Enact Holdings Inc Q3 2021 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Rick Shane - JPMorgan - Analyst : Thanks, guys, for taking my questions this morning. Look, I think the interesting thing that's occurring right now is the migration through default to payment. And I'm curious when you look at the metrics, and we are sort of in this unprecedented time and the impact of forbearance, is it -- do you think at this point that payments are -- losses are simply being deferred? Or is there increasing indication that we're going to see much lower migration and that losses are actually going to be averted?

Question: Rick Shane - JPMorgan - Analyst : Terrific. And if I could just ask one last quick question. Can you just sort of walk through the persistency on a monthly basis? Because we have seen a lot of fluctuations in interest rates. If you can talk about what you saw during the third quarter, perhaps even an update as we enter the fourth quarter and we're a month in?

Question: Rick Shane - JPMorgan - Analyst : Great. Thank you for taking my questions. And I just want to acknowledge there's been a tremendous amount of work to get you guys to this point where we are all having this conversation and look forward to continuing going forward.

Question: Bose George - KBW - Analyst : Good morning. Also my congratulations on your first quarter as a public company. Actually I wanted to first ask just about the dividend. Just wanted to explore that a little more. Right now -- at the end of the second quarter your surplus looks like it's over $200 million, so it allows for the dividend this year. But can we talk about how you think the surplus will trend in 2022? And are you likely to need to request a special dividend to -- if you want to keep the dividend distribution similar next year, is the plan to try and maintain a similar run rate, assuming market conditions permit that?

Question: Bose George - KBW - Analyst : Okay, great. That's helpful. But the expectation or what you would like to do is maintain at that level going forward, assuming you can -- if market conditions allow and you can work the regulators on that?

Question: Bose George - KBW - Analyst : Okay, great. That's very helpful. Thanks. And then just one other quick one. Just on the operating expenses going forward, should that be more like a low $50 million number if we pull out some of those unusual items?

Question: Bose George - KBW - Analyst : Okay, great. That's very helpful. Thanks a lot, guys.

Question: Doug Harter - Credit Suisse - Analyst : I was hoping you could talk about the competitive dynamic in the industry during the quarter and how you view relative price competition today.

Question: Doug Harter - Credit Suisse - Analyst : And I guess as we look forward to 2022, and as the total size of the market is likely to be smaller, I guess how do you think that factors into the relative competitiveness of the market?

Question: Geoffrey Dunn - Dowling & Partners - Analyst : Dean, you referenced the relative new notice is around 80 basis points this quarter. I wanted to see what your thoughts are on how to think about notice development going forward as forbearance on a notice basis is increasingly behind us. But as you noted, two-thirds of your book is 2021 and you're going to start hitting that peak season maybe [into] 2022, 2023 at least on the 2020 book. Coming into COVID it looked like something in the range of 60 or 80 basis points might have been, quote-unquote, normalized. But how do you think about development from here given such a young concentration and considering the credit environment that we've been experiencing not just this year but for the past several years?

Question: Ryan Nash - Goldman Sachs - Analyst : I echo the others' comments and congratulations on a successful IPO. Maybe just to start, Rohit, you talked in the slides about the ratings upgrade should continue to enhance your competitive position. Can you maybe just expand on those comments, how you think this could potentially support new business wins and market share gains over time?

Question: Ryan Nash - Goldman Sachs - Analyst : Got it. Maybe a follow-up to one of the questions that was asked before. You mentioned several times the percentage of the portfolios that have policies above current rates. Just any sense for how that has trended over the last couple of quarters, where it stands and what could that mean for the go-forward persistency, particularly if we continue to see interest rates rising in the coming quarters? Thanks.

Question: Ryan Gilbert - BTIG - Analyst : My first question actually is on the payout ratio. And Dean, I appreciate your commentary there. Just broadly, is it fair to think about a maybe 40% to 50% payout ratio as the number that this business can support in an overall good housing market?

Question: Ryan Gilbert - BTIG - Analyst : Okay, that's great. Really helpful, thank you. My second question is on forbearance exits. I think we've seen in some of the surveys that there's some percentage of borrowers who are exiting forbearance without a loss mitigation plan in place. So, I'm wondering if you had any insight or color into what you are seeing in your own delinquency book? Is it a function of the borrowers not qualifying for forbearance or had they not -- just not been in touch with the servicer? Or -- any insight would be really helpful?

Question: Mihir Bhatia - Bank of America - Analyst : Thank you for taking my questions. I also will add my congratulations on completing your first quarter as a public company. Maybe to start, I want to just make sure I understand what the capital return or the dividend that you're speaking about. You're talking about the dividend of $200 million that's going to go to the holdco right? Does the holdco have any reason to hold onto that or is the idea that that entire $200 million would then get returned to shareholders? And what I would love to hear a little bit more on is just how you are thinking of how that return would be. Is there any kind of corporate imperative to do a little -- because of [general] needs or whatever, to do a little bit more weighted towards dividends versus a buyback?

Question: Mihir Bhatia - Bank of America - Analyst : Yes, I just wanted to make sure on that. Great. In terms of the claim rate for the quarter -- I apologize, I may have missed it. But did you give the claim rate that you've assumed for the quarter?

Question: Mihir Bhatia - Bank of America - Analyst : Great. And then just last question I had was just on the forbearances. I appreciate that yours are running higher than new delinquencies, obviously heavily impacted by the COVID forbearances that are curing. But may we just talk about your expectations at the start of the pandemic for what the claim rate on those would be, just remind us of that? And then how -- where are we in that process? Like [should] we assume 5% (inaudible)? Thank you.

Question: Mihir Bhatia - Bank of America - Analyst : Understood. And then does the fact that so many -- I mean, I guess maybe you expected the vast majority of the forbearances to cure using payment deferrals. Is that right? And that can't be used for other delinquencies, right? It has to be only for a COVID delinquency, like servicers or you guys don't have any -- maybe you see great performance out of that and you say, hey, that's another loss mitigation tool. But that's not actually an option rate for any non-forbearance delinquency? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 03, 2021 / 12:00PM, ACT.OQ - Q3 2021 Enact Holdings Inc Earnings Call

Question: Mihir Bhatia - Bank of America - Analyst : Got it. And the way it's being used is in line with your expectations?

Question: Aaron Cyganovich - Citigroup - Analyst : Thanks. Just would like to hear a little bit from the competitive dynamics around credit underwriting. It seems as though that most folks were managing their risk through higher pricing through the pandemic. And your credit stats from new insurance written looked pretty steady over the past two years. Is there any signs of any of your competitors loosening credit standards at all?