter released a certain portion of reserves on prior period delinquencies given that elevated cure activity. But really, as it relates to the assumptions of booking reserves on new delinquencies, we didn't make any changes this quarter.

Yes. And Marissa, just to add a little bit of color to Dean's point, when it comes to a loan already being delinquent, unemployment level at a macro level or at a geographical level has less impact on that loan. So the assumptions that you did mention are incorporated in our conditional pricing view. So we are incorporating an assumption on unemployment rate, home price appreciation into our pricing that we are charging on net new loans for that month, for that week. And that's how we think about implementing a conditional view into our business.

Got it. That's very helpful. And on Rate360, it's clearly been a differentiator. Can you give us a sense of how it's influencing your NIW mix, pricing outcomes and what you plan to invest in for the next generation?

Yes. Very good question, Marissa. So as I've said in the past, Rate360 continues to iterate in terms of our innovation, our level of analytics and always kind of this desire to find the next new attribute that can actually give us more predictive power. So we've been investing in that tool for possibly last 7 years or so. And we've gone through 4 or 5 versions of the pricing engine by this time.

I think in terms of talking about the capabilities and what it is capable of delivering in the market, just given the commercial nature of our pricing and the fact that we operate in an opaque market, I wouldn't want to talk about any specifics, but I would say that we continue to invest in that tool, continue to invest in the modeling and the research that it takes to derive what basically causes a consumer or loan to go delinquent versus another loan not to go delinquent.

So all of those kind of drivers and outcomes are where we continue to invest, and we are very happy with where our journey has been and where it's going. Moving forward, we continue to incorporate all kinds of technologies, including machine learning and artificial intelligence to make sure that those are guiding the pricing we deploy in the market every single day.

And I think from a risk principle perspective, only 2 things I'll mention is the right price for the right risk. That is always our intent that down to the granularity of every single loan, we can charge the right price and then making sure that when it comes to layered risk, we are willing to take single attribute risk. But when it comes to layered risk, we try to make sure that we are pricing in the loans where we can expect the stress scenario, but not the loans where basically the multiple levels of risk could be -- make the loan performance unpredictable.

I'm showing no further questions at this time. I would now like to turn the call back to Rohit Gupta for closing remarks.

Thank you, Rory, and thank you, everyone. We appreciate your interest in Enact, and we look forward to seeing many of you in New York at BTIG's Housing Ecosystem Conference on May 7 or virtually at KBW's Real Estate Finance and Technology Conference on May 19. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Hello, and thank you for standing by. Welcome to Enact's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Daniel Kohl. You may begin.

Thank you, and good morning. Welcome to our fourth quarter earnings call. Joining me today are Rohit Gupta, President and Chief Executive Officer; and Dean Mitchell, Chief Financial Officer and Treasurer. Rohit will provide an overview of our business performance and progress against our strategy. Dean will then discuss the details of our quarterly results before turning the call back to Rohit for closing remarks. We will then take your questions.

The earnings materials we issued after market closed yesterday contain our financial results for the quarter, along with a comprehensive set of financial and operational metrics. These are available on the Investor Relations section of our website. Today's call is being recorded and will include the use of forward-looking statements. These statements are based on current assumptions, estimates, expectations and projections as of today's date. Additionally, they are subject to risks and uncertainties, which may cause actual results to be materially different, and we undertake no obligation to update or revise such statements as a result of new information.

For a discussion of these risks and uncertainties, please review the cautionary language regarding the forward-looking statements in today's press release as well as in our filings with the SEC, which will be available on our website. Please keep in mind the earnings materials and management's prepared remarks today include certain non-GAAP measures. Reconciliations of these measures to the most relevant GAAP metrics can be found in the press release, our earnings presentation and our upcoming SEC filing on our website.

With that, I'll turn the call over to Rohit.

Thank you, Daniel. Good morning, everyone. Enact delivered a very strong finish to 2025 that reflected the disciplined execution of our strategy, robust credit performance and our commitment to shareholder value creation. For the full year, we reported adjusted operating income of $688 million or $4.61 per diluted share. We returned over $500 million of capital to shareholders and the year-end adjusted book value per share increased 11% to $37.87.

Before discussing the quarter, I want to take a moment to highlight some of our accomplishments in 2025. In a complex housing environment, we helped over 134,000 borrowers buy a home and over 16,000 borrowers keep their home. We continue to innovate our risk selection and pricing capabilities, leveraging advanced modeling and machine learning to deploy the latest version of our pricing engine, Rate360. We generated $52 billion of new insurance written and ended the year with record insurance in-force of $273 billion. We maintained our commitment to expense discipline with full year operating expenses at $217 million, excluding restructuring charges.

We delivered record levels of capital returns to our shareholders, and we enhanced our financial flexibility by entering a new $435 million revolving credit facility and protected our forward books at attractive cost of capital through new CRT deals. Our execution continued to be recognized by the market, evidenced by receiving multiple credit ratings upgrades. Finally, Enact received multiple industry and local awards, a testament to our commitment to excellence and providing an exceptional employee experience. Taken together, these accomplishments underscore the progress we made in 2025 and reinforce our confidence in Enact's long-term strategy.

Turning to our fourth quarter results. We reported adjusted operating income of $179 million or $1.23 per diluted share, while adjusted return on equity was 13.5%, and we generated robust new insurance written of over $14 billion, driven by an increase in refinance originations as mortgage rates declined. However, 59% of loans in our book have rates below 6%, providing support for continued elevated persistency. The long-term drivers of housing demand remain strong, and we are confident that mortgage insurance will continue to play an essential role for both buyers and lenders. Pricing remained constructive in the quarter, and our dynamic risk-adjusted pricing engine, Rate360 is enabling us to prudently price risk with discipline as market conditions continue to evolve.

Our insurance in-force portfolio remains resilient with risk-weighted average FICO score of 746. The risk-weighted average loan-to-value ratio was 93% and layered risk was 1.2% of risk in-force. Cure performance continues to outperform our expectations, driven by favorable credit performance and effective loss mitigation efforts. This resulted in a net reserve release of $60 million in the quarter, partially driven by a claim rate reduction from 9% to 8%. Dean will touch more on this shortly. We also continue to advance our capital allocation priorities of supporting existing policyholders by maintaining a strong balance sheet, investing in our business to drive organic growth and efficiencies, funding attractive new business opportunities and returning excess capital to shareholders.

At the end of the quarter, our PMIERs sufficiency ratio was 162%, providing significant financial flexibility and our credit and investment portfolios are in excellent shape. Our strong capital position is further reinforced by the effective implementation of our CRT program and the backing of our credit facility. We continue to make steady progress against our strategic initiatives, advancing innovation in the MI business and continuing to expand into attractive adjacencies. Enact Re continued to perform well and participated in attractive GSE single and multifamily deals in the quarter while maintaining strong underwriting standards and generating attractive risk-adjusted returns.

Enact Re remains a long-term growth opportunity that is both capital and expense efficient. Finally, as it relates to capital returns, during the fourth quarter, we returned $157 million to shareholders through share repurchases and dividends. We remain committed to our capital allocation priorities, and we are pleased to announce our 2026 capital return expectations of approximately $500 million. Additionally, we issued a press release last night announcing that our Board of Directors authorized a new share repurchase program that is the largest in Enact's history.

In closing, we believe we are well positioned to continue navigating the uncertain macro environment, supporting our customers and delivering sustainable value for shareholders, none of which would be possible without the hard work and talent of our employees, and I would like to take a moment to thank them for their continued efforts and contributions.

With that, I will now hand the call over to Dean.

Thanks, Rohit, and good morning, everyone. We are pleased with the very strong results we delivered in the fourth quarter of 2025, which concluded an excellent year for Enact. Adjusted operating income was $179 million or $1.23 per diluted share compared to $1.09 per diluted share in the same period last year and $1.12 per diluted share in the third quarter of 2025. Adjusted operating return on equity was 13.5%. For the full year, adjusted operating income totaled $688 million or $4.61 per diluted share compared to $718 million or $4.56 per diluted share in 2024.

A detailed reconciliation of GAAP net income to adjusted operating income can be found in our earnings release. Turning to the fourth quarter. New insurance written was $14 billion for the fourth quarter, up 2% sequentially and up 8% year-over-year. This new business is well priced, has a strong credit risk profile and is comprised of loans that are well underwritten to prudent market standards. Persistency was 80% in the fourth quarter, down 3 points sequentially and down 2 points year-over-year on lower prevailing mortgage rates. While mortgage rates have fallen recently, only 22% of our mortgages in our portfolio have rates at least 50 basis points above December's average of 6.2%, providing support for continued elevated persistency.

The combination of solid new insurance written and lower but still elevated persistency drove primary insurance in-force of $273 billion in the fourth quarter, up $1 billion from the third quarter of 2025 and $4 billion or approximately 1% year-over-year. Total net premiums earned were $246 million, up $1 million sequentially and flat year-over-year. Our base premium rate of 39.6 basis points was down 0.1 basis point sequentially, in line with our expectations. As a reminder, our base premium rate is impacted by several factors and tends to modestly fluctuate from quarter-to-quarter. Given our current expectations for the MI market size and mortgage rates, we anticipate our base premium rate in 2026 to be relatively flat versus 2025.

Our net earned premium rate was 34.8 basis points, down slightly sequentially, driven by higher ceded premiums. Investment income in the fourth quarter was $69 million, flat sequentially and up $6 million or 10% year-over-year. Our new money investment yield of approximately 5% contributed to an increase in the weighted average portfolio book yield of 4.4% for the quarter. While we typically hold investments to maturity, we may selectively pursue income enhancement opportunities. During the quarter, we sold certain assets that will allow us to recoup realized losses through future higher net investment income.

Turning to credit. We continue to see strong loss performance across our overall portfolio. New delinquencies increased sequentially to 13,700 in the quarter from 13,000 in the third quarter of 2025, in line with expected seasonal trends. Our new delinquency rate for the quarter remained consistent with pre-pandemic levels at 1.5%, an increase of 10 basis points from the third quarter of 2025 and flat versus the fourth quarter of 2024. Total delinquencies in the fourth quarter increased sequentially to 24,900 from 23,400 as news outpaced cures and the delinquency rate increased 10 basis points sequentially to 2.6%.

Losses in the fourth quarter of 2025 were $18 million, and the loss ratio was 7% compared to $36 million and 15%, respectively, in the third quarter of 2025 and $24 million and 10%, respectively, in the fourth quarter of 2024. We reduced our claim rate in the quarter for new and recent delinquencies from 9% to 8% after factoring in the continued strong cure performance sustained throughout 2025. We believe the 8% claim rate is well aligned with the current macroeconomic uncertainties and remains consistent with our measured and prudent reserve philosophy.

The net reserve release of $60 million in the fourth quarter was driven by favorable cure performance, our loss mitigation activities and the reduction in our claim rate assumption. This compares to reserve releases of $45 million and $56 million in the third quarter of 2025 and fourth quarter of 2024, respectively. We maintain our focus on disciplined cost management in 2025. Operating expenses for the fourth quarter of 2025 were $59 million, and the expense ratio was 24% compared to $53 million and 22%, respectively, in the third quarter of 2025 and $57 million and 24%, respectively, in the fourth quarter of 2024. For the full year, our operating expenses of $218 million or $217 million, excluding reorganization costs, were favorable to our updated guidance of approximately $219 million.

For 2026, we anticipate an operating expense range of $215 million to $220 million, excluding any reorganization costs as we continue to prudently manage our expense base, balancing our continued focus to drive further efficiencies in our business while also investing in our growth initiatives. We continue to operate from a strong capital and liquidity position reinforced by our robust PMIERs sufficiency and the successful execution of our diversified CRT program. Our PMIERs sufficiency was 162% or $1.9 billion above PMIERs requirements at the end of the fourth quarter. And as of December 31, 2025, our third-party CRT program provides $1.9 billion of PMIERs capital credit.

Turning now to capital allocation. During the quarter, we paid out $30 million or $0.21 per share through our quarterly dividend, and we bought back 3.4 million shares at an average price of $37.66 for $127 million. For the full year 2025, we returned $503 million to shareholders. $121 million through our quarterly dividends, and we repurchased 10.5 million shares at an average price of $36.25 for a total of $382 million. Through January 30, we have repurchased an additional 0.8 million shares for $31 million.

For 2026, we expect capital returns of approximately $500 million. As in the past, the ultimate amount and form of capital return to shareholders will be dependent on business performance, market conditions and regulatory approvals. As we announced yesterday, the Board has authorized a new $500 million share repurchase program and declared a quarterly dividend of $0.21 per common share payable March 19. Overall, we are pleased with our performance in 2025, and we believe we are well positioned for another strong year in 2026. We remain focused on prudently managing risk, maintaining a strong balance sheet and delivering solid returns for our shareholders.

With that, let me turn the call back to Rohit.

Thanks, Dean. Looking ahead to 2026, our strong balance sheet, the portfolio's significant embedded equity and our disciplined operating approach position us to effectively navigate uncertainty and capitalize on long-term opportunities. Additionally, demographic tailwinds, particularly among first-time homebuyers, support long-term demand for housing and for private mortgage insurance.

Finally, as housing affordability and supply constraints shape policy discussions, we continue to actively engage with our lending partners, the GSEs, the FHFA and the administration and believe we remain well positioned to navigate and adapt to an evolving policy environment. We remain committed to helping people responsibly achieve the dream of homeownership and deliver long-term value for all our stakeholders.

Operator, we are now ready for Q&A.

[Operator Instructions] Our first question comes from the line of Doug Harter with UBS.

Appreciate the guidance on the capital return. In the past couple of years, you were able to exceed your initial capital return goal. Like how do you think about the sensitivities to that capital return goal for 2026? And what could cause that to come in better? Or what would be the factors that might cause you to need to slow it down?

Yes, Doug, it's Dean. Thanks for the question. Yes, we're -- much like we said in our prepared remarks, we set a capital return guidance for the beginning of the -- at the beginning of the year. We're very confident in delivering $500 million back to shareholders. But we'll continue to evaluate dynamics in the marketplace, namely our business performance, how the business continues to perform, how we continue to grow the business and certainly loss performance during 2026. We're also going to be looking at the macroeconomic environment.

Obviously, we're looking at the prevailing macroeconomic environment, the uncertainties that exist today and still feel confident in our ability to return $500 million, but we're going to look and see how that evolves over the course of the remainder of the year, and that can have an effect. And then lastly, and maybe a little bit less in this market right now is the regulatory environment. Is there anything going on either in the context of PMIERs or with the state regulatory environments or otherwise that would cause us to rethink and adjust our planned $500 million capital return in 2026? But we're confident that right now, given those dynamics, we're confident in the ability to return $500 million to shareholders in 2026.

Our next question comes from the line of Mihir Bhatia with Bank of America.

I wanted to start actually where you ended that last answer, Dean, just about regulatory environment. Obviously, I think everyone has been hearing about a potential for an FHA rate cut, affordability agenda and other such things. Are there a few things that you guys are particularly paying attention to from a regulatory or government action standpoint that maybe are worth highlighting for investors that we should just keep an eye out for?

Mihir, thank you for the question. This is Rohit. I would say we remain actively engaged with the new administration, and that includes treasury, FHFA, the GSEs as well as policymakers. And our focus continues to be on the topics that are in discussions. So on the most macro basis, we are talking about limited inventory challenges as well as affordability challenges. So as ideas come up, we actually provide our input on the pros and cons of those ideas, but also equally important in our market, we provide input on implementation of those ideas and what that entails.

So the ideas like credit scores come up, what are the pros and cons of different credit score ideas, all the way to some of the recent ideas that are being discussed on the announcement of GSEs buying mortgage-backed securities, and on institutional investors buying single-family homes. So I would say those ideas are more in the water table as already announced. Any future ideas that come up, and there's a list of ideas that you mentioned that are in discussion, we are actively engaged on all those places. I wouldn't call out any specific idea which is high up on the list from an execution perspective. I think it's just a list of ideas right now. So that's how I would frame it.

Okay. And then maybe just like a little bit more just from 2026 thoughts. What type of mortgage market are you planning for in 2026? What does that mean for NIW or insurance in-force? I think you talked about premium rate and OpEx, but just like what are you assuming for the mortgage market and NIW in that scenario?

Yes. Yes, Mihir, thank you for the question. So I would say in this environment, when there is a good amount of rate volatility and mortgage rate volatility, specifically, it's tough to forecast originations. So I'll just give you that caveat upfront. But with that being said, we look at external originations forecast to figure out what the market originations are, overall mortgage originations are and just to kind of index the market on the purchase origination side. So our take is that 90-plus percent of the market in 2025 was -- for MI market size was purchase origination.

And if you look at 2026 purchase originations forecast in the market between Fannie Mae, MBA, Moody's, you see a range of an 8% increase all the way to a 24% increase between those 3 external parties. So as we think about those external forecasts and convert that to a mortgage insurance market, we can see an increase of approximately 10% to 15% from 2025 to 2026. Again, with the caveat being that that's based on our current forecast of mortgage rate expectations, affordability expectations, but that environment continues [ to be ] dynamic. So as the environment evolves, we will come back and update that forecast. But at this point of time, that feels like the most updated view for us.

Right. No, that's quite helpful. And just one last one for me, and then I'll get back in queue. Just on default rates, where do you think they trend from here? Is it just like you read stability and seasonality from here? Anything we should be keeping in mind, whether from a vintage seasoning, vintage size type of view?

Yes, Mihir, it's Dean again. From a delq rate perspective, I think we're seeing what we would expect to see. So just in terms of vintage contribution to delq rates, you continue to see book years age up their loss development pattern. And so as newer books season or age towards higher parts of the loss development patterns, they're contributing more delinquencies as you would expect to the overall delq rate. I think the portfolio now stands at about 4 years, about 4.1 years on a weighted average basis. That's kind of towards that plateauing of the loss development pattern, the normal loss development pattern.

So I think what we'd expect heading into -- before we get to '26, what we saw in '25 is kind of in line with what we expected. We expected year-over-year change in new delinquencies to slow. From '23 to '24, it was in the mid-teens. When you went from '24 to '25, it was in the mid-single digits. So very much in line with expectations. I think as we think about going from '25 to '26, we could still see it continue to moderate. So might still increase in terms of new delinquencies year-over-year, but moderating from its current level, recognizing that year-over-year, there were only 2,000 incremental new delinquencies. So we're dealing with pretty small numbers.

Our next question comes from the line of Rick Shane with JPMorgan.

Look, in some ways, you guys have 2 books. You have the sort of pre-'22 legacy book with credit that's going to be sort of best in a generation. You have a subsequent book that I think is evolving to be in line to better with your sort of underwritten expectations. As you look at the second part of that book, the front book, I am curious if you can sort of put credit performance in some terms versus your expectations, how are things tracking? But specifically, are there things that you are seeing within certain cohorts, whether it's DTI, LTV, geography that are stand out in terms of elevated risks?

Yes, Rick, it's Dean. Thanks for the question. If we think about vintage performance, I'd probably start off by saying it's kind of redundant to your question a little bit. But let me start off by saying all of our recent book years have been performing in line with or better than our pricing expectations. Obviously, to your -- a little bit underpinning your question, our newer books, so I think 2022 through 2024 have been originated in primarily a purchase market, which tend to have higher risk attributes like a little bit higher LTV, a little bit higher DTI than refi market.

And in addition to that, they have had much more modest home price appreciation and in certain instances, depreciation depending on the geography compared to prior book years. We price for those attributes. So we price for our view of risk. We price for our future view of home prices, all in an objective to achieve an attractive return on equity. So on new vintages, we haven't seen performance differ from our pricing expectations that we established at policy inception. And we still believe we're onboarding the right risk at the right price, if you will, across vintages, across book years based on vintage performance to date.

Yes, are there differences across attributes? Of course, risk attributes matter, geographies matter. Again, we factor that in our price, and we haven't seen anything that worked against our expectations and created negative variation.

Got it. And anything going forward that you're going to be -- and I realize you have to be sensitive about this from a competitive perspective. But any areas that you would highlight where you're being a little bit more circumspect about risk?

Yes. I mean we don't want to go into our pricing schema, if you will. But let me just -- I mean, I think it's the things that you would expect, Rick. So there are certainly areas of the country where housing supply has increased and home prices have either moderated or declined. I think parts of the Sunbelt, particularly kind of Florida, Texas, California, Arizona, I don't think those are states that would surprise you as having pulled back a little bit in terms of home prices. That's in contrast to the Northeast, where you still have low housing supply and home prices continue to appreciate pretty meaningfully.

So we're monitoring housing markets as an example of something that we're keeping our eye on for affordability, supply-demand dynamics, and we'll continue to consider that as we think about how to, again, crystallize our philosophy of the right risk at the right price.

And Rick, just to add to Dean's point, we have talked about this in the past and also mentioned it in our prepared remarks on the call. We have very deep analytics and a lot of capabilities even from a forecasting perspective to incorporate those views in our pricing, and we have the ability to make those pricing changes on a very frequent basis when we think those are appropriate. So to Dean's point, not only historically speaking, but also looking forward, we continue to incorporate that view of risk, performance, geographic differences or risk attributes at a loan level into our pricing. And now we have the mechanism to charge that price at a very granular level.

Our next question comes from the line of Bose George with KBW.

Actually, on expenses, you guys continue to do a good job there, kept it flat now for a few years and it seems to be the case again in '26. Is technology the main driver? And then longer term, could we see the expense ratio continue to decline as expenses stay flattish or at least increase by less than revenues?

Yes. Thank you, Bose. I appreciate your question. So I would say from an expense perspective, you are correct. We have actually not only kept our expenses flat in the last year -- 2 years, but since our IPO, our expenses are -- on a dollar basis are probably down $30-plus million on an annualized run rate basis. So we continue to invest in technology, invest in different amounts of innovation to drive that improvement. And that is meant to drive all aspects of our business, drive productivity, drive better customer experience and drive smarter decisions.

So when you think about our expenses in 2025 coming in below our original guidance, that is driven by us actually harvesting those benefits, harvesting those gains from our investments, and we see the same thing happening in 2026. Now in terms of long-term expectations on expense ratio, I think it's tougher to give that guidance. Our aspiration is to always be prudent managers of expenses. So yes, we will always try to actually improve our expense ratio, both through growing our premiums by actually getting to a larger, more profitable book and at the same time, getting the right efficiencies from the business.

But how those premiums play out and how those expense dollars play out are difficult to forecast beyond 2026. So yes, directionally, you're absolutely correct. And then as we navigate through '26 and get to '27, we'll provide updated guidance.

Okay. Great. And then just on the reinsurance transactions that you guys did, can you just talk about the attachment and detachment points? And then how is the pricing on that market, just the trend in pricing?

Yes, Bose, we -- so let me start with the pricing, and then I'll go to the nature of the agreement. From a pricing perspective, we're seeing a tremendous amount of demand in the traditional reinsurance market for mortgage credit default risk. That has benefited the terms of our -- some of our most recent reinsurance transactions going all the way back to the coverage we've secured on both the 2026 book as well as now the 2-year forward 2027 book. So we've typically talked about that in low to mid-single digits cost of capital. If you go prior to those transactions, we were probably on the higher end of that cost range.

In these most recent transactions, we're on the lower end of that continuum from a cost range perspective. From an attachment and detachment perspective, our objective with our CRT program and certainly our CRT transactions is twofold. It's to provide cost-efficient capital relief and also obviously to protect the balance sheet from a volatility perspective. If we think about that first objective, what that means for our XOLs is we secure coverage inside the PMIERs tier. And so we typically attach around the 3%.

It's not always 3% of our risk in-force, but it's generally in that ballpark and then detach within PMIERs, and that's typically, again, PMIERs requirements on new business are generally around that 7%. So you can see our transactions evolve through time. But generally, in broad strokes, attachment and detachment around those points that I just gave you, Bose.

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Rohit for closing remarks.

Thank you, Towanda, and thank you, everyone. We appreciate your interest in Enact, and I look forward to seeing many of you this quarter in Florida at UBS' Financial Services Conference on February 9 and at Bank of America's Financial Conference on February 10. We also plan to attend the RBC Capital Markets Global Financial Institutions Conference in New York on March 11. With that, we will wrap up the call. Thank you.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

Hello, and welcome to Enact's Third Quarter 2025 Earnings Call. Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your first speaker, Daniel Kohl, Vice President of Investor Relations. You may begin.

Thank you, and good morning. Welcome to our third quarter earnings call. Joining me today are Rohit Gupta, President and Chief Executive Officer; and Dean Mitchell, Chief Financial Officer and Treasurer. Rohit will provide an overview of our business performance and progress against our strategy. Dean will then discuss the details of our quarterly results before turning the call back to Rohit for closing remarks. We will then take your questions.

The earnings materials we issued after market close yesterday contain our financial results for the quarter, along with a comprehensive set of financial and operational metrics. These are available on the Investor Relations section of our website. Today's call is being recorded and will include the use of forward-looking statements. These statements are based on current assumptions, estimates, expectations and projections as of today's date. Additionally, they are subject to risks and uncertainties, which may cause actual results to be materially different and we undertake no obligation to update or revise such statements as a result of new information. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release as well as in our filings with the SEC, which will be available on our website.

Please keep in mind the earnings materials and management's prepared remarks today include certain non-GAAP measures. Reconciliations of these measures to the most relevant GAAP metrics can be found in the press release, our earnings presentation and our upcoming SEC filing on our website.

With that, I'll turn the call over to Rohit.

Thank you, Daniel. Good morning, everyone. I am pleased to report that Enact delivered another strong quarter of performance, reflecting the continued disciplined execution of our strategy and the strength of our operating model. Our results demonstrate the strength of our business and our ongoing commitment to creating long-term value for our shareholders. To that end, we are pleased to announce our updated 2025 capital return expectation of approximately $500 million, up from prior guidance of $400 million.

Additionally, we entered a new $435 million revolving credit facility with favorable terms, providing additional financial flexibility with which to manage our business and execute our strategy. Dean will discuss both in more detail.

For the third quarter, we reported adjusted operating income of $166 million or $1.12 per diluted share. Additionally, adjusted return on equity was 13%, while insurance in-force increased 2% year-over-year to $272 billion, and we generated robust new insurance written of over $14 billion.

We continue to navigate a dynamic macroeconomic environment with discipline and focus. The U.S. economy continues to be supported by steady consumer spending, moderating inflation and a resilient labor market even as hiring momentum cools. On a national level, steady wage growth, lower mortgage rate and generally stable home prices have driven modest improvements to affordability. However, given broader macro uncertainties, consumers are more cautious and many buyers are still waiting for the right conditions, leading to an increase in housing supply in certain geographies.

Overall, our business remains underpinned by strong demographic tailwinds, particularly from prospective first-time homebuyers entering the market. We remain optimistic about the long-term health of the U.S. housing market and confident in our ability to deliver through economic cycles. Against this backdrop, our capital position and credit performance remain key strengths. During the quarter, we executed against our CRT program with a new quota share agreement that will cover new insurance written in 2027.

In addition, after quarter end, we closed on a new forward excess-of-loss agreement that will provide approximately $170 million of coverage on a portion of our 2027 book.

Our PMIERs sufficiency ratio was 162%, providing significant financial flexibility, and our credit and investment portfolios are in excellent shape. Our insurance in-force portfolio remains resilient with a risk-weighted average FICO score of the portfolio at 746. The risk-weighted average loan-to-value ratio was 93% and layered risk was 1.2% of risk in-force.

Pricing was constructive again in the quarter, and we maintained our commitment to prudent underwriting standards. Our pricing engine, Rate360, dynamically delivers competitive risk-adjusted pricing by factoring in actual and projected housing market rents at a detailed geographic level.

Total delinquencies were up 6% sequentially with new delinquencies up 12% and cures down 1%, both consistent with seasonal trends. We had a reserve release of $45 million, and our resulting loss ratio for the quarter was 15%. Credit performance continues to be strong, and we remain well reserved for a range of scenarios.

We delivered another quarter of strong expense management, with expenses that were down year-over-year, despite the ongoing inflationary environment. We are pleased with our disciplined cost management year-to-date and Dean will discuss the improved expectations for the remainder of 2025.

We continue to advance against our capital allocation priorities, support existing policyholders by maintaining a strong balance sheet, invest in our business to drive organic growth and efficiencies, fund attractive new business opportunities and return excess capital to shareholders. Regarding our first priority, I've already discussed our strong capital position, underscored by a robust PMIERs buffer as well as the ongoing execution of our CRT program and new credit facility.

I'm also pleased to note that during the quarter, we received our fourth ratings upgrade from Moody's since going public in 2021, upgrading MX rating to A2 from A3 and Enact Holdings' ratings to Baa2 from Baa3, while A.M. Best moved our outlook to positive.

In relation to our second priority, we continue to invest in initiatives to drive growth in our core MI business, including pursuing opportunities to deepen our existing relationships with lenders through technology enhancements, increasing customer engagement and improving the efficiency of our operations. In addition, Enact Re continues to perform well and participate in attractive GSE single and multifamily deals, while maintaining strong underwriting standards and generating attractive risk-adjusted returns. Enact Re remains a long-term growth opportunity that is both capital and expense efficient.

Finally, as it relates to capital returns, during the third quarter, we returned $136 million to shareholders through share repurchases and dividends. And as I mentioned earlier, we are increasing our expected capital returns to approximately $500 million for the year. This represents our highest capital return since the IPO, while also maintaining a very strong balance sheet and investing in our future. This upward revision reflects the strength of our business model and the current levels of mortgage originations. Overall, we are pleased with our performance in the third quarter and through the first 9 months of 2025.

We continue to navigate a complex and evolving environment from a position of strength, supported by robust new insurance written with excellent credit quality, a strong balance sheet and prudent expense management. As always, we are actively engaged with our lending partners, the GSEs and the administration to ensure we remain well positioned to adapt to an evolving environment.

With that, I will now hand it over to Dean to walk through our financial results in more detail.

Thanks, Rohit. Good morning, everyone. Adjusted operating income was $166 million or $1.12 per diluted share compared to $1.16 per diluted share in the same period last year, and $1.15 per diluted share in the second quarter of 2025. Adjusted operating return on equity was 13%. A detailed reconciliation of GAAP net income to adjusted operating income can be found in our earnings release.

Turning to revenue drivers. New insurance written was $14 billion, up 6% sequentially and up 3% year-over-year. Persistency was 83% in the third quarter, up 1 point sequentially and flat year-over-year, continuing its trend above historical norms. While mortgage rates have fallen recently, our portfolio remains resilient with 21% of mortgages having rates at least 50 basis points above September's average of 6.4%. Historically, persistency has varied in relation to mortgage rates. As rates continue to change, we may see persistency shift from its current level.

The combination of solid new insurance written and elevated persistency drove primary insurance in-force of $272 billion in the third quarter, up $2 billion or approximately 1% from the second quarter of 2025 and $4 billion or approximately 2% year-over-year.

Total net premiums earned were $245 million, flat sequentially and down modestly year-over-year. The year-over-year decrease was primarily driven by higher ceded premiums. Our base premium rate of 39.7 basis points was down 0.1 basis point sequentially, aligned with our expectation for base premium rate in 2025 to approximate 2024 levels. As a reminder, our base premium rate is impacted by several factors and tends to modestly fluctuate from quarter-to-quarter. Our net earned premium rate was 34.9 basis points, down slightly sequentially, driven by higher ceded premiums.

Investment income in the third quarter was $69 million, up $3 million or 4% sequentially and up $8 million or 12% year-over-year. Our new money investment yield continues to exceed 5%, lifting our overall portfolio book yield. As we noted in the past, while we typically hold investments to maturity, we may selectively pursue income enhancement opportunities. During the quarter, we sold certain assets that will allow us to recoup realized losses through future higher net investment income.

Turning to credit. We continue to see stable credit performance across our overall portfolio. New delinquencies increased sequentially to 13,000 in the quarter from 11,600 in the second quarter of 2025, in line with expected seasonal trends. Our new delinquency rate continues to remain consistent with pre-pandemic levels for the quarter at 1.4%, an increase of 20 basis points compared to 1.2% in the second quarter of 2025 and flat to the 1.4% in the third quarter of 2024. We assess our claims rate on a regular basis and maintain our claim rate on new delinquencies at 9%.

Total delinquencies in the third quarter increased sequentially to 23,400 and from 22,100 as news outpaced cures and the delinquency rate increased 20 basis points sequentially to 2.5%.

Losses in the third quarter of 2025 were $36 million and the loss ratio was 15% compared to $25 million and 10%, respectively, in the second quarter of 2025 and $12 million and 5%, respectively, in the third quarter of 2024. The current quarter's reserve release of $45 million from favorable cure performance and loss mitigation activities compares to a reserve release of $48 million and $65 million in the second quarter of 2025 and third quarter of 2024, respectively.

Turning to our continued prudent expense management. Operating expenses for the third quarter of 2025 were $53 million and the expense ratio was 22%, consistent with the second quarter of 2025 and lower than the $56 million and 22%, respectively, in the third quarter of 2024. Based on our performance and fourth quarter outlook, we now forecast 2025 expenses, excluding reorganization costs, at approximately $219 million, lower than our previous range of $220 million to $225 million despite inflationary headwinds.

We continue to operate from a strong capital and liquidity position, reinforced by our robust PMIERs sufficiency and the successful execution of our diversified CRT program. Our PMIERs sufficiency was 162% or $1.9 billion above PMIERs requirements at the end of the third quarter. During the quarter, we entered into a new forward quota share reinsurance agreement, which ceded approximately 34% of our 2027 new insurance written to a broad panel of highly rated reinsurers. Subsequent to the end of the quarter, we secured approximately $170 million of additional excess of loss reinsurance coverage for a portion of our 2027 book by a broad panel of highly rated reinsurers. These transactions demonstrate our commitment to disciplined risk management while providing certainty of coverage at favorable market terms.

As of September 30, 2025, our third-party CRT program provides $1.9 billion of PMIERs capital credit.

During the quarter, Moody's upgraded the insurance financial strength rating for our flagship insurance subsidiary Enact Mortgage Insurance Corporation to A2 from A3. Moody's also upgraded Enact Holdings, Inc.'s long-term issuer rating and senior unsecured debt rating to Baa2 from Baa3, and the outlook for the ratings is stable. This marks the fourth upgrade since our IPO in 2021 from Moody's. Also, A.M. Best raised our ratings outlook from stable to positive.

Additionally, we entered into a new $435 million 5-year senior unsecured revolving credit facility at favorable terms, expanding our borrowing capacity, extending our maturity profile and providing greater flexibility and liquidity to support our operations. In addition, our conservative debt-to-capital ratio of 12% provides additional financial flexibility.

Turning now to capital allocation. During the quarter, we paid out $31 million or $0.21 per share through our quarterly dividend. Today, we announced our third quarter dividend of $0.21 per common share payable December 11. In addition, we bought 2.8 million shares for $105 million in the third quarter of 2025. Through October 31, we repurchased an additional 1.2 million shares for $42 million.

As Rohit mentioned earlier, we are increasing our 2025 total capital return guidance to approximately $500 million, recognizing our ongoing strong business performance and current mortgage origination levels. As always, the final amount and form of capital return to shareholders will depend on business performance, market conditions and regulatory approvals.

Overall, we are pleased with our performance in 2025 to date, and we believe we are well positioned for a strong end to the year. We remain focused on prudently managing risk, maintaining a strong balance sheet and delivering solid returns for our shareholders.

With that, let me turn the call back to Rohit.

Thanks, Dean. Looking ahead, while the external environment remains dynamic, our strong balance sheet, embedded equity and disciplined operating approach positions us well to navigate uncertainty and capitalize on long-term opportunities. I want to thank our entire team for their continued dedication and exceptional execution. Their commitment to our mission of helping people responsibly achieve the dream of homeownership is what drives our success. We continue to remain focused on delivering long-term value for all of our stakeholders, and we are confident in our ability to continue building on our strong history of consistent performance.

Operator, we are now ready for Q&A.

[Operator Instructions] The first question comes from Bose George with KBW.

I first wanted to just ask about the expectation for delinquency trends. Can you talk about where you think delinquencies will peak on portfolios as they're fully seasoned? Can we look at books that are closer to being fully seasoned like maybe 2021 or as a way to gauge where the newer books will season?

Yes, Bose, thanks for the question. From a credit perspective, very much in line with what we said in our prepared remarks, credit performance remains very strong through the third quarter. It's certainly supported by a lot of different factors, kind of chief among them, the resilient macroeconomic environment, coupled with the embedded home price appreciation across our portfolio.

I think from a vintage perspective, getting to that part of your question, we -- as we disaggregate the portfolio, we really don't see any variance to expectations across variables across the portfolio, and that includes book years. Obviously, there's book years with different mixes of risk variables. More recently, the 2022 and forward book years have a higher concentration to a purchase origination market, which tends to have higher concentration in high LTV, high DTIs. But when you consider those risk attributes mix, we really see good alignment between our actual performance and our expectations when we onboard that business from the onset. So I think certainly, credit performance is going to be very dependent on the macroeconomic environment. And if we continue to see the resiliency that we've seen to date, we would expect credit performance to stay in that very -- aligned with the very strong credit performance that we've seen to date.

Okay. Great. And is the typical seasoning sort of 4 years, 5 years? Is that when they're fully seasoned?

Yes. From an aging of the of the overall portfolio, we've talked about the normal loss development curve and the progression up that curve towards a plateau at around years 3 to 4. It's not a point. It's kind of a plateauing and that plateau happens in between years 3 and 4 and maybe another 12 months thereafter. What we've seen, what we talked about our expectation heading into 2025 was given the aging of that portfolio up in that 3- to 4-year time period that we would see some slowing in the delinquency development from a year-over-year change perspective. And I think that's actually what we've seen.

So when you look back '23 to '24, you saw kind of mid-teens percentage change in increase in new delinquencies. This year, you see more kind of mid-single digits, 5%, 6% change year-over-year. And I think that has a lot to do with the aging of the portfolio and the development or the progression of the normal loss development curve.

Okay, great. And then just actually one clarification on the expense. The year-over-year increase, obviously, is very modest, but just in terms of the quarterly trends, the last couple of quarters, I guess, were a little lighter than '24. So this year, I guess, is the 4Q just a little more back-end heavy versus the other quarters?

Yes, Bose, we've talked about this in the past that our expenses aren't level throughout a calendar year. We typically have higher variable performance-based incentive comp over the last -- second half of the year. I think that's going to have a more meaningful impact in the last quarter of this year. But if you look back at prior year experience as well, you see that in the third and fourth quarters of just going back to like 2024. So yes, similar driver and a little bit more disproportionate in the fourth quarter of this year.

[Operator Instructions] The next question comes from Rick Shane with JPMorgan.

Really a couple of things. One, you've provided favorable guidance on expenses. One of the questions that I think everybody is wrestling with is how technology, particularly AI is transforming different businesses. Can you talk a little bit about what's driving your favorable expense guidance, but also longer term, how you see AI transforming your business?

Absolutely, Rick. So I would say in terms of favorable performance of expenses, as Dean talked about it in his prepared remarks, we are always prudent in our expense management as a company, and you have seen that play out since our IPO. During 2021, our expenses were close to $240 million, I would say, low $240 million range. And since that time, despite inflationary pressures, we have actually reduced our expenses close to $25 million.

And last 3 years, we basically have our expenses trending flat in terms of total expense dollars. So I think that's just our general mindset that when we think about our expenses, we are very mindful of the environment where we are making investments, how do we make our existing processes more efficient, whether it comes to our underwriting processes, whether running rest of the business, we are making technology investments on an ongoing basis to harvest benefits from those investments. Now that being said, we also make technology investments to make smarter decisions.

In the past, I've talked about investments in our Rate360 engine, where 6, 7 years ago, we started investments in our data. Then we started investments in machine learning. And as a result, we believe we have a very granular risk-based pricing system in Rate360 that allows us to make decisions and changes at a more granular level and in a more agile way in the market so we can respond to market changes.

And lastly, I would say that we also spend time and investments in customer experience. So in places where we can improve customer experience and that allows us to have a bigger footprint in the market. We are proud of our customer base in terms of number of customers we do business with on an active basis. That continues to be close to 1,600 lenders in the country as well as doing business with all top 20 originators in the country. So I would say that's our technology strategy.

When it comes to AI, I've said in the past that we continue to invest on that front both for efficiency reasons and making smarter and more granular decisions. So that's basically how we see that playing out for our business.

Got it. Okay. That's helpful. And then just if we can think about a little bit in terms of -- you've increased your return of capital allocation for the year 25%. It's risen steadily throughout the year. This was a strong quarter in line roughly, I think, with at least Street expectations. Is it just that you guys sort of as you move through the year and gather more information, feel more confident in terms of setting your capital return expectations? It's -- I don't think this year is way out of whack with your expectations, and I don't think third quarter or fourth quarter outlook seems radically different. What drives a 25% increase in capital return outlook?

Yes, Rick, it's Dean. I appreciate the question. I think you hit on a lot of the points. When we set our return of capital plans at the beginning of the year, we're thinking about our expectations around business performance. We're thinking about the current and prospective macroeconomic environment, and we're thinking about the regulatory landscape to determine kind of what the appropriate level of capital return is given the intersection of those 3 considerations. I think as we go through the year, we both make assessments how we're doing relative to our original expectations. And then to your point, we're gaining more and more confidence in those drivers as we progress through the year.

From my perspective, the increase from $400 million to $500 and even if you go back a quarter, the increase from $350 million to $500 million, I think it reflects both the favorable business performance year-to-date and also certainly an indication of the current level of mortgage originations that are in the market today. I think it's really the combination of those 2 things that has caused us to come back and revise our return of capital guidance upwards.

Got it. And so if I were to summarize that, year has manifested potentially better than your conservative expectations, but this is really about the confidence interval on that performance narrowing to the higher end as we sort of move into fourth quarter.

Yes, Rick, I'm not sure if I would call it conservative expectations. I would just say we operate in an uncertain environment. So we always keep that in mind. You see that in our commentary in our prepared remarks that we are running the business with a mindset that we need to be confident in our actions. And as we gain that confidence with actual performance coming through, we continue to update it along the year. So I think it's just the nature of how we actually manage the business and how we make sure that we can deliver on our promises consistently.

Got it. Fair point that uncertainty has been mitigated as we move through this year in general. That's a fair point.

This concludes our question-and-answer session. I would like to turn the conference back over to Rohit Gupta for any closing remarks.

Thank you, Drew. Thank you, everyone. We appreciate your interest in Enact. And once again, I would like to wrap up the call by thanking all of our employees for their hard work and dedication in fulfilling our mission to help people buy a house and keep it their home. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.