Enact Holdings, Inc. Q3 FY2022 Earnings Call

Good morning and welcome to Enact's Third 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 Investor Relations. You may now 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, our performance and progress against our strategy. Dean will then discuss the details of our third quarter results, before turning the call back to Rohit for closing remarks. After prepared remarks, we will take your questions. The earnings materials we issued after market closed yesterday contained Enact's financial results for the third quarter of 2022 and a comprehensive set of financial and operational metrics are available on the Investor Relations section of the company's website at www.ir.enactmi.com under the section marked Quarterly Results. 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 that are subject to risks and uncertainties which may cause actual results to be materially different. We undertake no obligation to update or revise any 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 are available on our website. Also, 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 and thank you for joining us. This was another solid quarter of performance for Enact, driven by continued execution of our cycle-tested growth and risk management strategy and reserve release from cure activity. Net income increased 40% year-over-year to $191 million, or $1.17 per diluted share and return on equity was approximately 19%. Our strong performance year-to-date has allowed us to continue delivering on our capital return commitments. And yesterday, we announced our second special cash dividend and our first share repurchase program both of which I will expand on in a few moments. As always, I would like to thank our team for their dedication and hard work as we continue to successfully operate through a complex environment. Insurance in-force for the quarter was a record $242 billion, driven by increased persistency, which reached 82% for the third quarter and new insurance written of $15 billion. While the rise in interest rates has dampened mortgage origination volumes, it has increased persistency, which has been a tailwind for our insurance in-force. We have spoken about this natural hedge in our business in the past. Persistency tends to increase when interest rates rise, as older mortgages with lower interest rates become economically favorable for consumers over those currently being offered. This counterbalancing dynamic supports IIF growth, even in an environment in which origination volume is lower. As of the end of the third quarter, 99% of the mortgages in our portfolio have rated at least 50 basis points below current market rates, a slight increase from 98% at the end of the second quarter and we expect this dynamic to continue to benefit persistency going forward. A key aspect of our growth and risk management strategy is our commitment to pursue high-quality business priced to maximize our returns on a risk-adjusted basis. With the increasing economic uncertainty, industry pricing trended upwards during the quarter and we implemented selective increases to adjust our pricing to reflect our view of the risk attributes of certain segments and geographies. In fact, we have continued these actions into the fourth quarter. Overall, we remain confident in our ability to write new business that delivers attractive risk-adjusted returns and creates value for our shareholders. The credit quality of our portfolio continues to be strong. And while there have been some signs of slowing in the broader housing market, the environment remains favorable for our business. On an insurance in-force basis, the weighted average FICO score in our portfolio during the quarter was 743. The average loan-to-value ratio was 93% and our layered risk was 1.4% of our risk in-force. Employment remains solid, household balance sheets are healthy and home price appreciation has resulted in 77% of our policies, having realized mark-to-market equity of at least 20% at the end of the third quarter. Even as home prices have weakened in certain geographies, the accumulation of embedded equity in our portfolio remains historically high and will act as a mitigant against future claims risk. Our delinquency rate in the third quarter continued to approach pre-pandemic levels as cures again outpaced new delinquencies. Given our approach to risk management and loss mitigation, given year-to-date home price appreciation and the favorable resolution of long-term forbearance plans, we released an additional $80 million of reserves on a net basis in the third quarter, leading to a loss ratio of negative 17%. We continue to operate from a position of financial strength, securing additional reinsurance coverage is an important part of our strategy that enhances our capital efficiency and ability to distribute and minimize credit risk. During the quarter, we completed our third excess of loss reinsurance transaction this year at attractive terms, further demonstrating our success in accessing capital and reinsurance markets. We ended the third quarter with a PMIERs sufficiency ratio of 174%, or $2.2 billion of sufficiency. In addition, as Genworth announced, it believes it has satisfied the GSE conditions in the third quarter and expects to comply at year-end. If this occurs, that GSE restrictions will be lifted, providing an additional financial flexibility, especially should future stress emerge. Dean will discuss this notable milestone in more detail shortly. I'd like to take a minute now to talk about our approach to capital allocation. As I've discussed before, our capital priorities are to support our existing policyholders, grow our current business, invest in attractive new business opportunities and return capital to shareholders. We remain committed to prudently investing in the business and expanding our competitive differentiation. We are focused on enhancing our capabilities in data analytics, machine learning, pricing efficiency and risk monitoring to ensure we are creating a differentiated market leader, well positioned for success and continue to evaluate and pursue attractive new business opportunities to increase shareholder value, while also building a resilient portfolio and balance sheet. Additionally, during the quarter, we announced the appointment of Neenu Kainth as our first Chief Customer Experience Officer. I look forward to working with Neenu to ensure we continue meeting the unique needs of our customers. We remain focused on serving our lending partners, while providing a best-in-class customer experience to support affordable and sustainable homeownership. One of the key aspects of our strategy has been our commitment to returning capital to our shareholders and we have consistently delivered since our IPO just over a year ago. In the fourth quarter of 2021, we paid a special cash dividend of $200 million or $1.23 per share. In the second quarter of 2022, we announced the initiation of our regular quarterly dividend of $0.14 per share. And yesterday, we announced our next milestones. The Board's approval of a special dividend of $183 million or $1.12 per share and the authorization of a $75 million share repurchase program. The share repurchase program will return additional capital to our shareholders by Enact buying back shares at valuations we believe are attractive relative to our long-term potential, in a manner that is opportunistic and tailored to the size of our float. As part of the repurchase program, we have entered into an agreement with Genworth, through which Genworth has agreed to participate by selling shares to Enact on a basis proportional to its ownership. Our press release yesterday provides additional details on the repurchase program. We committed to returning $250 million of capital to shareholders in 2022 and will deliver on this commitment based on the ordinary and special dividends we will pay this year. And while we expect much of our share repurchase activity to occur in 2023, any repurchases done this year will deliver capital return in excess of our $250 million target. These actions not only reflect our commitment to our capital allocation goals but also the strength of our balance sheet, the sustainability of our cash flows and the confidence we have in our business. I'll close by making a few comments on the macro environment, the housing market and Enact's position moving forward. Several complex and interlinked factors, including the rapid increase in interest rates, persistent inflation and economic uncertainty are driving volatility and have contributed to a slowdown in the market in the near-term, as homebuyers assess their options in a rapidly changing housing environment. However, we believe that healthy credit environment and strong underlying demand for housing will continue to act as a counterbalance over the longer term. Currently, the labor market is strong, household balance sheets are healthy and there has been a meaningful buildup in homeowners' equity through year-to-date home price appreciation, all factors which are mitigants to risk in our current insurance in-force. Of course, the team continuously plans for all scenarios and we have taken important steps to enhance our resiliency and ensure we are well positioned for today and the future. As we look ahead to the books we are writing now, we are continually evolving our pricing to ensure we optimize our risk-adjusted economics. In addition to significantly enhancing the credit profile of our portfolio, we have further mitigated risk through our CRT program. These actions have enhanced our balance sheet strength and financial flexibility as reflected in our PMIERs sufficiency. The benefits of the actions we have taken are evident in our performance through the dynamic and will continue going forward. Importantly, the core drivers of demand remain in place. Long-term demand for housing remains fundamentally strong as key demographic trends, such as first-time homebuyers will continue to provide a tailwind as they reach peak age for home buying. And while home prices and inventory levels have shifted in some markets, housing inventories overall remain at low levels, providing an offset to the reduction in demand we have seen from higher rates and affordability pressure. We are pleased with the performance we have delivered this year. And as we enter the fourth quarter, we remain confident in our business. With a more resilient portfolio, a strong balance sheet and significant credit risk protection, we are well positioned for both the near and long-term. I'll now turn it over to Dean.

Thanks, Rohit. Good morning, everyone. We delivered another solid quarter of performance in the third quarter of 2022. GAAP net income was $191 million or $1.17 per diluted share, up from $0.84 per diluted share in the same period last year and $1.25 per diluted share in the second quarter of 2022. Adjusted operating income was also $191 million or $1.17 per diluted share as compared to $0.84 per diluted share in the same period last year and $1.26 per diluted share in the second quarter of 2022. Adjusted operating return on equity was approximately 19%. Turning to key revenue drivers. New insurance written was $15 billion in the third quarter compared to $17 billion in the second quarter and $24 billion in the third quarter of 2021. The decline in NIW was driven by lower mortgage originations, resulting from the recent increase in interest rates. The overall credit risk profile of our new insurance written remains strong with loans that are underwritten to prudent market standards. New insurance written for purchase transactions made up 97% of our total NIW in the quarter, up from 96% last quarter. In addition, monthly payment policies made up 94% of our quarterly new insurance written, up from 93% last quarter. Rohit discussed the natural hedge that persistency provides in our business model. With rising interest rates, persistency increased again during the third quarter to 82%, up from 80% last quarter and 65% in the third quarter of 2021. Persistency rose during the quarter and reached 84% annualized in September. Given the continued rise in interest rates throughout the third quarter, we expect to see continued improvement in quarter-over-quarter persistency in the fourth quarter, which is a positive for the embedded value of our insurance in-force portfolio, of which 87% is comprised of monthly policies. Insurance in-force increased 9% for the third quarter of 2021 and 2% sequentially to a new record of $242 billion driven by the combination of new insurance written and increased persistency during the period. As reflected on Page 11 of our earnings presentation, our base premium rate of 41.7 basis points was down 0.7 basis points sequentially and down 2.9 basis points year-over-year. As we've noted before, changes to base premium rate are impacted by a variety of factors and can deviate quarter-to-quarter. Given the current trajectory, we now expect to be favorable against our original guidance of a 4 basis points decline in base premium rate for the full year 2022. In addition, changes in base premium rate, our net earned premium rate also reflected lower single premium cancellations sequentially and year-over-year. Over the past several quarters, our net earned premium rate has been the highest in the industry, driven partially by our efficient CRT program. Net premiums earned were $235 million, down 1% sequentially and down 3% year-over-year. The slight decline in net premiums earned reflected the lapse of older higher-priced policies as compared to our new insurance written, as well as a decline in single premium cancellations and modestly higher ceded premiums year-over-year, as we continue to prudently manage our risk through our credit risk transfer program. Investment income in the third quarter was $39 million, up 10%, both sequentially and year-over-year. The recent rise in interest rates and current rate environment is providing a tailwind for our investment portfolio, as our new money yield for the quarter increased to approximately 5.1%. In addition, the rise in rates has continued to increase the unrealized losses in our investment portfolio. As we discussed last quarter, we do not expect to realize these losses, as we have the ability to hold these securities to maturity, where market values trend to par value. Turning to credit. Losses in the quarter were a benefit of $40 million as compared to a benefit of $62 million last quarter and a provision of $34 million in the third quarter of 2021. Our loss ratio for the quarter was negative 17% as compared to negative 26% last quarter and 14% in the third quarter of 2021. The benefit and losses and loss ratio in the quarter was driven by favorable cure performance, primarily on 2020 and early 2021 COVID-related delinquencies which was above our prior expectations and resulted in a $105 million reserve release in the quarter. This was partially offset by $25 million of reserve strengthening on early 2022 delinquencies as we take prudent action in response to the increased economic uncertainty. New delinquencies increased sequentially to approximately 9,100 driven by seasonality, coupled with higher new delinquencies from recent large books that are aging and going through their normal loss development pattern. Our new delinquency rate for the quarter was 1%, consistent with pre-pandemic levels and reflective of the continuation of positive credit trends to date. Our claim rate estimate on new delinquencies remained approximately 8% for the quarter. Delinquencies in the third quarter totaled approximately 18,900, and the associated delinquency rate of 2% is stabilizing near pre-pandemic levels. The ongoing improvement in both measures reflected cures that continue to outpace new delinquencies. The embedded equity position of our delinquent policies remains substantial, with approximately 91% of our delinquencies as of the end of the quarter, having an estimated 20% or more mark-to-market equity using an index-based house price assessment. As I've noted in the past, this can help mitigate the frequency of claims and the potential loss for delinquencies that ultimately progress to claim. Turning to expenses; operating expenses were lower in the quarter at $58 million and the expense ratio was 25% versus $61 million and 26%, respectively, in the second quarter of 2022 and $59 million and 24%, respectively, in the third quarter of 2021. We continue to track in line with our total year guidance of $240 million in expenses for 2022. Moving to capital and liquidity; our PMIERs sufficiency remained very strong in the quarter at 174%, or approximately $2.2 billion above the published PMIERs requirements compared to 66%, or approximately $2 billion in the second quarter of 2022. This reflects the approximately $200 million excess of loss transaction executed in the third quarter. At quarter end, we had approximately $1.6 billion of PMIERs capital credit and approximately $1.8 billion of loss coverage provided by our credit risk transfer program. Approximately 89% of our insurance in-force is covered by our credit risk transfer program. As Rohit touched on earlier, Genworth believes it has satisfied the required financial conditions for the elimination of the GSE restrictions imposed on Enact with respect to capital after the issuance of the August 2020 senior notes. Genworth believes that conditions were satisfied at the end of the third quarter and expects to maintain compliance through fourth quarter. If achieved, Enact would no longer be subject to the GSE conditions and restrictions in early 2023, subject to GSE confirmation. While the restrictions were largely redundant to our current and prior PMIERs efficiency levels, the elimination of the restrictions will allow for greater financial flexibility. This matter is detailed in prior disclosures and we would direct you to the disclosures for additional information on the GSE conditions and restrictions. As Rohit mentioned, we continue to execute against our capital allocation strategy during the period, including our commitment to return capital to our shareholders. In conjunction with our earnings release yesterday, we announced a special dividend of $183 million that will be paid later this year. We also announced that our Board has approved a $75 million share repurchase program which we will opportunistically pursue based on our assessment of market conditions. The share repurchase program is designed to balance, the return of capital to shareholders by targeting valuations we believe are attractive with an overall program size that is tailored to Enact’s float. Importantly, we have entered into an agreement with Genworth, through which Genworth will participate proportionately to their 81.6% ownership interest, ensuring the proportion of our float that is public remains the same through time. Both of these actions are in addition to our regular quarterly dividend. After the quarter, EMICO, a primary mortgage insurance operating company completed a distribution of $242 million to our holding company and Enact Holdings, Inc. to bolster its financial flexibility and support our ability to return capital to shareholders as planned. Through a combination of our regular quarterly dividend and special dividend, Enact will return $250 million of capital to shareholders in 2022 which is consistent with our prior guidance. Our share repurchase program represents modest upside to this amount in 2022, as we would expect the majority of shares to be repurchased after year-end. Let me close by saying that I am very pleased with our performance. We've executed against our strategy and generated strong results in an uncertain environment. Going forward, we remain focused on achieving our goals, while maintaining the flexibility to adapt to market conditions as necessary. The strength of our business, strategy and financial flexibility positions us to continue creating value for our shareholders.

Thanks, Dean. We have had a very strong first nine months of the year and enter the fourth quarter operating from a position of strength. We will continue to write responsible new business that generates attractive risk-adjusted returns, invest to enhance Enact's competitive differentiation and pursue new growth opportunities and ensure we maintain a strong balance sheet and capital position that supports our existing policyholders. At a time when home price appreciation and increases in the cost of living are pressuring people's ability to save for a down payment to purchase a home, private mortgage insurance is an important tool for homebuyers seeking to qualify for a mortgage. Before closing, I'd like to comment on the recent decisions by the FHFA and Director Thompson to eliminate upfront fees for certain borrowers and affordable mortgage borrowers. We agree that the pricing adjustments will promote more sustainable and equitable access to affordable housing and result in savings for many first-time homebuyers and lower-income borrowers. The spirit of these changes is consistent with our mission at Enact, to help people responsibly achieve and maintain the dream of homeownership. We look forward to the FHFA continuing to support core mission borrowers and I'm encouraged by their ongoing review of GSE pricing frameworks to help further our shared goals. In closing, we are proud to play an important and valuable role in increasing the accessibility, affordability and sustainability of homeownership. While the market is facing some near-term headwinds, I believe we are well positioned to navigate this environment and achieve our goals. The fundamentals underpinning our business are strong and I'm confident in our ability to continue to create value for our shareholders. Operator, we are now ready for Q&A.

The first question comes from Mihir Bhatia from Bank of America.

I wanted to start by discussing the competitive intensity. I'm particularly interested in how your pricing actions are affecting your new insurance written immediately after implementation. With black box pricing, I assume the effects are noticeable right away. Additionally, what actions are your competitors taking? Are they generally matching your prices or lowering theirs? Please elaborate on the competitive intensity and how it influences your pricing strategies.

Yes, Mihir, thank you for your question. So I would say MI market remains dynamic and has been responsive to current economic conditions. As I said in my prepared remarks, during this quarter, we saw a higher frequency and a higher magnitude of price increases in industry pricing than what we have seen in previous quarters recently. From our perspective, our expected pricing returns remain attractive and they remain within our risk-adjusted return appetite and accretive to economic value. As I also said, we made selective price increases during the quarter and then we continued that over. So we find that constructive that in terms of pricing reflecting kind of the uncertain economic environment and industry pricing going up is generally aligned with our view. In terms of your first part of the question in terms of response function from the market, I would say that depends on the segment of customers. There are certain segments of customers that actually have an immediate response and they are more efficient on their price absorption. And then, there are other customers in the market that actually are slower to respond and might have more tolerances in terms of price variations between MI companies. So I would say, depending on the customer segment, there's a different response function but you're right, that as we make changes, we see response functions in the market play out.

Okay. Turning to loan performance and forbearance, I am interested in the differences in loan performance between those in forbearance and those who have resumed their mortgage payments. Are you observing any differences in how this cohort is performing compared to others? Additionally, could you compare this to other reperforming loans?

Yes Mihir, this is Dean. Thanks for the question. We provide some details on Page 12 of our earnings presentation. The main takeaway regarding the cumulative cure rate through the COVID delinquencies, especially from the 2020 and 2021 vintages, is that the cumulative cure rates are better than we initially expected and are performing very well. Enact addresses both delinquencies in forbearance and those that never entered forbearance. Interestingly, we observed during the pandemic that loans not in forbearance were curing at a significantly faster rate than those in forbearance. While this may seem counterintuitive at first, it reflects borrower behavior regarding forbearance. There may be little incentive for borrowers to exit forbearance before the end of the period. We witnessed this in the timing of the ultimate cures. However, regarding the overall performance, both groups, those in forbearance and those not, are performing similarly and effectively.

Got it. And then just my last question, I'll jump back. Just on expenses. You reiterated your $240 million guidance. That implies a pretty big step up here in the fourth quarter. Is there something specific or seasonal in the fourth quarter that drives expenses higher?

Yes. So you see variable incentive compensation typically be back-end loaded in the year. So I think our expenses aren't necessarily proportionate throughout the year. And I would say we plan for some uptick in variable incentive compensation. But primarily, that's what you might see when you're looking intra-year.

The next question comes from Bose George from KBW.

As you noted that you expect persistency to increase which obviously makes sense. Any way to quantify that? And also just in terms of the pay downs that you're seeing, can you tell if any of that is coming from cancellations? Is there a way to kind of break that out?

Yes, it's Dean. Thank you for the question. To summarize, we had a persistency rate of 82% in the quarter, which increased to 84% annualized in September. You're correct that the ongoing rise in rates and the time lag between application and origination play a role. Much of the new insurance written in the third quarter comes from July and August, which doesn't reflect the interest rate hikes in September and October. We anticipate a continued improvement in persistency from quarter to quarter as we move into the fourth quarter. Predicting where it will stabilize is more challenging. We have a mix of new books written at historically low interest rates and a rising interest rate environment that is uncommon for us. Even without a strong economic incentive to refinance, some housing activity will naturally occur as borrowers change jobs or upgrade their homes. Looking at historical data, our annualized persistency has never exceeded 90% in any quarter, which could serve as an upper limit in a historical context. Although it's difficult to pinpoint where persistency will level off, I believe we can expect some improvement quarter-over-quarter. Regarding your question about borrower-initiated cancellations, I would need to clarify that.

Yes, that's right.

Yes. Borrowers can initiate cancellations in a couple of ways. They can ask the servicer to cancel the mortgage insurance either by reducing the loan-to-value ratio to 80% through amortization or by providing an appraisal that indicates a mark-to-market value at a 78% loan-to-value. The latter scenario is subject to GSE seasoning requirements based on the mark-to-market loan-to-value threshold. I believe the requirement is over two years for a 75% mark-to-market loan-to-value and over five years for an 80% mark-to-market loan-to-value. We've observed that borrower-initiated cancellations have increased over the past few quarters, but they are starting from a very small base. Currently, it represents less than $2 billion of insurance in force compared to our $242 billion of insurance in force. So, while there is growth, it is from a very small base and has a relatively minor impact on the portfolio.

Okay, that's very helpful. Regarding the FHFA actions mentioned by Rohit, do you have any thoughts on how to quantify the potential impact? Additionally, with the FHFA annual report set to be released in a few weeks, do you think they might implement any changes there as well?

Bose, so I would say from an FHFA perspective, as I said in my prepared remarks, we applaud FHFA's action in terms of reviewing GSE pricing frameworks and reducing loan level price adjustments for first-time homebuyers as well as certain segments of borrowers below a median income of 100% or 120%. I would say from our perspective in terms of quantifying the impact to market size, we are still evaluating that, especially the first-time home buying side of it to figure out impact on MI market size competitiveness and against FHA and VA. But I would expect that impact to be somewhat material. But at this point of time, I don't have a range to provide but that's a positive for our market size. And I think on the FHA price cut, FHA is going to publish their actuarial report here in the coming weeks. And depending on the state of the fund and FHA's view on where the economy and housing is going, they would take pricing actions based on that. I do think that that has an intersection with budget reconciliation, so it might not happen as soon as folks have been expecting it, might be kind of closer to the first quarter of 2023 versus in the fourth quarter of 2022 but that's hard to predict. And that could offset some of the benefit from loan level price adjustments that we heard from FHFA.

The next question comes from Geoffrey Dunn from Dowling & Partners.

Dean, can you provide some detail on the latest XOL with respect to weighted average lifetime cost and the attachment detachment points? And maybe how they compare to what you were seeing earlier in the year?

Yes, Geoff, thank you for your question. From a cost and structure standpoint, the latest excess of loss follows the framework we've used before. We generally set the attachment point around 3% and the detachment point slightly below the upper limits of the PMIERs tier, usually around 7%. While we haven't specified exact costs for this structure, we have indicated that they typically fall in the low to mid-single digits for cost of capital. In light of the current macroeconomic conditions that Rohit described well, we anticipate costs leaning toward the higher end of that range. We continue to believe that our approach in the traditional reinsurance market is beneficial compared to capital markets; hence, we have aligned our credit risk transfer strategy with traditional reinsurance. We see better efficiencies and economics through this route, and while the costs remain within the previously discussed range, they are on the upper side. For more specifics on the structure, you can refer to Page 14 in our quarterly financial statements under Column K.

Okay. The other question I have is with respect to managing capital. Obviously, when you think about ultimate claim exposure, there's a lot of protection from the underwriting and the buildup equity of the book. But none of that necessarily protects you from delinquency upticks before things get resolved going to claim. So as you look out on '23, I guess, there's 2 questions. One, how do you think about upstreaming capital from a strong position at the underwriting company in face of economic uncertainty? And then number two, you have strong tail risk protection from your XOL covers but obviously, QSRs might be more helpful from a PMIERs impact from higher delinquencies. So how do you think about augmenting your reinsurance program with quota share as well?

Geoff, this is Rohit. I'll begin with the first question and then let Dean add his insights. From a capital management standpoint, we have established a robust balance sheet since our IPO, which is evident in the rating upgrades we received shortly after and the recent upgrade from Moody's. Our PMIERs sufficiency buffer was 174% this quarter, translating to $2.2 billion in excess capital. This instills confidence in the capital actions we've announced, most of which pertain to 2022. Looking ahead to 2023, our capital return commitments include our quarterly dividend, which is around $100 million annually. Furthermore, as Dean mentioned, a significant portion of share buybacks will occur in 2023. Depending on our assessment of intrinsic value and stock performance, share buybacks may also contribute to capital returns this year. Overall, we believe these capital return commitments align well with our capital management strategy, and we feel positive about our capital and balance sheet positioning. I'll pass it over to Dean to discuss various structures for reinsurance.

Yes, I fully agree with your points, Rohit. To build on that in the first part, our focus has been on positioning ourselves for strength. From a financial standpoint, we're running multiple scenarios to ensure we have a strong balance sheet and enhanced financial flexibility. Rohit has outlined key steps we've taken to boost our resiliency. We've raised prices, improved the credit profile of our portfolio, and further reduced risk through our credit risk transfer program. We're preparing ourselves for any challenges ahead, ensuring we can fund business growth while balancing capital return to shareholders. Regarding your second question about XOL versus quota share, we've prioritized XOL so far because we find it to be the most efficient structure for our business goals. Our objectives for the credit risk transfer program are twofold: delivering efficient capital, typically within the PMIERs context, and providing loss volatility protection to safeguard our balance sheet from the unexpected. So far, we believe our XOL structures have been the most efficient in the market for achieving these goals. Evidence of this is our ceded premiums, which are among the lowest relative to the capital credit across our industry. However, we are continuously assessing reinsurance structures and are open to quota share options. It may have a role in our credit risk transfer program in the future, depending on how well it aligns with our overall business goals of capital efficiency and loss volatility protection. We will keep monitoring and evaluating quota share in relation to those objectives.

Are there any other questions in the queue? Okay. It seems like those are the questions we have at this point in time. So we are going to wrap up the call. With that, we appreciate your interest. Thanks, Faizan and thank you all. We appreciate your interest in Enact and look forward to continuing our story in future conversations.