Hello, and welcome to Enact's Fourth 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 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 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 the company's website at www.ir.enactmi.com. 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.

Thanks, Daniel. Good morning, everyone. We delivered very strong fourth quarter and full year 2023 results, including high-quality growth in our insured portfolio, strong credit performance, increasing investment income, expense efficiency, and solid profitability in return, while also returning substantial capital to our shareholders. Driving this performance was a continued execution of our cycle-tested growth and risk management strategy made possible by the hard work and talent of our employees. I'd like to thank them for their continued focus and commitment and for helping Enact deliver another successful year. Net income for the full year was $666 million or $4.11 per diluted share, and return on equity was 15%. We ended 2023 with record insurance in-force of $263 billion driven by new insurance written of $53 billion for the full year and persistency that reached 86% in the fourth quarter. In addition to our strong financial performance, we achieved several strategic milestones during 2023 that will help position us to perform over the long term and across market cycles. First, we delivered important enhancements to our customer and technology platforms. These enhancements have improved the customer experience and are demonstrative of our commitment to deliver a high caliber, seamless, and efficient experience to our lender partners and have helped us add over 150 new customers in 2023 in a market that saw the number of lenders contract. We also made significant progress in extending our platform into compelling adjacency. During the second quarter, we launched Enact Re to pursue opportunities in the mortgage reinsurance market. Enact Re continues to provide high-quality and attractive GSE risk share business, and we have participated in all seven of the GSE deals that have come to market since its launch. Today, I'm pleased to announce that Enact Re has entered into our first international reinsurance deal with a leading mortgage insurance provider in the Australian market. We are excited to be participating in a familiar, mature, and scaled mortgage insurance market where we can leverage our previous experience. When we launched Enact Re, I discussed our view of the opportunities for compelling returns, and we continue to be pleased with the strong underwriting and attractive risk-adjusted returns we have seen since its launch. Going forward, we continue to see Enact Re as a long-term capital and expense-efficient growth opportunity. Aligned with this view, during the quarter, EMICO contributed an additional $250 million to Enact Re, which will support a 12.5% quota share of our in-force business, up from previously announced quota share of 7.5%, as well as new insurance written and new business opportunities, primarily consisting of GSE credit risk transfer. Based on our current view, we believe that with this infusion, we have sufficiently funded Enact Re to support its growth for the foreseeable future and will continue to keep the market apprised of progress through time. Importantly, we executed on these opportunities while driving expenses below our target for the year and exceeding our target for capital returns to our shareholders. Both Dean and I will have more to say on these topics shortly. I'm very pleased with our operating performance and the strategic progress we achieved in 2023. In 2024, we will continue to maximize value and efficiencies in our core MI business while also pursuing disciplined growth. After a strong 2023, I'm confident that we are well-positioned for continued success as we enter 2024. I will now turn to the operating environment and our results. The economy remains resilient, supported by a strong labor market and healthy household balance sheet, while macro factors such as geopolitical conflicts, higher interest rates, and continued economic uncertainty present potential risks. Delinquency rates for prime mortgage borrowers are consistent with pre-pandemic levels and our manufacturing quality continues to be strong. Even as originations have slowed amid higher borrowing costs, we are encouraged by the pent-up demand among first-time homebuyers, the long-term outlook for housing, and the attractive opportunity we see in the private mortgage insurance market. Home prices continue to be supported by low housing inventory and strong demand, and mortgage insurance will remain an important tool to help buyers qualify for a mortgage. While higher interest rates have affected mortgage originations, elevated persistency has continued to support insurance-in-force growth. As of December 31, only 4% of the mortgages in our portfolio had rates at least 50 basis points above the prevailing market rate. Also, as mortgage rates have come down following a peak of more than 8% in the fourth quarter, recent data has pointed to an uptick in housing activity which may provide a tailwind heading into the spring selling season. Our overall expectations based on current information is for the 2024 MI market size to be similar to that in 2023. The credit quality of our insured portfolio remains strong with a weighted average FICO score of 744 and a weighted average loan-to-value ratio of 93% in the fourth quarter, and layered risk in our portfolio was 1.3%. Pricing overall was constructive during the quarter and underwriting standards remained rigorous. We increased our price on new insurance written in certain cohorts and geographies in response to potential macroeconomic risks. Our dynamic pricing rate engine enables us to deliver our best price to customers while targeting appropriate risk-adjusted returns in real-time, ensuring we onboard a prudent mix of business while managing expected returns. Our delinquency rate in the fourth quarter was 2.1%, up 13 basis points sequentially, relatively flat year-over-year, and consistent with our expectations and pre-pandemic levels. Strong credit performance continued during the quarter and our loss mitigation efforts helped drive strong cure activity. As a result, we released $53 million of reserves, and the loss ratio was 10%. We believe we remain well reserved for a range of scenarios. We continue to operate from a position of financial strength with strong balance sheet principles and liquidity. At year-end 2023, our PMIERs sufficiency was a strong 161% or $1.9 billion of sufficiency, and approximately 90% of our risk in-force was subject to credit risk transfers. Since last quarter, we have completed an ILN, a quota share, and an excess of loss reinsurance transaction, providing capital efficiency and loss volatility protection that Dean will detail later. As a proof point to our continued financial strength and liquidity, EMICO received multiple upgrades to its insurer financial strength rating by three different rating agencies in 2023. As previously announced, S&P upgraded EMICO to A minus in January. With that upgrade, EMICO is rated A minus or equivalent across four different rating agencies and our holding company is rated investment grade across four different rating agencies also. Additionally, the upgrades in 2023 drove Enact's senior debt rating to investment grade. The strength and flexibility of our capital position allowed us to deploy capital to support new business and grow our insurance in-force, while also meeting our commitment to return capital to our shareholders. In 2023, we returned over $300 million to shareholders in the form of dividends and share repurchases, including a 14% increase in the quarterly dividend beginning in the second quarter and a special dividend of $113 million during the fourth quarter. Additionally, we completed our first share buyback program of $75 million and authorized a second program of $100 million. Going forward, we remain committed to maximizing shareholder value through our balanced approach to capital allocation. As we enter 2024, we will continue to prudently invest in the growth opportunities we see for the business while also maintaining strong liquidity levels and our commitment to return capital to our shareholders. On that front, for 2024, we expect total capital return will be similar to what we delivered in 2023, and given the compelling valuation we have seen in our stock through late 2023 and early 2024, we expect to increase our share repurchase activity. We had a strong quarter and I'm very pleased with our performance in 2023. We look forward to continuing to serve our customers and their borrowers and delivering on our opportunity to drive value for our shareholders. With that, I will now turn the call over to Dean.

Thanks, Rohit. Good morning, everyone. We again delivered strong results for the fourth quarter of 2023. GAAP net income for the fourth quarter was $157 million or $0.98 per diluted share as compared to $0.88 per diluted share in the same period last year and $1.02 per diluted share in the third quarter of 2023. Return on equity was 14%. Adjusted operating income was $158 million or $0.98 per diluted share as compared to $0.90 per diluted share in the same period last year and $1.02 per diluted share in the third quarter of 2023. Adjusted operating return on equity was 14%. For the full year, GAAP net income was $666 million or $4.11 per diluted share, compared to $704 million or $4.31 per diluted share in 2022. Adjusted operating income for 2023 totaled $676 million or $4.18 per diluted share compared to $708 million or $4.34 per diluted share in 2022. Turning to revenue drivers, primary insurance in-force increased in the fourth quarter to a new record of $263 billion, up $1 billion sequentially and up $15 billion or 6% year-over-year. New insurance written of $10 billion was down $4 billion or 27% sequentially and down $5 billion or 31% year-over-year. These declines were primarily driven by a lower estimated private mortgage insurance market in the fourth quarter. Persistency was 86% in the fourth quarter, up two percentage points sequentially and flat year-over-year. As Rohit mentioned, just 4% of the mortgages in our portfolio had rates at least 50 basis points above the prevailing market rate. While rates remain elevated, we anticipate elevated persistency which will help offset lower production from the impact of higher mortgage rates. Net premiums earned were $240 million, down $3 million or 1% sequentially and up $7 million or 3% year-over-year. The decrease in net premiums earned sequentially was primarily driven by the lapse of older, higher-priced policies and higher ceded premiums, driven by the successful execution of our CRT program and partially offset by insurance in-force growth. The year-over-year increase was driven by insurance in-force growth, partially offset by higher ceded premiums and the lapse of older higher-priced policies. Our base premium rate of 40.1 basis points was down 0.1 basis points sequentially and 0.9 basis points year-to-date. Remember that our base premium rate is impacted by a variety of factors and tends to modestly fluctuate from quarter to quarter. Premium yields for the full year 2023 were in line with our expectations and we expect yields to continue to stabilize around current levels in 2024. Our net earned premium rate was 36.4 basis points, down 0.9 basis points sequentially, primarily reflecting higher ceded premiums in the current quarter. Investment income in the fourth quarter was $56 million, up $1 million or 2% sequentially and up $11 million or 25% year-over-year. Higher interest rates have lifted yields in our investment portfolio and we expect our book yield will continue to increase overall as our portfolio continues to turn over, and higher-yielding assets become an increasing proportion of the overall mix. Our new money yield was over 5% and our portfolio book yield increased to 3.6% for the quarter. Turning to credit, losses in the quarter were $24 million as compared to $18 million last quarter and $18 million in the fourth quarter of 2022. Our loss ratio for the quarter was 10% compared to 7% last quarter and 8% in the fourth quarter of 2022. Our losses and loss ratio were driven by higher current quarter delinquencies, primarily driven by seasonal trends sequentially, in addition to the normal loss development of new books. This was partially offset by favorable cure performance, primarily from 2022 and earlier delinquencies that remained above our expectations, resulting in a $53 million reserve released in the quarter. New delinquencies increased sequentially to 11,700 from 11,100. Our new delinquency rate for the quarter was 1.2% compared to 1.1% in the fourth quarter of 2022 reflective of ongoing positive credit trends and primarily driven by historical seasonality and the normal loss development of new large books. We continue to book new delinquencies at an approximate 10% claim rate, reflecting our prudent approach to reserving in a dynamic macroeconomic environment. Total delinquencies in the fourth quarter increased sequentially to 20,400 from 19,200. The primary delinquency rate increased 13 basis points sequentially to 2.1%, consistent with our expectations and in line with pre-pandemic levels. We continued to deliver expense discipline throughout 2023. Operating expenses for the full year of 2023 were $223 million compared to $239 million for the full year 2022, lowered by 7%, driven by our commitment to operational excellence and cost reduction initiatives. Operating expenses for the fourth quarter were $59 million, up 7% sequentially, driven by the timing of premium tax expense recognition and incentive-based compensation, and down 6% year-over-year. The expense ratio for the quarter was 25%, up 2 percentage points sequentially and down 2 percentage points year-over-year. We remain focused on disciplined expense management and towards that end, for 2024, we expect expenses to be in the range of $220 million to $225 million or approximately flat year-over-year. Moving to capital, we continue to operate with a strong capital base and liquidity position. Our PMIERs efficiency was 161% or $1.9 billion above PMIERs requirements at the end of the fourth quarter. Additionally, 90% of our risk in-force is subject to credit risk transfers, and our third-party CRT program provides $1.7 billion of PMIERs capital credit. During the quarter, we completed our sixth ILN issuance, which saw strong interest from investors and reinforced our ability to access the capital markets. Subsequent to the quarter end, we closed a new quota share and a new excess of loss reinsurance transaction, both with panels of highly-rated reinsurers to provide forward protection for our 2024 business. Lastly, during the quarter, we added a strongly rated reinsurer partner to our 2023 quota share transaction, increasing our cede percentage from approximately 13% to approximately 16%. As this level of activity reflects, our credit risk transfer program remains a critical component of our enhanced business model, driving capital efficiency and volatility protection for unexpected losses. Turning to capital allocation, we remain committed to our capital prioritization framework which balances maintaining a strong balance sheet, investing in our business, and returning capital to shareholders. We returned just over $300 million to shareholders in 2023 in the form of dividends and share repurchases. During the quarter, we paid out $26 million through our quarterly dividend and $113 million through our special cash dividend, and we bought back 656,000 shares for a total of $18 million through our share repurchase program. During January, we repurchased an additional 133,000 shares for a total of $4 million. As of January 31, 2024, there was approximately $82 million remaining on our current share repurchase authorization. As we head into 2024, we will continue to balance investing in growth opportunities across the business with our commitment to return capital to shareholders. We expect total 2024 capital return to be approximately $300 million, similar to what we delivered in 2023. 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. Shifting to Enact Re, as Rohit mentioned, Enact Re has continued to produce solid results since its launch. During the fourth quarter, EMICO contributed an additional $250 million of capital to Enact Re and subsequent to quarter end increased the affiliate quota share cede percentage from 7.5% to 12.5%. This capital contribution will support the increased quota share and for the foreseeable future will provide runway for Enact Re's new business opportunities, primarily consisting of GSE credit risk transfer. We're very pleased with all we accomplished in 2023 and I would like to thank all of our employees for driving this outstanding performance. We believe we are well-positioned heading into 2024 and remain focused on driving solid returns. Thank you. I will now turn the call back over to Rohit.

Thanks, Dean. As we look ahead, we are encouraged by the significant long-term opportunities for mortgage insurance and believe that our strength and flexibility position us to continue to execute and deliver value for all our stakeholders. Our commitment to responsibly help more people become homeowners motivates everything we do and has never been stronger. Operator, we are now ready for Q&A.

Thank you. Our first question comes from Bose George with KBW. Your line is open.

Hey, good morning, everyone. This is actually Alex on for Bose. I just wanted to touch on the recent ratings upgrades first. Can you discuss how these upgrades could potentially impact the business? And then maybe just to go into a little bit more detail, what is the benefit of the higher rates for both Enact and the MI industry as a whole?

Good morning, Alex. This is Rohit. I'll begin, and then Dean will provide further details. From a business standpoint, we are pleased with the ratings upgrades we received in 2023 and 2024. In 2023, all the rating agencies upgraded us early in the year. Additionally, our insurance company earned an A and a best rating of A minus. In January, S&P upgraded us to A minus for our insurance company and investment-grade status for our holding company. As I mentioned earlier, having A minus ratings for our insurance company strongly positions us with all counterparties, including GSEs and depository institutions, as well as with third parties we collaborate with for Enact Re. From the holding company viewpoint, being rated investment-grade across all agencies also enhances our position. This is beneficial for our market participation and should positively influence our cost of capital over time.

Yeah, Alex. I'll just pick up on that last point that Rohit made. I think with the holding company now being fully investment grade, coupled with the fact that we have $750 million of notes outstanding to mature in August of 2025, I really think that sets the table for better access to the investment-grade market and ultimately tighter spreads when we ultimately do refinance the 2025 notes. So we think it'll have a meaningful economic impact as we go forward towards that refinance activity.

Great, that makes sense. One more question about the higher ceded premiums in the quarter. Will the level in the fourth quarter be the run rate moving forward?

Yeah. Alex, a good question. I appreciate that. I think we were very active recently in the CRT market, so start with that. We talked about the execution of our first ILN transaction since 2021. We also added the highly-rated reinsurer to our 2023 quota share transaction, which increased the cede commission from 13% to 16%. Post the year-end, we added both a forward XoL and a quota share transaction on our 2024 NIW. So that activity isn't fully baked into our Q4 run rate. I would say the $25 million probably is not the right run rate as we head into Q1 when we fully bake in a full quarter of the ILN. In addition to that, start baking in the forward XoL and forward quota shares, I think you're going to see a run rate closer to $28 million, $29 million entering in Q1, just taking into account those transactions. I think it's important to remember with those latter two transactions, those are forward transactions on our 2024 new originations, and new insurance written gives us a capital return confidence that Dean talked about in our prepared remarks.

So Alex, just one or two things to add to Dean's points. First, from an overall operating leverage perspective, we have messaged before that we want our operating leverage to be in mid-30s and we are building up to that. So this is part of the build and an important aspect of that is our participation in quota share transactions, where our peer group probably has a higher percentage of quota share transactions where you actually see the higher level of premium upfront. So you see an increase in ceded premium, but part of that premium comes back in your ceding commission and offsets your expense ratio. So that's new for us. This is our second quota share transaction, so just important to point out that balance in P&L. And then the last thing I would say just to kind of wrap this up is from a ceded premium perspective, having those forward quota share and excess loss transactions done on 2024 new originations, new insurance written gives us a capital return confidence that Dean talked about in our prepared remarks.

Got it. That makes sense. Thanks so much for taking the questions.

Thank you.

Thanks, Alex.

Thank you. And our next question is coming from the line of Rick Shane with JPMorgan. Your line is open.

Thanks for taking my questions this morning. We are in a unique situation where the volume of transactions is more influenced by purchases instead of refinancings. However, purchase activity is being hindered by a lack of supply. I am interested in how you strategically approach this market, both in the short term and long term. Specifically, how do you handle the risk associated with purchases compared to refinancings, especially if you intend to hold that risk for five years?

Yeah. Good morning, Rick. So I will get started and Dean can add color on this. So definitely we have been operating in a very dynamic and complex market. I think in recent months we have even seen more factors in play between higher mortgage rates that actually went above 8%. In the second half of 2023, we have seasonality in play and then also some weather events. But I think the combined effect of that has had an impact on purchase originations volume in Q4 and, as a result, on the MI market size too. I think from a volume perspective, those are the factors kind of we take into account in terms of what MI market size is and the market we are playing in. From a risk perspective, as we have stated in the past, we have very granular and very deep models that are based on our own data that has been with us for the last 40 years. That gives us a lot of confidence that once we come up with our view of the market and the range of outcomes around that base case, then we can actually pivot our participation based on risk categories, based on risk attributes, and our risk-based pricing engines allow us to deploy that strategy down to an MSA level from a geography perspective, and then down to any risk attributes that we choose to. I think that's how I would think about it. More broadly, it's tough to talk about our commercial strategy in terms of risk attributes that are in play in different cycles. But hopefully, that gives you our mindset and the tools that we have at our disposal to deploy our pricing and risk management mindset. That has kind of delivered results that you see over the last few years for us.

Yeah. The two aspects that Rohit didn't cover that I'll pick up on probably don't change as much, to be honest with you. One is expense management. Obviously, we're always focused on making sure that our economic footprint is in relation to our market size and the market realities. But I think quite frankly, whether a big market or a small market, we're focused across the business on prudent expense management. I don't know that anything changes there, but it does highlight our focus. We may get more scrutiny on expense management in a smaller market. Then CRT, and again, not much change here. I think our business objectives with our CRT are driving efficient capital as a capital source, and traditionally we think about that in the PMIERs context and then lost volatility protection. So we still want to go out and secure CRT for those two purposes. Obviously, the quantum might change given the amount of new business, but I think the objectives of the CRT and the use of CRT are programmatic and remain in place.

Got it. Okay. If I may ask one follow-up, the existing book is probably more barbell than at any time in the history of the industry where you have a couple of cohorts that are benefiting from huge HPA, and incredibly low underlying rates, and so the quality there is going to be extremely high. Your more recent cohorts, less HPA, higher coupon, presumably more credit risk. When we look to a more dovish Fed, is the opportunity to modestly derisk the book? Yes, persistency will go down on those more recent cohorts, but presumably, that will drive some HPA and borrowers' opportunity to step down in rates. Is that how we should look at things? Is that the favorable opportunity ahead?

I believe starting with how we construct our books and manage onboarding risk is important. When we originated loans in 2020 and 2021, we couldn’t predict the home price appreciation that followed. Our pricing and book composition decisions were based on our risk assessment and market conditions at the time. We priced those loans with significant considerations in mind. You might recall that in May 2020, we raised our prices substantially, implementing three price hikes within five weeks as COVID-19 was emerging. This pricing helped the 2020 book benefit from home price appreciation and low interest rates, resulting in a strong equity build-up. As we moved into 2022, we made clear in our calls that we began stabilizing our prices and increased them earlier than others in the third quarter. Although the books from 2022 and 2023 have less embedded home price appreciation than earlier ones, they still deliver strong returns because of how we constructed them. Currently, home price appreciation remains at 6.6% as of November, and depending on the region, those books continue to accumulate worthwhile embedded home price appreciation even amid slower growth. As for interest rate declines, I acknowledge that the late 2022 and most of 2023 books carry higher rates. Our earnings presentation includes a schedule showing interest rates by loan year. If rates decrease, those books are more likely to refinance. We actually value consistency in robust economic and credit conditions, and higher persistency is advantageous for our business. While we're not actively pursuing refinancing for that part of the book, it’s true that if any segment is likely to refinance in a favorable rate environment, it would be the late 2022 and much of the 2023 loans.

Perfect. Thank you guys very much.

Absolutely. Thank you.

Thanks, Rick.

Thank you. And our next question coming from the line of Mihir Bhatia with Bank of America. Your line is now open.

Good morning. Thank you for taking my questions. I wanted to start on the claim rate for a second, if that's okay. Just wanted to make sure I'm understanding. The 10% claim rate that you mentioned, that's the initial gross default to claim to, deep to, I guess, claim assumption. That's right? Like I'm not misunderstanding that 10%, right?

Yeah. You can think about it as a frequency. You can think about it as a rate to claim, the probability of going to claim for any delinquency.

Got it. Regarding the 10% claim rate, you've mentioned the strength of the book and improvements in pricing along with tight underwriting. Your credit performance has been quite strong, and you've had significant reserve releases. Can you provide some historical context for that 10%? I understand it's higher than what you had a couple of years ago, but where exactly is that 10% coming from? Is there something in the macro environment that makes you cautious, especially since it's higher than your peers? I'm trying to grasp what factors are influencing this.

Yeah. Mihir, when we put the 10% claim rate in place, we talked about the fact that we hadn't seen any performance deterioration that was driving that assumption. It was more born out of the presence of economic uncertainty. We thought that was heightened heading into 2022. We started increasing the probability of those delinquencies ultimately going to claim. What’s happened since then is that uncertainty hasn't materialized in any performance deterioration, and we've started to release some of those reserves on 2022 accident year delinquencies. In fact, this quarter, out of the $53 million of reserve releases, a majority of that was on 2022 accident year delinquencies. We still have a view that there is macroeconomic uncertainty present. Obviously, the narrative continues to evolve, and I think the probability of a soft landing has become more in line with the consensus view. Our thinking about that 10% claim rate really comes down to our forward view of the macroeconomic conditions and whether we align with the soft landing and the elimination of that macroeconomic uncertainty and/or just the continued experience that credit continues to perform well. Those will be the triggers for us reevaluating that 10% claim rate. But it is truly not born out of anything we've seen from an experience perspective and more just a view that there's a presence of heightened economic uncertainty in the market. It's really in line with our belief and our philosophy on a prudent and measured approach to reserving.

And Mihir, just to add to Dean's point, I agree with everything Dean said. I would just say we are operating in an uncertain and kind of different environment. If you think about the presence of COVID forbearance in our data from 2020 onwards in all our delinquencies to claim both roll rate and timing, there's a significant influence by that program where consumers were not reported delinquent to credit bureaus. That is something that was not normal. So it's difficult for us to just take the last few years of roll rate and extrapolate that. I think we recognize that at some point of time that will correct to a more historical norm. That’s how we made the determination that in this environment, it's better for us to be prudent and actually make those assumptions. I believe it's January-February data when we'll finally start seeing a transition from COVID forbearance to non-COVID forbearance in our delinquency data. As we actually build confidence, in addition to Dean's point on the economic environment, as we get more data that is normalized roll rate, we will use that to actually assess our assumptions.

Okay, that makes sense. I wanted to discuss the Australia transaction. I know it's small and serves as a proof point where you're using your mortgage credit experience. However, I'm curious about the choice of Australia and the timing. Are there other markets you are considering? Depending on its scale, it could potentially add some complexity to the business. I'd like to hear your thoughts on that transaction.

Absolutely, Mihir, and thank you for the questions. I would just say I'll start off by just kind of as a reminder on Enact Re. We watched the GSE CRT space and launched Enact Re to expand our access to new business opportunities, and we did that while keeping in mind that Enact Re is going to operate in adjacent markets by leveraging our core competencies, which means our technical expertise, our knowledge of mortgage credit, and a disciplined approach to risk management that we have shown for a long period of time. In addition to that, we were setting up Enact Re in a very efficient way, efficient from a capital perspective, efficient from an expense perspective, and efficient from a ratings perspective. When you think about Enact Re's journey, I'll start off at GSE credit risk transfers. We did some transactions back in 2018. We monitored the performance of those transactions, monitored the market, and then set up Enact Re to primarily participate in the GSE CRT transaction. We have participated in every GSE CRT transaction since the entity was established. We find the returns attractive on a risk-adjusted basis, and the underwriting guidelines and underwriting constructs are very good. I think Australia is a similar story. At this point of time, it's a proof point for us, but it's a business that we are very familiar with. We actually used to reinsure Australian business a while ago, so we have some experience in our data, in our entity. At the same time, we also have management and employee experience with the Australian market. We have been monitoring the market for a period of time and we use that experience to kind of make a call that we'll use a small proof point where the risk-adjusted returns available in the market are good. The market is mature, it's scaled, it's familiar for us, and we use that to basically say we are getting paid well for it; it's accretive to our shareholder value, and the risk in these transactions is very remote. That's how we think about kind of the construct of how we approach opportunities for Enact Re and they're going to be measured and limited in terms of how we actually use those screens, if you will, to qualify those opportunities. But that's a construct I will give you. Our intent is to use Enact Re in that way to actually grow that adjacent opportunity here. But primarily the focus is going to be GSE CRT.

Understood. Okay. And then just my last question, just real big picture, maybe taking a step back. Like you mentioned, a little bit of a unique time for the MI business. That said, credit has been exceptionally good. Maybe you have a little bit of weakness on NIW, but that seems to be getting nicely offset by persistency. So my question to you is, is this as good as it gets? What are some of the big key risks that you're worried about? Maybe even just anything away from the macro specific to Enact that you can point to. But just trying to understand, is this as good as it gets? What are you most focused on from a risk perspective? Thank you.

Yeah, Mihir. I'll start, and Rohit can add. It may not be as good as it gets, but certainly, to your point, recent credit performance has definitely been very strong. I think there's lots of reasons for that. Obviously, it's a quality underwrite. We validate that through our QA results. We got strong credit quality. When we think about that, we think about that through low layered risk, which we published in our earnings presentation. There's a strong consumer, a strong labor market. Home price appreciation has been meaningful. Even for borrowers that have had some financial stress, the availability of loss mitigation options in this market has been significant, so all of that really provides a backdrop for strong credit and the elevated cure activity that we've seen. I guess implied in your question is the significant release of reserves that we've seen over the last, whatever, six to eight quarters, probably not sustainable. I think we would expect some reversion through time. However, as you mentioned, there are some potential offsets in that. You mentioned the smaller mortgage originations market. I would also talk about that from a capital perspective considering the uncertainty we talked about on one of your earlier questions. We are holding what we would consider to be elevated PMIERs sufficiency levels, maybe versus what the industry held up pre-pandemic if you go back to 2019. So is that as good as it gets? I think, much like I said, there's probably some reversion in there on a net basis. I think what's possibly missed in that question though, Mihir, is that you got to couple out with the changes we've made to the business model, which have really derisked the mortgage insurance industry over the last decade+. Those changes are things like QM, the introduction of PMIERs, capital standards, the risk-based pricing that we've introduced into the market, the ability to very quickly align price with risk; and of course, the mature CRT programs that Enact has, as well as the rest of the industry. All of that has positively impacted the volatility profile of the business. Even if this is as good as it gets and there's some pullback in returns, we still believe there's significant relative value in Enact and really across the MI industry overall, given the changes we've made to derisk the business model through time.

Yeah. And I agree with everything Dean said, Mihir. The only thing I'll add is, if you think about NIW, there is definitely some upside in market size. We have talked about the pent-up first-time homebuyer demand that's in the market. The demographics are very supportive of our industry. First-time homebuyers use private mortgage insurance 60% of the time to get into homes. So as we think about this big wave of folks getting to first-time home buying age of 33 years old all the way up to 2026, that can actually give us some serious upside on NIW. From an expense and CRT perspective, which are kind of the cost of the business, we have started giving proof points to the market in terms of how we are showing efficiency in the market. We reduced our expenses year-over-year by 7%. We have given expense guidance for 2024 that's relatively flat. So if the revenue line goes up, we can keep expenses kind of increasing at a slower pace than revenue, then that starts creating more margin in the business. From a capital perspective, I think back in 2019, pre-COVID, the industry was closer to a 145% PMIERs ratio. Given kind of the uncertainty in the market, the industry has operated with higher capital. At some point of time, there could be normalizing in that ratio and that could settle at a different level. But I completely agree with Dean that when you think about that return against mortgage risk as an asset class, which has been significantly derisked after Dodd-Frank, whether it's a definition of qualified mortgage, risk-based capital, risk-based pricing, as well as CRT and new master policies, I think it's a much better industry and a much more stable industry with very strong returns.

That makes sense. Thank you for taking my questions.

Absolutely.

Thanks, Mihir.

Thank you. And our next question coming from the line of Geoffrey Dunn with Dowling and Partners. Your line is open.

Thanks. Good morning. I have two questions. First, a mechanical question on the forward XOLs. Do you set the quarterly cede or coverage rate at a rate that anticipates hitting your limit? If that limit is kind of plus or minus going into the fourth quarter, do you have a true-up or true-down to kind of max out your limit on those?

We have established a limit based on our production expectations. If production falls short, it will impact the transactions more significantly. In that case, we will collaborate with our reinsurers to adjust the agreement to align with our initial goals. If production exceeds expectations, it involves a more systematic amendment process.

Got it. I want to ask a little bit more about the expectation for capital return. With over $1 billion of surplus and a lot of precedents for running that a lot lower in the industry regardless of your stated domicile, that doesn't seem to be the restriction and alone would point to a bigger capital return opportunity than the $300 million or so you're talking about. So is the read-through here that the more constraining factor is where you're trying to target your PMIERs ratio?

I believe we are still early in the year, and there are numerous factors that will impact our business performance and the macroeconomic landscape throughout the year. Looking ahead, based on Rohit's comments, our progress on the CRT program and our achievements in covering both the back book and the upcoming books, including the 2024 quota share and XOL, provide a solid foundation. This gives us the confidence to guide a return of capital of $300 million for the full year. However, the final amount returned will depend on our business performance in 2024 and the macroeconomic conditions that develop. We will continue to evaluate the situation over time, and if additional opportunities arise, we will consider them and update the market accordingly.

I think Dean explained things well. I want to connect this to our capital prioritization framework. Our first priority is to use capital to support our current policyholders, followed by opportunities for new business, then adjacent opportunities, and lastly, capital return. Economically, as we observe the Fed's actions and their effects, we have made several adjustments over the last two years. It's important for us to maintain the right amount of capital in light of economic uncertainties. As conditions stabilize, we will have more confidence in how much capital we need for our existing portfolio. Regarding new insurance written, my earlier comments about market demand apply. If we see favorable mortgage rates and an affordability balance, there could be a larger market opportunity. All these factors inform our current PMIERs targets and capital return guidance. However, as our perspective evolves throughout the year, we will reassess this as we have done in the past.

Thank you. And our next question coming from the line of Eric Hagen with BTIG. Your line is open.

Hey. Good morning. This is Jake on for Eric. Thank you for taking my questions. First one, can you share how the premium yield in the 2022 and 2023 vintages compares to the premium yield in the earlier pandemic vintages? Thanks.

Good morning, Jake. So we have not historically shared our premium yield by vintage. Our risk-based pricing engines are opaque to the market and to our peers, and the strategy we deploy in terms of risk selection and pricing is a competitive differentiator for us. We generally provide pricing color on pricing actions. I would point you back to the disclosures we have made in prior earnings calls where we talked about stabilizing our price in the middle part of 2022 and then starting to increase price in the third quarter of 2022. I have since given updates on our pricing actions almost every quarter. Outside of providing that qualitative guidance in the direction of price changes, it's tough to provide any specific comparison between vintages.

Got you. Appreciate that color. And then my second one, can you talk about how much PMIERs credit that you expect to receive from the two CRT transactions you have in place for your 2024 production? Thanks.

Yeah. So, Jake, thanks for the question. I think on the XOL, we've identified that as approximately $250 million. I think it was $255 million of PMIERs credit. The quota share will be predicated; it's a 21% session on our 2024 new insurance written. It's going to be predicated on the NIW levels that we produce over the course of the coming year. So it’s harder to give you a discrete number at this point in time; that will be firmed up as our NIW numbers or levels crystallize over the course of 2024.

Got you. All right. Thank you, guys.

Thank you.

Thank you.

Thank you. And our next question coming from the line of Arren Cyganovich with Citi. Your line is open.

Thanks. I was wondering if you could talk a little bit about the expectations for insurance in-force growth for the year. You mentioned that your production or the industry production might be kind of flattish with year-over-year, but you saw some pretty nice insurance in-force growth this year, even while your production slowed. Just wondering if you'll see similar dynamics given the high persistency?

Good morning, Arren. I'll give it a try. The key factors are the new insurance written we can add in 2024 and the performance of our existing portfolio. Based on our guidance on the mortgage insurance market size, you can estimate our new insurance written for 2024 accordingly. Only two companies have reported for Q4, which provides a limited perspective. This gives insight into growth from new insurance written. The main concern is the lapse rate, which is closely tied to interest rates. As Dean mentioned in our prepared remarks, only 4% of our policies have a refinance incentive at a 50 basis points threshold right now, giving some indication of refinance exposure. Changes in market interest rates, influenced by the 10-year treasury yield and spread, may affect that figure. While I can't provide a direct answer, we anticipate an increase in our insurance in-force growth based on these factors. If the market size is limited, that growth could be constrained.

Okay. Got it. That's helpful. The follow-up to that would be on the persistency. I looked at the risk or the insurance in-force that you have laid out with the mortgage rates. Really, it's only the 2023 vintage, which is about 20% of the book, and that's currently kind of at current mortgage rates. So would you have to see mortgage rates kind of fall by 50 basis points or more to really see a notable decline in persistency?

Yeah. I think that's right. You lay out on page 10 of our earnings presentation, we give the if by book year and the associated average mortgage rate. You're exactly correct that really the only cohort that is on average near the current prevailing mortgage interest rate is 2023, and that is about 20% of our overall insurance in-force portfolio. You need to see a meaningful change in rate to economically incent the 2023 borrowers to refinance, and quite frankly, the earlier vintages take a much bigger change in mortgage rates for that economic incentive to emerge.

Okay. Thank you.

Thanks, Arren.

Thank you. And that's all the time we have for the Q&A session. I will now turn the call back over to Mr. Rohit Gupta for any closing remarks.

Thanks, Livia. Thank you, everyone. We appreciate your interest in Enact, and I look forward to seeing some of you in Florida at the Bank of America Financial Services conference. Thank you.

Ladies and gentlemen, that does conclude the conference for today. Thank you for your participation. You may now disconnect.