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Enact (ACT)

Filed: 5 May 22, 6:37am

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from    to
Commission File Number 001-40399
act-20220331_g1.gif
Enact Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware46-1579166
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
8325 Six Forks Road
Raleigh, North Carolina 27615
(919) 846-4100
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01 per shareACTThe Nasdaq Stock Market
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesNo
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). YesNo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): YesNo
As of May 2, 2022, there were 162,842,219 shares of Common Stock, par value $0.01 per share, outstanding.



TABLE OF CONTENTS
1


Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements may address, among other things, our expected financial and operational results, the related assumptions underlying our expected results and the quotations of management. These forward-looking statements are distinguished by use of words such as “will,” “would,” “anticipate,” “expect,” “believe,” “designed,” “plan,” or “intend,” the negative of these terms and similar references to future periods. These views involve risks and uncertainties that are difficult to predict and, accordingly, our actual results may differ materially from the results discussed in our forward-looking statements. Our forward-looking statements contained herein speak only as of the date of this quarterly report.
Although Enact Holdings, Inc. (the “Company”) believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its expectations will be achieved and it undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events, or otherwise, except as required by applicable law. Factors or events that we cannot predict, including the following, may cause our actual results to differ from those expressed in forward-looking statements:
uncertainty around COVID-19 and its variants or the effects of government and other measures seeking to contain its spread, including risks related to an economic downturn or recession in the United States and in other countries around the world;
inability to continue to maintain the private mortgage insurer eligibility requirements (“PMIERs”) or any other restrictions imposed on us by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), government-sponsored enterprises collectively referred to as the “GSEs”;
a deterioration in economic conditions or a decline in home prices;
uncertainty of our loss reserve estimates or inaccuracies in our models;
competition for our customers or the loss of a significant customer;
changes to the charters or practices of the GSEs, including actions or decisions to decrease or discontinue the use of mortgage insurance;
lenders or investors seeking alternatives to private mortgage insurance;
failure of our risk management or loss mitigation strategies;
fluctuations in interest rates;
limited availability of capital or reinsurance;
adverse actions by rating agencies;
competition with government-owned enterprises and GSEs;
failure to manage the risk in our investment portfolio;
disruption in the servicing of mortgages covered by our insurance policies or poor servicer performance;
unanticipated claims arising under and risks associated with our delegated underwriting program or contract underwriting program;
2


inadequacy of the premiums we charge to compensate for the losses we incur;
decrease in the volume of Low-Down Payment Loan originations;
failure to protect our confidential customer information;
adverse changes in regulatory requirements;
inability to maintain sufficient regulatory capital;
risks relating to our continuing relationship with our parent;
changes in tax laws;
litigation, regulatory investigations, or other actions;
changes in accounting principles or policies or in our application of such accounting principles or policies;
our ability to attract and retain key employees;
failure or any compromise of the security of our computer systems, disaster recovery systems, business continuity plans and failures to safeguard or breaches of confidential information; and
occurrence of natural or man-made disasters or public health emergencies, including pandemics and disasters caused or exacerbated by climate change
We provide additional information regarding these and other risks and uncertainties in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the U.S. Securities and Exchange Commission (“SEC”) on February 28, 2022. In addition, unlisted factors may present significant additional obstacles to the realization of forward-looking statements. We therefore caution you against relying on any forward-looking statements. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required under applicable law.
3


Part I. Financial Information
Item 1. Financial Statements
ENACT HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
2022
December 31,
2021
(Amounts in thousands, except par value amount)(Unaudited) 
Assets  
Fixed maturity securities available-for-sale, at fair value (amortized cost of $5,271,808 and $5,160,174 as of March 31, 2022 and December 31, 2021, respectively)$5,093,084 $5,266,339 
Cash and cash equivalents440,160 425,828 
Accrued investment income32,565 31,061 
Deferred acquisition costs27,000 27,220 
Premiums receivable (allowance for credit losses of $867 and $948 as of March 31, 2022 and December 31, 2021, respectively)40,381 42,266 
Deferred tax asset56,060 — 
Other assets103,157 73,059 
Total assets5,792,407 5,865,773 
Liabilities and equity
Liabilities:
Loss reserves625,279 641,325 
Unearned premiums236,410 246,319 
Other liabilities141,125 130,604 
Long-term borrowings741,004 740,416 
Deferred tax liability— 1,586 
Total liabilities1,743,818 1,760,250 
Equity:
Common stock ($0.01 par value, 600,000 shares authorized, 162,841 shares issued and outstanding)1,628 1,628 
Additional paid-in capital2,374,568 2,371,861 
Accumulated other comprehensive income(140,690)83,581 
Retained earnings1,813,083 1,648,453 
Total equity4,048,589 4,105,523 
Total liabilities and equity$5,792,407 $5,865,773 
See Notes to Condensed Consolidated Financial Statements
4


ENACT HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 Three months ended
March 31,
(Amounts in thousands, except per share amounts)20222021
Revenues:
Premiums$234,279 $252,542 
Net investment income35,146 35,259 
Net investment losses(339)(956)
Other income502 1,738 
Total revenues269,588 288,583 
Losses and expenses:
Losses incurred(10,446)55,374 
Acquisition and operating expenses, net of deferrals54,262 57,622 
Amortization of deferred acquisition costs and intangibles3,090 3,838 
Interest expense12,776 12,737 
Total losses and expenses59,682 129,571 
Income before income taxes209,906 159,012 
Provision for income taxes45,276 33,881 
Net income$164,630 $125,131 
Net income per common share:
Basic$1.01 $0.77 
Diluted$1.01 $0.77 
Weighted average common shares outstanding:
Basic162,841 162,840 
Diluted163,054 162,840 
See Notes to Condensed Consolidated Financial Statements
5


ENACT HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 Three months ended
March 31,
(Amounts in thousands)20222021
Net income$164,630 $125,131 
Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on securities without an allowance for credit losses(224,300)(70,192)
Net unrealized gains (losses) on securities with an allowance for credit losses— (1,507)
Foreign currency translation29 — 
Other comprehensive income (loss)(224,271)(71,699)
Total comprehensive income$(59,641)$53,432 
See Notes to Condensed Consolidated Financial Statements
6


ENACT HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
Three months ended March 31, 2022
(Amounts in thousands)
Common
stock
Additional
paid-in
capital
Accumulated
other
comprehensive
income (loss)
Retained
earnings
Total
equity
Balances as of December 31, 2021$1,628 $2,371,861 $83,581 $1,648,453 $4,105,523 
Comprehensive income (loss):
Net income— — — 164,630 164,630 
Other comprehensive loss, net of taxes— — (224,271)— (224,271)
Stock-based compensation expense and exercises and other— 2,707 — — 2,707 
Balance as of March 31, 2022$1,628 $2,374,568 $(140,690)$1,813,083 $4,048,589 
Three Months Ended March 31, 2021
(Amounts in thousands)
Common
stock
Additional
paid-in
capital
Accumulated
other
comprehensive
income (loss)
Retained
earnings
Total
equity
Balances as of December 31, 2020$1,628 $2,368,699 $208,378 $1,303,106 $3,881,811 
Cumulative effect of change in accounting, net of taxes— — 281 (281)— 
Comprehensive income (loss):
Net income— — — 125,131 125,131 
Other comprehensive loss, net of taxes— — (71,699)— (71,699)
Capital contributions from Genworth Financial, Inc.— 83 — — 83 
Balance as of March 31, 2021$1,628 $2,368,782 $136,960 $1,427,956 $3,935,326 

See Notes to Condensed Consolidated Financial Statements
7


ENACT HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three months ended
March 31,
(Amounts in thousands)20222021
Cash flows from operating activities:  
Net income$164,630 $125,131 
Adjustments to reconcile net income to net cash provided by operating activities:
Net losses on investments339 956 
Amortization of fixed maturity securities discounts and premiums(961)(2,845)
Amortization of deferred acquisition costs and intangibles3,090 3,838 
Acquisition costs deferred(1,629)(1,777)
Deferred income taxes2,943 2,349 
Stock-based compensation expense2,715 — 
Amortization of debt issuance costs588 549 
Other(8)83 
Change in certain assets and liabilities:
Accrued investment income(1,504)389 
Premiums receivable1,885 4,010 
Other assets2,845 (2,129)
Loss reserves(16,046)47,849 
Unearned premiums(9,909)(26,203)
Other liabilities11,822 (25,172)
Net cash provided by operating activities160,800 127,028 
Cash flows from investing activities:
Purchases of fixed maturity securities available-for-sale(351,130)(527,722)
Purchases of short-term investments— (12,500)
Proceeds from sales of fixed maturity securities available-for-sale90,422 230,398 
Proceeds from maturities of fixed maturity securities available-for-sale114,211 161,337 
Net cash used in investing activities(146,497)(148,487)
Cash flows from financing activities:
Net cash provided by (used in) financing activities  
Effect of exchange rate changes on cash and cash equivalents29 — 
Net decrease in cash and cash equivalents14,332 (21,459)
Cash and cash equivalents at beginning of period425,828 452,794 
Cash and cash equivalents at end of period$440,160 $431,335 
See Notes to Condensed Consolidated Financial Statements
8

ENACT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2022 and 2021
(Unaudited)
(1)Nature of Business, Organization Structure and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include, on a consolidated basis, the accounts of Enact Holdings, Inc. (“EHI,” together with its subsidiaries, the “Company,” “we,” “us” or “our”) (formerly known as Genworth Mortgage Holdings, Inc.). EHI is a subsidiary of Genworth Financial, Inc. (“Genworth” or “Parent���) and has been since EHI’s incorporation in Delaware in 2012.
We are engaged in the business of writing and assuming residential mortgage guaranty insurance. The insurance protects lenders and investors against certain losses resulting from nonpayment of loans secured by mortgages, deeds of trust, or other instruments constituting a lien on residential real estate.
On May 3, 2021, EHI amended its certificate of incorporation to change its name from Genworth Mortgage Holdings, Inc. This amendment also authorized EHI to issue 600,000,000 shares of common stock, each having a par value of $0.01 per share. Concurrently, we entered into a share exchange agreement with Genworth Holdings, Inc. (“Genworth Holdings”), pursuant to which Genworth Holdings exchanged its 100 shares of common stock, representing all of the previously issued and outstanding capital stock, for 162,840,000 newly-issued shares of common stock, par value $0.01, of EHI. All of the share and per share information presented in the condensed consolidated financial statements and notes to the condensed consolidated financial statements have been adjusted to reflect the share exchange on a retroactive basis for all periods and as of all dates presented.
On September 15, 2021, we priced our initial public offering (“IPO”) of common stock, which resulted in the issuance and sale of 13,310,400 shares of common stock at the IPO price of $19.00 per common share. All shares were offered by the selling stockholder, our parent company, Genworth Holdings. In addition to the shares sold in the IPO, 14,655,600 common shares were sold in a concurrent private sale (“Private Sale”) at a price per share of $17.86, which is equal to the IPO price less the underwriting discount share. Genworth Holdings also granted the underwriters a 30-day option to purchase up to an additional 1,996,560 common shares (“Over-Allotment Option”) at the IPO price less the underwriting discount. On September 16, 2021, the underwriters exercised their option to purchase all 1,996,560 common shares permitted under the terms of the underwriting agreement. The IPO, Private Sale and Over-Allotment Option (collectively the “Offering”) closed on September 20, 2021, and Genworth Holdings retained all net proceeds from the Offering. The gross proceeds of the Offering, before payment of underwriter fees and other expenses, were approximately $553 million. Costs directly related to the Offering, including underwriting fees and other expenses, were approximately $24 million.
We offer private mortgage insurance products predominantly insuring prime-based, individually underwritten residential mortgage loans (“primary mortgage insurance”). Our primary mortgage insurance enables borrowers to buy homes with a down payment of less than 20% of the home’s value. Primary mortgage insurance also facilitates the sale of these low down payment mortgage loans in the secondary mortgage market, most of which are sold to government sponsored enterprises. We also selectively enter into insurance transactions with lenders and investors, under which we insure a portfolio of loans at or after origination.
We operate our business through our primary insurance subsidiary, Enact Mortgage Insurance Corporation, (“EMICO”), formerly known as Genworth Mortgage Insurance Corporation, with operations in all 50 states and the District of Columbia. We completed name changes to some of our subsidiary legal entities during the first quarter of 2022. EMICO is an approved insurer by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Fannie Mae and Freddie Mac are government-sponsored enterprises and we refer to them collectively as the “GSEs.”
9

ENACT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2022 and 2021
(Unaudited)
We also perform fee-based contract underwriting services for mortgage lenders. The provision of underwriting services by mortgage insurers eliminates the duplicative lender and mortgage insurer underwriting activities and expedites the approval process.
We operate our business in a single segment, which is how our chief operating decision maker (who is our Chief Executive Officer) reviews our financial performance and allocates resources. Our segment includes a run-off insurance block with reference properties in Mexico (“run-off business”), which is immaterial to our condensed consolidated financial statements.
The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Preparing financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. These unaudited condensed consolidated financial statements include all adjustments (including normal recurring adjustments) considered necessary by management to present a fair statement of the financial position, results of operations and cash flows for the periods presented. The results reported in these unaudited condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes for the years ended December 31, 2021 and 2020.

(2)Accounting Changes
Accounting Pronouncements Recently Adopted
We have not adopted new accounting pronouncements in 2022.
Accounting Pronouncements Not Yet Adopted
There are no significant new accounting pronouncements impacting our financial statements.
(3)Investments
Net Investment Income
Sources of net investment income were as follows for the periods indicated:
Three months ended
March 31,
(Amounts in thousands)20222021
Fixed maturity securities available-for-sale$36,534 $36,651 
Cash, cash equivalents and short-term investments10 36 
Gross investment income before expenses and fees36,544 36,687 
Investment expenses and fees(1,398)(1,428)
Net investment income$35,146 $35,259 
10

ENACT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2022 and 2021
(Unaudited)
Net Investment Losses
The following table sets forth net investment gains (losses) for the periods indicated:
Three months ended
March 31,
(Amounts in thousands)20222021
Fixed maturity securities available-for-sale:  
Gross realized gains$350 $494 
Gross realized (losses)(862)(592)
Net realized gains (losses)(512)(98)
Net change in allowance for credit losses on fixed maturity securities available-for-sale173 (853)
Other— (5)
Net investment losses$(339)$(956)
There was no recorded allowance for credit losses for fixed maturity available-for-sale securities as of and for the three months ended March 31, 2022.
The following table represents the allowance for credit losses aggregated by security type for fixed maturity available-for-sale securities as of and for the three months ended March 31, 2021:
(Amounts in thousands)Beginning balanceCumulative effect of change in accountingIncrease from securities without allowance in previous periodsSecurities soldEnding balance
Fixed maturity securities:
Non-U.S. corporate$— $357 $853 $— $1,210 
Total fixed maturity securities available-for-sale$ $357 $853 $ $1,210 
Unrealized Investment Gains (Losses)
Net unrealized gains and losses on available-for-sale securities reflected as a separate component of accumulated other comprehensive income (“AOCI”) were as follows as of the dates indicated:
(Amounts in thousands)March 31, 2022December 31, 2021
Net unrealized gains (losses) on investment securities:
Fixed maturity securities$(178,724)$106,165 
Income taxes38,012 (22,577)
Net unrealized investment gains (losses)$(140,712)$83,588 
11

ENACT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2022 and 2021
(Unaudited)
The change in net unrealized gains (losses) on available-for-sale securities reported in accumulated other comprehensive income was as follows as of and for the periods indicated:
Three months ended
March 31,
(Amounts in thousands)20222021
Beginning balance$83,588 $208,378 
Cumulative effect of change in accounting, net of taxes— 281 
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on investment securities(285,401)(91,170)
Provision for income taxes60,697 19,394 
Change in unrealized gains (losses) on investment securities(224,704)(71,776)
Reclassification adjustments to net investment (gains) losses, net of taxes of $(108) and $(21), respectively404 77 
Change in net unrealized investment gains (losses)(224,300)(71,699)
Ending balance$(140,712)$136,960 
Amounts reclassified out of accumulated other comprehensive income to net investment gains (losses) include realized gains (losses) on sales of securities, which are determined on a specific identification basis.
Fixed Maturity Securities Available-For-Sale
As of March 31, 2022, the amortized cost, gross unrealized gains (losses) and fair value of our fixed maturity securities classified as available-for-sale were as follows:
(Amounts in thousands)
Amortized
cost
Gross unrealized gainsGross unrealized losses
Fair
value
U.S. government, agencies and GSEs$56,696 $322 $(267)$56,751 
State and political subdivisions548,075 4,703 (44,387)508,391 
Non-U.S. government22,293 — (764)21,529 
U.S. corporate2,958,915 22,709 (99,127)2,882,497 
Non-U.S. corporate654,365 3,232 (27,802)629,795 
Other asset-backed1,031,464 966 (38,309)994,121 
Total fixed maturity securities available-for-sale$5,271,808 $31,932 $(210,656)$5,093,084 
12

ENACT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2022 and 2021
(Unaudited)
As of December 31, 2021, the amortized cost, gross unrealized gains (losses) and fair value of our fixed maturity securities classified as available-for-sale were as follows:
(Amounts in thousands)
Amortized
cost
Gross unrealized gainsGross unrealized losses
Fair
value
U.S. government, agencies and GSEs$56,547 $1,863 $(2)$58,408 
State and political subdivisions531,927 10,982 (4,456)538,453 
Non-U.S. government22,358 248 (190)22,416 
U.S. corporate2,863,100 98,293 (16,090)2,945,303 
Non-U.S. corporate652,503 17,556 (3,465)666,594 
Other asset-backed1,033,739 6,989 (5,563)1,035,165 
Total fixed maturity securities available-for-sale$5,160,174 $135,931 $(29,766)$5,266,339 
There was no allowance for credit losses recorded fixed maturity securities classified as available-for-sale as of March 31, 2022 or December 31, 2021.
Gross Unrealized Losses and Fair Values of Fixed Maturity Securities Available-For-Sale
The following table presents the gross unrealized losses and fair values of our fixed maturity securities for which an allowance for credit losses has not been recorded, aggregated by investment type and length of time that individual fixed maturity securities have been in a continuous unrealized loss position, as of March 31, 2022:
 Less than 12 months 12 months or moreTotal
(Amounts in thousands)
Fair
value 
Gross unrealized lossesNumber of securitiesFair valueGross unrealized lossesNumber of securitiesFair valueGross unrealized lossesNumber of securities
Fixed maturity securities:         
U.S. government, agencies and GSEs$32,790 $(260)10 $98 $(7)$32,888 $(267)11 
State and political subdivisions420,551 (42,684)80 14,755 (1,703)435,306 (44,387)84 
Non-U.S. government21,529 (764)— — — 21,529 (764)
U.S. corporate1,397,388 (77,705)235 176,407 (21,422)21 1,573,795 (99,127)256 
Non-U.S. corporate356,324 (22,716)65 52,058 (5,086)408,382 (27,802)71 
Other asset-backed784,348 (35,864)150 35,196 (2,445)819,544 (38,309)158 
Total for fixed maturity securities in an unrealized loss position$3,012,930 $(179,993)542 $278,514 $(30,663)40 $3,291,444 $(210,656)582 
We did not recognize an allowance for credit losses on securities in an unrealized loss position included in the table above. Based on a qualitative and quantitative review of the issuers of the securities, we believe the decline in fair value is largely due to rising interest rates and recent market volatility, and is not indicative of credit losses. The issuers continue to make timely principal and interest payments.
For all securities in an unrealized loss position without an allowance for credit losses, we expect to recover the amortized cost based on our estimate of the amount and timing of cash flows to be collected. We do not intend to sell nor do we expect that we will be required to sell these securities prior to recovering our amortized cost.
13

ENACT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2022 and 2021
(Unaudited)
The following table presents the gross unrealized losses and fair values of our fixed maturity securities, aggregated by investment type and length of time that individual fixed maturity securities have been in a continuous unrealized loss position, as of December 31, 2021:
 Less than 12 months 12 months or moreTotal
(Amounts in thousands)
Fair
value 
Gross unrealized lossesNumber of securitiesFair valueGross unrealized lossesNumber of securitiesFair valueGross unrealized lossesNumber of securities
Fixed maturity securities:         
U.S. government, agencies and GSEs$103 $(2)$— $— — $103 $(2)
State and political subdivisions255,202 (4,456)47 — — — 255,202 (4,456)47 
Non-U.S. government10,560 (190)— — — 10,560 (190)
U.S. corporate649,927 (14,300)94 26,181 (1,790)676,108 (16,090)98 
Non-U.S. corporate183,485 (3,465)28 — — — 183,485 (3,465)28 
Other asset-backed456,565 (5,549)76 3,736 (14)460,301 (5,563)77 
Total for fixed maturity securities in an unrealized loss position$1,555,842 $(27,962)247 $29,917 $(1,804)5 $1,585,759 $(29,766)252 
Contractual Maturities of Fixed Maturity Securities Available-For-Sale
The scheduled maturity distribution of fixed maturity securities as of March 31, 2022, is set forth below. Actual maturities may differ from contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.
(Amounts in thousands)
Amortized
cost
Fair
value
Due one year or less$307,077 $308,785 
Due after one year through five years2,101,730 2,093,613 
Due after five years through ten years1,511,589 1,409,678 
Due after ten years319,948 286,887 
Subtotal4,240,344 4,098,963 
Other asset-backed1,031,464 994,121 
Total fixed maturity securities available-for-sale$5,271,808 $5,093,084 
As of March 31, 2022, securities issued by finance and insurance, consumer—non-cyclical, technology and communications, and utilities industry groups represented approximately 29%, 15%, 13%, and 10%, respectively, of our domestic and foreign corporate fixed maturity securities portfolio. No other industry group comprised more than 9% of our investment portfolio.
As of March 31, 2022, we did not hold any fixed maturity securities in any single issuer, other than securities issued or guaranteed by the U.S. government, which exceeded 10% of equity.
As of March 31, 2022 and December 31, 2021, $25.9 million and $22.9 million, respectively, of securities in our portfolio were on deposit with various state insurance commissioners in order to comply with relevant insurance regulations.
14

ENACT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2022 and 2021
(Unaudited)
(4)Fair Value
Recurring Fair Value Measurements
We have fixed maturity securities, which are carried at fair value. The fair value of fixed maturity securities and are estimated primarily based on information derived from third-party pricing services (“pricing services”), internal models and/or broker quotes, which use a market approach, income approach or a combination of the market and income approach depending on the type of instrument and availability of information. In general, a market approach is utilized if there is readily available and relevant market activity for an individual security. In certain cases where market information is not available for a specific security but is available for similar securities, that security is valued using market information for similar securities, which is also a market approach. When market information is not available for a specific security (or similar securities) or is available but such information is less relevant or reliable, an income approach or a combination of a market and income approach is utilized. For securities with optionality, such as call or prepayment features (including asset-backed securities), an income approach may be used. In addition, a combination of the results from market and income approaches may be used to estimate fair value. These valuation techniques may change from period to period, based on the relevance and availability of market data.
Further, while we consider the valuations provided by pricing services and broker quotes to be of high quality, management determines the fair value of our investment securities after considering all relevant and available information.
In general, we first obtain valuations from pricing services. If prices are unavailable for public securities, we obtain broker quotes. For all securities, excluding certain private fixed maturity securities, if neither a pricing service nor broker quotes valuation is available, we determine fair value using internal models. For certain private fixed maturity securities where we do not obtain valuations from pricing services, we utilize an internal model to determine fair value since transactions for similar securities are not readily observable and these securities are not typically valued by pricing services.
Given our understanding of the pricing methodologies and procedures of pricing services, the securities valued by pricing services are typically classified as Level 2 unless we determine the valuation process for a security or group of securities utilizes significant unobservable inputs, which would result in the valuation being classified as Level 3.
Broker quotes are typically based on an income approach given the lack of available market data. As the valuation typically includes significant unobservable inputs, we classify the securities where fair value is based on our consideration of broker quotes as Level 3 measurements.
For private fixed maturity securities, we utilize an income approach where we obtain public bond spreads and utilize those in an internal model to determine fair value. Other inputs to the model include rating and weighted-average life, as well as sector which is used to assign the spread. We then add an additional premium, which represents an unobservable input, to the public bond spread to adjust for the liquidity and other features of our private placements. We utilize the estimated market yield to discount the expected cash flows of the security to determine fair value. We utilize price caps for securities where the estimated market yield results in a valuation that may exceed the amount that would be received in a market transaction. When a security does not have an external rating, we assign the security an internal rating to determine the appropriate public bond spread that should be utilized in the valuation. While we generally consider the public bond spreads by sector and maturity to be observable inputs, we evaluate the similarities of our private placement with the public bonds, any price caps utilized, liquidity premiums applied, and whether external ratings are available for our private placements to determine whether the spreads utilized would be considered observable inputs. We classify private securities without an external rating or public bond spread as Level 3. In general, a significant increase (decrease) in credit spreads
15

ENACT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2022 and 2021
(Unaudited)
would have resulted in a significant decrease (increase) in the fair value for our fixed maturity securities as of March 31, 2022.
For remaining securities priced using internal models, we determine fair value using an income approach. We maximize the use of observable inputs but typically utilize significant unobservable inputs to determine fair value. Accordingly, the valuations are typically classified as Level 3.
Our assessment of whether or not there were significant unobservable inputs related to fixed maturity securities was based on our observations obtained through the course of managing our investment portfolio, including interaction with other market participants, observations related to the availability and consistency of pricing and/or rating, and understanding of general market activity such as new issuance and the level of secondary market trading for a class of securities. Additionally, we considered data obtained from pricing services to determine whether our estimated values incorporate significant unobservable inputs that would result in the valuation being classified as Level 3.
A summary of the inputs used for our fixed maturity securities based on the level in which instruments are classified is included below. We have combined certain classes of instruments together as the nature of the inputs is similar.
Level 1 measurements
There were no fixed maturity securities classified as Level 1 as of March 31, 2022, and December 31, 2021.
Level 2 measurements
Fixed maturity securities:
Third-party pricing services
In estimating the fair value of fixed maturity securities, approximately 88% of our portfolio was priced using third-party pricing services as of March 31, 2022. These pricing services utilize industry-standard valuation techniques that include market-based approaches, income-based approaches, a combination of market-based and income-based approaches or other proprietary, internally generated models as part of the valuation processes. These third-party pricing vendors maximize the use of publicly available data inputs to generate valuations for each asset class. Priority and type of inputs used may change frequently as certain inputs may be more direct drivers of valuation at the time of pricing. Examples of significant inputs incorporated by pricing services may include sector and issuer spreads, seasoning, capital structure, security optionality, collateral data, prepayment assumptions, default assumptions, delinquencies, debt covenants, benchmark yields, trade data, dealer quotes, credit ratings, maturity and weighted-average life. We conduct regular meetings with our pricing services for the purpose of understanding the methodologies, techniques and inputs used by the third-party pricing providers.
16

ENACT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2022 and 2021
(Unaudited)
The following table presents a summary of the significant inputs used by our pricing services for certain fair value measurements of fixed maturity securities that are classified as Level 2 as of March 31, 2022:
(Amounts in thousands)Fair valuePrimary methodologiesSignificant inputs
U.S. government, agencies and GSEs$56,751 Price quotes from trading desk, broker feedsBid side prices, trade prices, Option Adjusted Spread (“OAS”) to swap curve, Bond Market Association OAS, Treasury Curve, Agency Bullet Curve, maturity to issuer spread
State and political subdivisions$508,391 Multi-dimensional attribute-based modeling systems, third-party pricing vendorsTrade prices, material event notices, Municipal Market Data benchmark yields, broker quotes
Non-U.S. government$21,529 Matrix pricing, spread priced to benchmark curves, price quotes from market makersBenchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources
U.S. corporate$2,451,938 Multi-dimensional attribute-based modeling systems, broker quotes, price quotes from market makers, internal models, OAS-based modelsBid side prices to Treasury Curve, Issuer Curve, which includes sector, quality, duration, OAS percentage and change for spread matrix, trade prices, comparative transactions, Trade Reporting and Compliance Engine (“TRACE”) reports
Non-U.S. corporate$445,763 Multi-dimensional attribute-based modeling systems, OAS-based models, price quotes from market makersBenchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources
Other asset-backed$994,121 Multi-dimensional attribute-based modeling systems, spread matrix priced to swap curves, price quotes from market makersSpreads to daily updated swap curves, spreads derived from trade prices and broker quotes, bid side prices, new issue data, collateral performance, analysis of prepayment speeds, cash flows, collateral loss analytics, historical issue analysis, trade data from market makers, TRACE reports

17

ENACT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2022 and 2021
(Unaudited)
Internal models
A portion of our U.S. corporate and non-U.S. corporate securities are valued using internal models. The fair value of these fixed maturity securities was $187.1 million and $99.6 million, respectively, as of March 31, 2022. Internally modeled securities are primarily private fixed maturity securities where we use market observable inputs such as an interest rate yield curve, published credit spreads for similar securities based on the external ratings of the instrument and related industry sector of the issuer. Additionally, we may apply certain price caps and liquidity premiums in the valuation of private fixed maturity securities. Price caps and liquidity premiums are established using inputs from market participants.
Level 3 measurements
Broker quotes
A portion of our U.S. corporate, non-U.S. corporate and other asset-backed securities are valued using broker quotes. Broker quotes are obtained from third-party providers that have current market knowledge to provide a reasonable price for securities not routinely priced by pricing services. Brokers utilized for valuation of assets are reviewed annually. The fair value of our Level 3 fixed maturity securities priced by broker quotes was $3.5 million as of March 31, 2022.
Internal models
A portion of our U.S. corporate, non-U.S. corporate and other asset-backed securities are valued using internal models. The primary inputs to the valuation of the bond population include quoted prices for identical assets, or similar assets in markets that are not active, contractual cash flows, duration, call provisions, issuer rating, benchmark yields and credit spreads. Certain private fixed maturity securities are valued using an internal model using market observable inputs such as the interest rate yield curve, as well as published credit spreads for similar securities, which includes significant unobservable inputs. Additionally, we may apply certain price caps and liquidity premiums in the valuation of private fixed maturity securities. Price caps are established using inputs from market participants. For structured securities, the primary inputs to the valuation include quoted prices for identical assets, or similar assets in markets that are not active, contractual cash flows, weighted-average coupon, weighted-average maturity, issuer rating, structure of the security, expected prepayment speeds and volumes, collateral type, current and forecasted loss severity, average delinquency rates, vintage of the loans, geographic region, debt service coverage ratios, payment priority with the tranche, benchmark yields and credit spreads. The fair value of our Level 3 fixed maturity securities priced using internal models was $324.4 million as of March 31, 2022.

18

ENACT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2022 and 2021
(Unaudited)
The following tables set forth our assets by class of instrument that are measured at fair value on a recurring basis as of the dates indicated:
 March 31, 2022
(Amounts in thousands) TotalLevel 1Level 2Level 3 
Fixed maturity securities:    
U.S. government, agencies and GSEs$56,751 $— $56,751 $— 
State and political subdivisions508,391 — 508,391 — 
Non-U.S. government21,529 — 21,529 — 
U.S. corporate2,882,497 — 2,639,034 243,463 
Non-U.S. corporate629,795 — 545,377 84,418 
Other asset-backed994,121 — 994,121 0
Total$5,093,084 $ $4,765,203 $327,881 
 December 31, 2021
(Amounts in thousands)TotalLevel 1Level 2Level 3 
Fixed maturity securities:    
U.S. government, agencies and GSEs$58,408 $— $58,408 $— 
State and political subdivisions538,453 — 538,453 — 
Non-U.S. government22,416 — 22,416 — 
U.S. corporate2,945,303 — 2,724,570 220,733 
Non-U.S. corporate666,594 — 582,930 83,664 
Other asset-backed1,035,165 — 1,010,942 24,223 
Total$5,266,339 $ $4,937,719 $328,620 
We did not have any liabilities recorded at fair value as of March 31, 2022, and December 31, 2021.
The following tables present additional information about assets measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:
 
Beginning
balance
as of
January 1,
2022
Total realized and
unrealized gains
(losses) 
PurchasesSettlements 
Transfer
into
Level 3 (1)
Transfer
out of
Level 3 (1)
Ending
balance
as of
March 31, 2022
Total gains
(losses)
attributable to
assets still held
(Amounts in thousands)
Included
in net
income
Included
in OCI
Included
in net
income
Included
in OCI 
Fixed maturity securities:          
U.S. corporate$220,733 $(15)$(16,784)$39,969 $(440)$— $— $243,463 $(15)$(16,784)
Non-U.S. corporate83,664 (84)(5,337)10,000 (106)— (3,719)84,418 (84)(5,044)
Other asset-backed24,223 — (1,624)— — — (22,599)— — — 
Total$328,620 $(99)$(23,745)$49,969 $(546)$ $(26,318)$327,881 $(99)$(21,828)
(1)The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads.
19

ENACT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2022 and 2021
(Unaudited)
 
Beginning
balance
as of
January 1,
2021
Total realized and
unrealized gains
(losses) 
PurchasesSettlements 
Transfer
into
Level 3 (1)
Transfer
out of
Level 3 (1)
Ending
balance
as of
March 31, 2021
Total gains
(losses)
attributable to
assets still held
(Amounts in thousands)
Included
in net
income
Included
in OCI
Included
in net
income
Included
in OCI 
Fixed maturity securities:          
U.S. corporate$119,373 $(30)$(3,145)$— $(5,487)$— $— $110,711 $(30)$(3,145)
Non-U.S. corporate95,751 (16)(1,743)29,426 (105)— (4,392)118,921 (11)(1,826)
Other asset-backed13,781 — 56 — (911)— (2,568)10,358 — 
Total$228,905 $(46)$(4,832)$29,426 $(6,503)$ $(6,960)$239,990 $(41)$(4,965)
______________
(1)The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads.

Purchases, sales, issuances and settlements represent the activity that occurred during the period that results in a change of the asset but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity consists of purchases, sales and settlements of fixed maturity securities.
The amount presented for realized and unrealized gains (losses) included in net income for fixed maturity securities primarily represents amortization and accretion of premiums and discounts on certain fixed maturity securities recorded within net investment income.
The following table presents a summary of the significant unobservable inputs used for certain asset fair value measurements that are based on internal models and classified as Level 3 as of March 31, 2022:
(Amounts in thousands)
Valuation
technique 
Fair value (1)
Unobservable
input 
Range (bps)
Weighted-
average (2) (bps)
Fixed maturity securities:    
U.S. corporateInternal models$239,952 Credit spreads42 - 166113
Non-U.S. corporateInternal models$84,418 Credit spreads85 - 165119
______________
(1)Certain classes of instruments classified as Level 3 are excluded as a result of not being material or due to limitations in being able to obtain the underlying inputs used by certain third-party sources, such as broker quotes, used as an input in determining fair value.
(2)Unobservable inputs weighted by the relative fair value of the associated instrument.
Liabilities Not Required to Be Carried at Fair Value
The following table provides fair value information for financial instruments that are reflected in the accompanying unaudited condensed consolidated financial statements at amounts other than fair value. We have certain financial instruments that are not recorded at fair value, including cash and cash equivalents and accrued investment income, the carrying value of which approximate fair value due to the short-term nature of these instruments and are not included in this disclosure.
20

ENACT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2022 and 2021
(Unaudited)
The following represents our estimated fair value of financial liabilities that are not required to be carried at fair value, classified as Level 2, as of the dates indicated:
March 31, 2022December 31, 2021
(Amounts in thousands)
Carrying
amount
Fair value 
Carrying
amount
Fair value 
Long-term borrowings$741,004 $775,110 $740,416 $821,033 

(5)Loss Reserves
Activity for the liability for loss reserves for the three months ended March 31, is summarized as follows:
(Amounts in thousands)20222021
Loss reserves, beginning balance$641,325 $555,679 
Run-off reserves(681)(654)
Net loss reserves, beginning balance640,644 555,025 
Losses and LAE incurred related to current accident year41,274 45,064 
Losses and LAE incurred related to prior accident years(51,707)10,321 
Total incurred (1)
(10,433)55,385 
Losses and LAE paid related to current accident year(4)(305)
Losses and LAE paid related to prior accident years(5,613)(7,193)
Total paid (1)
(5,617)(7,498)
Net loss reserves, ending balance624,594 602,912 
Run-off reserves685 616 
Loss reserves, ending balance$625,279 $603,528 
______________
(1)Losses and loss adjustment expenses (“LAE”) incurred and paid exclude losses related to our run-off business.
The liability for loss reserves represents our current best estimate; however, there may be future adjustments to this estimate and related assumptions. Such adjustments, reflecting any variety of new and adverse trends, could possibly be significant, and result in future increases to reserves by amounts that could be material to our results of operations, financial condition and liquidity.
Losses incurred related to insured events of the current accident year relate to defaults that occurred in that year and represent the estimated ultimate amount of losses to be paid on such defaults. Losses incurred related to insured events of prior accident years represent the (favorable) or unfavorable development of reserves as a result of the actual rates at which delinquencies go to claim (“claim rates”) and claim amounts being different than those we estimated when originally establishing the reserves. Such estimates are based on our historical experience, which we believe is representative of expected future losses at the time of estimation. As a result of the extended period of time that may exist between the reporting of a delinquency and the claim payment, as well as changes in economic conditions and the real estate market, significant uncertainty and variability exist on amounts ultimately paid.
21

ENACT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2022 and 2021
(Unaudited)
For the three months ended March 31, 2022, losses and LAE incurred of $41.3 million related to insured events of the current accident year was primarily attributable to new delinquencies, a portion of which was from borrowers participating in deferred or reduced payments (“forbearance”) as a result of COVID-19. When establishing loss reserves for borrowers in forbearance, we assume a lower rate of delinquencies becoming active claims, which has the effect of producing a lower reserve compared to delinquencies that are not in forbearance. Historical experience with localized natural disasters, such as hurricanes, indicates a higher cure rate for borrowers in forbearance. Unlike a hurricane where the natural disaster occurs at a point in time and the rebuild starts soon after, COVID-19 brought ongoing displacement to the mortgage insurance market, making it more difficult to determine the effectiveness of forbearance and the resulting claim rates for new delinquencies in forbearance plans. Given this difference, we initially leveraged our prior hurricane experience and have recently layered in cure activity from COVID-19 related delinquencies as considerations in the establishment of an appropriate claim rate estimate for new delinquencies in forbearance plans that have emerged as a result of COVID-19. Loss reserves recorded on these new delinquencies have a high degree of estimation due to the level of uncertainty regarding whether delinquencies in forbearance will ultimately cure or result in claim payments.
We also recorded a reserve release on prior accident year reserves of $50.0 million, which was primarily driven by performance of delinquencies from 2020 related to the emergence of COVID-19.

(6)Reinsurance
We reinsure a portion of our policy risks to other companies in order to reduce our ultimate losses, diversify our exposures and comply with regulatory requirements. We also assume certain policy risks written by other companies.
Reinsurance does not relieve us from our obligations to policyholders. In the event that the reinsurers are unable to meet their obligations, we remain liable for the reinsured claims. We monitor both the financial condition of individual reinsurers and risk concentrations arising from similar geographic regions, activities and economic characteristics of reinsurers to lessen the risk of default by such reinsurers.
The following table sets forth the effects of reinsurance on premiums written and earned for the periods indicated:
Three months ended
March 31,
(Amounts in thousands)20222021
Net premiums written:
Direct$242,605 $242,596 
Assumed68 89 
Ceded(18,302)(16,346)
Net premiums written$224,371 $226,339 
Net premiums earned:
Direct$252,513 $268,799 
Assumed68 89 
Ceded(18,302)(16,346)
Net premiums earned$234,279 $252,542 
22

ENACT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2022 and 2021
(Unaudited)
The difference between written premiums of $224.4 million and earned premiums of $234.3 million represents the decrease in unearned premiums for the three months ended March 31, 2022. The decrease in unearned premiums was primarily the result of policy cancellations in our single premium mortgage insurance product.
Insurance-linked note excess of loss reinsurance treaties
On September 2, 2021, we obtained $371.5 million of excess of loss reinsurance coverage from Triangle Re 2021-3 Ltd. (“Triangle Re 2021-3”) on a portfolio of existing mortgage insurance policies written from January 2021 through June 2021. In connection with entering into the reinsurance agreement with Triangle Re 2021-3, we believe that the risk transfer requirements for reinsurance accounting were met as Triangle Re 2021-3 is assuming significant insurance risk and a reasonable possibility of significant loss. At closing, we retain the first layer of aggregate losses up to $303.5 million. Triangle Re 2021-3 provides 72% reinsurance coverage for losses above our retained layer up to $371.5 million.
On April 16, 2021, we obtained $302.7 million of excess of loss reinsurance coverage from Triangle Re 2021-2 Ltd. (“Triangle Re 2021-2”) on a portfolio of existing mortgage insurance policies written from September 2020 through December 2020. In connection with entering into the reinsurance agreement with Triangle Re 2021-2, we believe that the risk transfer requirements for reinsurance accounting were met as Triangle Re 2021-2 is assuming significant insurance risk and a reasonable possibility of significant loss. For the reinsurance coverage, we retain the first layer of aggregate losses up to $188.6 million. Triangle Re 2021-2 provides 76% reinsurance coverage for losses above our retained first layer up to $302.7 million.
On March 2, 2021, we obtained $495.0 million of excess of loss reinsurance coverage from Triangle Re 2021-1 Ltd. (“Triangle Re 2021-1”) on a portfolio of existing seasoned mortgage insurance policies written from January 2014 through December 2018 and from October 2019 through December 2019. In connection with entering into the reinsurance agreement with Triangle Re 2021-1, we believe that the risk transfer requirements for reinsurance accounting were met as Triangle Re 2021-1 is assuming significant insurance risk and a reasonable possibility of significant loss. Triangle Re 2021-1 reinsurance coverage is derived by applying a reinsurance cession percentage to the mortgage insurance coverage for each loan to get to an Aggregate Exposed Principal Balance (“AEPB”). This AEPB accounts for any existing reinsurance and ensures we retain a minimum 5% vertical risk retention on each loan. For the reinsurance coverage, we retain the first layer of aggregate losses up to $212.1 million. Triangle Re 2021-1 provides 100% reinsurance coverage for losses above our retained first layer up to $495.0 million.
Other excess of loss reinsurance treaties
On March 24, 2022, we executed an excess of loss reinsurance transaction with a panel of reinsurers, which provides up to $325 million of reinsurance coverage on a portfolio of existing mortgage insurance policies written from July 1, 2021 through December 31, 2021, and became effective March 1, 2022.
On January 27, 2022, we executed an excess of loss reinsurance transaction with a panel of reinsurers, which provides up to $294 million of reinsurance coverage on a portion of current and expected new insurance written for the 2022 book year, effective January 1, 2022.
On February 4, 2021, we executed an excess of loss reinsurance transaction with a panel of reinsurers, which provides up to $205.8 million of reinsurance coverage on a portion of current and expected new insurance written (“NIW”) for the 2021 book year, effective January 1, 2021.
23

ENACT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2022 and 2021
(Unaudited)
(7)Borrowings
In 2021, we issued $750 million aggregate principal amount of 6.5% senior notes due in 2025 (the “2025 Senior Notes”). Interest on the 2025 Senior Notes is payable semi-annually in arrears on February 15 and August 15 of each year. The 2025 Senior Notes mature on August 15, 2025.
The following table sets forth long-term borrowings as of the dates indicated:
(Amounts in thousands)March 31,
2022
December 31,
2021
6.5% Senior Notes, due 2025$750,000 $750,000 
Deferred borrowing charges(8,996)(9,584)
Total$741,004 $740,416 
(8)Income Taxes
We compute the provision for income taxes on a separate return with benefits-for-loss method. If during the three months ended March 31, 2022 and 2021, we had computed taxes using the separate return method, the provision for income taxes would have been unchanged.
(9)Related Party Transactions
We have various agreements with Genworth that provide for reimbursement to and from Genworth of certain administrative and operating expenses that include, but are not limited to, information technology services and administrative services (such as finance, human resources, employee benefit administration and legal). These agreements provide for an allocation of corporate expenses to all Genworth businesses or subsidiaries. We incurred costs for these services of $7.8 million and $14.2 million for the three months ended March 31, 2022 and 2021, respectively.
Our investment portfolio is managed by Genworth. Under the terms of the investment management agreement we are charged a fee by Genworth. All fees paid to Genworth are charged to investment expense and are included in net investment income in the condensed consolidated statements of income. The total investment expenses paid to Genworth were $1.4 million and $1.3 million for the three months ended March 31, 2022 and 2021, respectively.
Our employees participate in certain benefit plans sponsored by Genworth and certain share-based compensation plans that utilize shares of Genworth common stock and other incentive plans.
We provide certain information technology and administrative services (such as facilities and maintenance) to Genworth. We charged Genworth $0.2 million and $0.1 million for these services for the three months ended March 31, 2022 and 2021, respectively.
We have a tax sharing agreement in place with Genworth, such that we participate in a single U.S. consolidated income tax return filing. All intercompany balances related to this agreement are settled at least annually.
The condensed consolidated financial statements include the following amounts due to and from Genworth relating to recurring service and expense agreements as of:
(Amounts in thousands)March 31, 2022December 31, 2021
Amounts payable to Genworth$8,417 $8,316 
Amounts receivable from Genworth$359 $133 
24

ENACT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2022 and 2021
(Unaudited)
(10)Net Income Per Common Share
The basic earnings per share computation is based on the weighted average number of shares of common stock outstanding. For the three months ended March 31, 2022, the calculation of dilutive weighted average shares considers the impact of restricted stock units issued to employees as well deferred stock units issued to our directors. For the three months ended March 31, 2021, we had no instruments outstanding that would be dilutive to earnings per share.
The calculation of basic and diluted net income per share is as follows.
Three months ended
March 31,
(Amounts in thousands, except per share amounts)20222021
Net Income available to EHI common stockholders$164,630 $125,131 
Net income per common share:
Basic$1.01 $0.77 
Diluted$1.01 $0.77 
Weighted average common shares outstanding:
Basic162,841 162,840 
Diluted163,054 162,840 
25

ENACT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2022 and 2021
(Unaudited)
(11)Changes in Accumulated Other Comprehensive Income
The following tables present a roll forward of accumulated other comprehensive income for the periods indicated:
(Amounts in thousands)
Net unrealized
investment
gains (losses)
Foreign currency translationTotal
Balance as of January 1, 2022, net of tax
$83,588 $(7)$83,581 
Other comprehensive income (loss) before reclassifications(223,896)29 (223,867)
Amounts reclassified (from) to other comprehensive income (loss)(404)— (404)
Total other comprehensive income (loss)(224,300)29 (224,271)
Balance as of March 31, 2022, net of tax$(140,712)$22 $(140,690)
(Amounts in thousands)Net unrealized
investment
gains (losses)
Foreign currency translationTotal
Balance as of January 1, 2021, net of tax
$208,378 $ $208,378 
Cumulative effective of change in accounting, net of taxes281 — 281 
Other comprehensive income (loss) before reclassifications(71,776)— (71,776)
Amounts reclassified (from) to other comprehensive income (loss)77 — 77 
Total other comprehensive income (loss)(71,699)— (71,699)
Balance as of March 31, 2021, net of tax$136,960 $ $136,960 
The following table presents the effect of the reclassifications of significant items out of accumulated other comprehensive income on the respective line items of the consolidated statements of income, for the periods indicated:
 Amount reclassified from accumulated other comprehensive incomeAffected line item in the condensed consolidated statements of income
Three months ended
March 31,
(Amounts in thousands)20222021
Net unrealized gains (losses) on investments$(512)$(98)Net investment gains (losses)
Benefit (expense) from income taxes108 21 Provision for income taxes
(12)Subsequent Events
In April 2022, we announced that our Board of Directors has approved the initiation of a dividend program under which the Company intends to pay a quarterly cash dividend. The inaugural quarterly dividend for the second quarter of 2022 will be $0.14 per share, payable on May 26, 2022, to common shareholders of record on May 9, 2022. Future dividend payments are subject to quarterly review and approval by our Board of Directors and will be targeted to be paid in the third month of each subsequent quarter.
26


Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes for the three months ended March 31, 2022 and 2021, and our audited consolidated financial statements and related notes for the years ended December 31, 2021 and 2020 within our Annual Report on Form 10-K for the fiscal year ending December 31, 2021 (the “Annual Report”).
In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections entitled “Cautionary Note Regarding Forward-Looking Statements” above and Part I, Item 1A “Risk Factors” in our Annual Report and Part II, Item 1A “Risk Factors” in this Quarterly Report. Future results could differ significantly from the historical results presented in this section. References to EHI, Enact, Enact Holdings, the “Company,” “we” or “our” herein are, unless the context otherwise requires, to EHI on a consolidated basis.
Key Factors Affecting Our Results
There have been no material changes to the factors affecting our results, as compared to those disclosed in the Annual Report, other than the impact of items as discussed below in “—Trends and Conditions”.
Trends and Conditions
During the first quarter of 2022, the United States and global economies experienced new headwinds due to geopolitical uncertainty that increased global shortfalls in supplies of energy, food and raw materials. Combined with a renewed COVID-19 outbreak in China and subsequent shutdowns across the country, inflationary pressures rose in the first quarter of 2022 with the Bureau of Labor Statistics reporting in March that the Consumer Price Index increased by over a percentage point to 8.5% year-over-year. As a result, the Federal Reserve has indicated a more aggressive approach towards addressing inflation through rate increases and a reduction of its balance sheet and approved an interest rate increase of 0.25% in March of 2022. Financial markets have reacted with increased volatility and rates have increased across the Treasury yield curve.
Mortgage origination activity declined during the first quarter of 2022 due to typical seasonal trends and in response to rising mortgage rates that specifically impacted the refinance market. This trend is likely to continue as the Federal Reserve has signaled that it expects to make additional interest rate increases throughout the remainder of 2022. Housing affordability declined nationally as of February 2022 compared to one year ago due to rising home prices and increasing interest rates modestly offset by rising median family income according to the National Association of Realtors Housing Affordability Index.
The unemployment rate has continued to decrease since the beginning of COVID-19 and was 3.6% in March 2022. Unemployment is relatively in line with the pre-pandemic level of 3.5% in February 2020, and has steadily decreased from a peak of 14.8% in April 2020. After the continued recovery in the first quarter of 2022, the number of unemployed Americans stands at approximately 6 million, which is 0.3 million higher than in February 2020. Among the unemployed, those on temporary layoff continued to decrease to 0.8 million from a peak of 18 million in April 2020, and the number of permanent job losses decreased to approximately 1.4 million. In addition, the number of long term unemployed over 26 weeks has continued to decrease since March 2021, falling to approximately 1.4 million in March 2022.
The Federal Housing Finance Agency (“FHFA”) and the GSEs are focused on increasing the accessibility and affordability of homeownership, in particular for low- and moderate-income borrowers and underserved minority communities. Among other things, FHFA directed the GSEs to submit Equitable Housing Plans by the end of 2021 to identify and address barriers to sustainable housing opportunities to
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advance equity in housing finance. Any new practices or programs subsequently implemented under the GSEs’ Equitable Housing Plans or other affordability initiatives may impact the fees, underwriting and servicing standards on mortgage loans purchased by the GSEs.
In January 2022, the FHFA introduced new upfront fees for some high-balance and second-home loans sold to Fannie Mae and Freddie Mac. Upfront fees for high balance loans increased between 0.25% and 0.75%, tiered by loan-to-value ratio. For second home loans, the upfront fees increased between 1.125% and 3.875%, also tiered by loan-to-value ratio. The new pricing framework became effective April 1, 2022. We do not anticipate this will significantly impact the mortgage insurance market or our growth projections.
For mortgages insured by the federal government (including those purchased by Fannie Mae and Freddie Mac), forbearance allows borrowers impacted by COVID-19 to temporarily suspend mortgage payments up to 18 months subject to certain limits. An initial forbearance period is typically up to six months and can be extended up to another six months if requested by the borrower to its mortgage servicer. For GSE loans in a COVID-19 forbearance plan as of February 28, 2021, the maximum forbearance can be up to 18 months. Currently, the GSEs do not have a deadline for requesting an initial forbearance. Even though most foreclosure moratoriums expired at the end of 2021, federal laws and regulations continue to require servicers to discuss loss mitigation options with borrowers before proceeding with foreclosures. These requirements could further extend the foreclosure timeline, which could negatively impact the severity of loss on loans that go to claim.
Although it is difficult to predict the future level of reported forbearance and how many of the policies in a forbearance plan that remain current on their monthly mortgage payment will go delinquent, servicer-reported forbearances have generally declined. At the end of the first quarter of 2022 approximately 2.0%, or 18,588, of our active primary policies were reported in a forbearance plan, of which approximately 41% were reported as delinquent.
Total delinquencies decreased during the first quarter of 2022 as a result of cures outpacing new delinquencies, which increased modestly during the quarter. The first quarter 2022 new delinquency rate of 0.9% was in line with pre-pandemic levels.
Despite continued economic recovery, the full impact of COVID-19 and its ancillary economic effects on our future business results are difficult to predict. Given the maximum length of forbearance plans, the resolution of a delinquency in a plan may not be known for several quarters. We continue to monitor regulatory and government actions and the resolution of forbearance delinquencies. While the associated risks have moderated, it is possible that COVID-19 could have a significantly adverse impact on our future results of operations and financial condition.
Private mortgage insurance market penetration and eventual market size are affected in part by actions that impact housing or housing finance policy taken by the GSEs and the U.S. government, including but not limited to, the Federal Housing Administration (“FHA”) and the FHFA. In the past, these actions have included announced changes, or potential changes, to underwriting standards, including changes to the GSEs’ automated underwriting systems, FHA pricing, GSE guaranty fees, loan limits and alternative products. On February 25, 2022, the FHFA finalized the rule for the Enterprise Capital Framework, which included technical corrections to their December 17, 2020 rule. Higher GSE capital requirements could ultimately lead to increased costs to borrowers of GSE loans, which in turn could shift the market away from the GSEs to the FHA or lender portfolios. Such a shift could result in a smaller market for private mortgage insurance.
In conjunction with preparing to release the GSEs from conservatorship, on January 14, 2021, the FHFA and the Treasury Department agreed to amend the Preferred Stock Purchase Agreements (“PSPAs”) between the Treasury Department and each of the GSEs to increase the amount of capital each GSE may retain. Among other things, the amendments to the PSPAs limit the number of certain mortgages the GSEs may acquire with two or more prescribed risk factors, including certain mortgages
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with combined loan-to-value (“LTV”) ratios above 90%. However, on September 14, 2021, the FHFA and Treasury Department suspended certain provisions of the amendments to the PSPAs, including the limit on the number of mortgages with two or more risk factors that the GSEs may acquire. Such suspensions terminate on the later of one year after September 14, 2021, or six months after the Treasury Department notifies the GSEs of termination. The limit on the number of mortgages with two or more risk factors was based on the market size at the time, and we do not expect any material impact to the private mortgage market in the near term.
New insurance written of $18.8 billion in the first quarter of 2022 decreased 25% compared to the first quarter of 2021 primarily due to a smaller estimated private mortgage insurance market which was primarily driven by a decline in refinance originations due to rising mortgage rates.
Our primary persistency increased to 76% during the first quarter of 2022 compared to 56% during the first quarter of 2021 and is approaching historic levels of approximately 80%. The increase in persistency was primarily driven by a decline in the percentage of our in-force policies with mortgage rates above current mortgage rates. The increase in persistency has offset the decline in new insurance written in the first quarter of 2022, leading to an increase in insurance in-force (“IIF”) of $5.3 billion since December 31, 2021. Low persistency impacted business performance trends in 2021 in several ways including, but not limited to, accelerating the recognition of earned premiums due to single premium policy cancellations, accelerating the amortization of our existing reinsurance transactions, and shifting the concentration of our primary IIF to more recent years of policy origination. As of March 31, 2022, our primary IIF has approximately 4% concentration in 2014 and prior book years. In contrast, our 2021 book year represents 38% of our primary IIF concentration while our 2022 book year is 8% as of March 31, 2022.
The U.S. private mortgage insurance industry is highly competitive. Our market share is influenced by the execution of our go to market strategy, including but not limited to, pricing competitiveness relative to our peers and our selective participation in forward commitment transactions. We continue to manage the quality of new business through pricing and our underwriting guidelines, which are modified from time to time when circumstances warrant. We see the market and underwriting conditions, including the pricing environment, as being well within our risk-adjusted return appetite enabling us to write new business at attractive returns. Ultimately, we expect our new insurance written with its strong credit profile and attractive pricing to positively contribute to our future profitability and return on equity.
Net earned premiums declined in the first quarter of 2022 compared to the first quarter of 2021 as a result of the continued lapse of older, higher priced policies, a decrease in single premium cancellations and higher ceded premiums as the use of credit risk transfer increased. This was partially offset by insurance in-force growth. The total number of delinquent loans has declined from the COVID-19 peak in the second quarter of 2020 as forbearance exits continue and new forbearances declined. During this time and consistent with prior years, servicers continued the practice of remitting premiums during the early stages of default. Additionally, we have a business practice of refunding the post-delinquent premiums to the insured party if the delinquent loan goes to claim. We record a liability and a reduction to net earned premiums for the post-delinquent premiums we expect to refund. The post-delinquent premium liability recorded since the beginning of COVID-19 in the second quarter of 2020 through the first quarter of 2022 was not significant to the change in earned premiums for those periods as a result of the high concentration of new delinquencies being subject to a servicer reported forbearance plan and the lower estimated rate at which delinquencies go to claim for these loans.
Our loss ratio for the three months ended March 31, 2022, was (4)% as compared to 22% for the three months ended March 31, 2021. The decrease was largely from a $50 million reserve release during the quarter, primarily related to COVID-19 delinquencies from 2020 compared to $10 million of reserve strengthening on pre-COVID-19 delinquencies during the first quarter of 2021. During the peak of COVID-19, we experienced elevated new delinquencies subject to forbearance plans. Those delinquencies have been curing at levels above our reserve expectations, which led to the release of reserves in the first quarter of 2022.
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Our loss reserves continue to be impacted by COVID-19 and remain subject to uncertainty. Borrowers who have experienced a financial hardship including, but not limited to, the loss of income due to the closing of a business or the loss of a job, continue to take advantage of available forbearance programs and payment deferral options. Loss reserves recorded on these new delinquencies have a high degree of estimation due to the level of uncertainty regarding whether delinquencies in forbearance will ultimately cure or result in claim payments.
The severity of loss on loans that do go to claim may be negatively impacted by the extended forbearance and foreclosure timelines, the associated elevated expenses and the higher loan amount of the recent new delinquencies. These negative influences on loss severity could be mitigated, in part, by further home price appreciation. For loans insured on or after October 1, 2014, our mortgage insurance policies limit the number of months of unpaid interest and associated expenses that are included in the mortgage insurance claim amount to a maximum of 36 months.
New delinquencies in the first quarter of 2022 declined compared to the first quarter of 2021. Current period primary delinquencies of 8,724 contributed $39 million of loss expense in the first quarter of 2022. We incurred $44 million of losses from 10,053 current period delinquencies in the first quarter of 2021 driven primarily by an increase in borrower forbearance as a result of COVID-19. In determining the loss expense estimate, considerations were given to forbearance and non-forbearance delinquencies, recent cure and claim experience, and the prevailing economic conditions. Approximately 27% of our primary new delinquencies in the first quarter of 2022 were subject to a forbearance plan as compared to 54% in the first quarter of 2021.
As of March 31, 2022, EMICO’s risk-to-capital ratio under the current regulatory framework as established under North Carolina law and enforced by the North Carolina Department of Insurance (“NCDOI”), EMICO’s domestic insurance regulator, was approximately 12.2:1, compared with a risk-to-capital ratio of 12.3:1 and 11.9:1 as of December 31, 2021 and March 31, 2021, respectively. EMICO’s risk-to-capital ratio remains below the NCDOI’s maximum risk-to-capital ratio of 25:1. North Carolina’s calculation of risk-to-capital excludes the risk-in-force for delinquent loans given the established loss reserves against all delinquencies. EMICO’s ongoing risk-to-capital ratio will depend on the magnitude of future losses incurred by EMICO, the effectiveness of ongoing loss mitigation activities, new business volume and profitability, the amount of policy lapses and the amount of additional capital that is generated or distributed by the business or capital support provided.
Under PMIERs, we are subject to operational and financial requirements that private mortgage insurers must meet in order to remain eligible to insure loans that are purchased by the GSEs. Since 2020, the GSEs have issued several amendments to PMIERs, which implemented both permanent and temporary revisions.
For loans that became non-performing due to a COVID-19 hardship, PMIERs was temporarily amended with respect to each non-performing loan that (i) had an initial missed monthly payment occurring on or after March 1, 2020, and prior to April 1, 2021, or (ii) is subject to a forbearance plan granted in response to a financial hardship related to COVID-19, the terms of which are materially consistent with terms of forbearance plans offered by the GSEs. The risk-based required asset amount factor for the non-performing loan is the greater of (a) the applicable risk-based required asset amount factor for a performing loan were it not delinquent, and (b) the product of a 0.30 multiplier and the applicable risk-based required asset amount factor for a non-performing loan. In the case of (i) above, absent the loan being subject to a forbearance plan described in (ii) above, the 0.30 multiplier was applicable for no longer than three calendar months beginning with the month in which the loan became a non-performing loan due to having missed two monthly payments. Loans subject to a forbearance plan described in (ii) above include those that are either in a repayment plan or loan modification trial period following the forbearance plan unless reported to the approved insurer that the loan is no longer in such forbearance plan, repayment plan, or loan modification trial period. The PMIERs amendment dated June 30, 2021 further allows loans that enter a forbearance plan due to a COVID-19 hardship on or after April 1, 2021 to remain eligible for extended application of the reduced PMIERs capital factor for as long as the
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loan remains in forbearance. In addition, the PMIERs amendment imposed permanent revisions to the risk-based required asset amount factor for non-performing loans for properties located in future Federal Emergency Management Agency Declared Major Disaster Areas eligible for individual assistance.
In September 2020, subsequent to the issuance of Enact Holdings’ senior notes due in 2025, the GSEs imposed certain restrictions (the “GSE Restrictions”) with respect to capital on our business. In May 2021, in connection with their conditional approval of the then potential partial sale of Enact Holdings, the GSEs confirmed the GSE Restrictions will remain in effect until the following collective conditions (“GSE Conditions”) are met: (a) EMICO obtains “BBB+”/“Baa1” (or higher) rating from S&P, Moody’s or Fitch Ratings, Inc. for two consecutive quarters and (b) Genworth achieves certain financial metrics. Prior to the satisfaction of the GSE Conditions, the GSE Restrictions require:
EMICO to maintain 115% of PMIERs minimum required assets through 2021, 120% during 2022 and 125% thereafter;
Enact Holdings to retain $300 million of net proceeds from the 2025 Senior Notes offering that can be drawn down exclusively for debt service of those notes or to contribute to EMICO to meet its regulatory capital needs including PMIERs; and
written approval must be received from the GSEs prior to any additional debt issuance by either EMICO or Enact Holdings.
Until the GSE Conditions imposed in connection with the GSE Restrictions are met, Enact Holdings’ liquidity must not fall below 13.5% of its outstanding debt. In addition, Fannie Mae agreed to reconsider the GSE Restrictions if Genworth were to own 50% or less of Enact Holdings at any point prior to their expiration. We understand that Genworth’s current plans do not include a potential sale in which Genworth owns less than 80% of Enact Holdings. The current balance of the 2025 Senior Notes proceeds required to be held by our holding company is approximately $228 million.
As of March 31, 2022, we had estimated available assets of $5,222 million against $2,961 million net required assets under PMIERs compared to available assets of $5,077 million against $3,074 million net required assets as of December 31, 2021. The sufficiency ratio as of March 31, 2022, was 176%, or $2,261 million, above the published PMIERs requirements, compared to 165%, or $2,003 million, above the published PMIERs requirements as of December 31, 2021. PMIERs sufficiency is based on the published requirements applicable to private mortgage insurers and does not give effect to the GSE Restrictions imposed on our business. The increase in the PMIERs sufficiency was driven by the completion of two excess of loss (“XOL”) reinsurance transactions in the first quarter of 2022, which added approximately $370 million of additional PMIERs capital credit as of March 31, 2022, as well as lapse, business cash flows and lower delinquencies, partially offset by NIW and amortization of existing reinsurance transactions. Our PMIERs required assets as of March 31, 2022, and December 31, 2021, benefited from the application of a 0.30 multiplier applied to the risk-based required asset amount factor for certain non-performing loans. The application of the 0.30 multiplier to all eligible delinquencies provided $272 million of benefit to our March 31, 2022 PMIERs required assets compared to $390 million of benefit as of December 31, 2021. These amounts are gross of any incremental reinsurance benefit from the elimination of the 0.30 multiplier.
On January 27, 2022, we executed an excess of loss reinsurance transaction with a panel of reinsurers, which provides up to $294 million of reinsurance coverage on a portion of current and expected new insurance written for the 2022 book year, effective January 1, 2022.
On March 24, 2022 we executed an excess of loss reinsurance transaction with a panel of reinsurers, which provides up to approximately $325 million of reinsurance coverage on a portfolio of existing
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mortgage insurance policies written from July 1, 2021 through December 31, 2021, effective March 1, 2022.
On April 26, 2022, Enact’s Board of Directors approved the initiation of a dividend program under which the Company intends to pay a quarterly cash dividend. The inaugural quarterly dividend for the second quarter of 2022 will be $0.14 per share, payable on May 26, 2022, to common shareholders of record on May 9, 2022. Future dividend payments are subject to quarterly review and approval by our Board of Directors and Genworth, and will be targeted to be paid in the third month of each subsequent quarter. In April 2022, our primary mortgage insurance operating company, EMICO, completed a distribution to EHI that will support our ability to pay a quarterly dividend. We intend to use these proceeds and future EMICO distributions to fund the quarterly dividend as well as to bolster our financial flexibility at EHI and return additional capital to shareholders.
Returning capital to shareholders, balanced with our growth and risk management priorities, remains a key commitment for Enact as we look to drive shareholder value through time. We believe the initiation of a quarterly dividend reflects meaningful progress towards that goal, and we continue to evaluate the most appropriate amount of total capital to return to shareholders for the remainder of 2022. We believe we have several options available to us to return capital to shareholders and will continue to evaluate our capital allocation options. Our ultimate view will be shaped by our capital prioritization framework: supporting our existing policyholders, growing our mortgage insurance business, funding attractive new business opportunities and returning capital to shareholders. Our total return of capital will also be based on our view of the prevailing and prospective macro-economic conditions, regulatory landscape and business performance.



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Results of Operations and Key Metrics
Results of Operations
Three months ended March 31, 2022, compared to three months ended March 31, 2021
The following table sets forth our consolidated results for the periods indicated:
 Three months ended
March 31,
Increase (decrease)
and percentage
change
(Amounts in thousands)202220212022 vs. 2021
Revenues:   
Premiums$234,279 $252,542 $(18,263)(7)%
Net investment income35,146 35,259 (113)— %
Net investment gains (losses)(339)(956)617(65)%
Other income502 1,738 (1,236)(71)%
Total revenues269,588 288,583 (18,995)(7)%
Losses and expenses: 
Losses incurred(10,446)55,374 (65,820)(119)%
Acquisition and operating expenses, net of deferrals54,262 57,622 (3,360)(6)%
Amortization of deferred acquisition costs and intangibles3,090 3,838 (748)(19)%
Interest expense12,776 12,737 39— %
Total losses and expenses59,682 129,571 (69,889)(54)%
Income before income taxes209,906 159,012 50,89432 %
Provision for income taxes45,276 33,881 11,39534 %
Net income$164,630 $125,131 $39,49932 %
Loss ratio (1)
(4)%22 %  
Expense ratio (2)
24 %24 %  
_______________
(1)Loss ratio is calculated by dividing losses incurred by net earned premiums.
(2)Expense ratio is calculated by dividing acquisition and operating expenses, net of deferrals, plus amortization of deferred acquisition costs and intangibles by net earned premiums.
Revenues
Premiums decreased mainly attributable to continued lapse of our in-force portfolio as older, higher priced policies continued to lapse, lower single premium cancellations, and higher ceded premiums as the use of credit risk transfer increased. This was partially offset by higher IIF.
Net investment income remained flat with an increase from higher average invested assets in the current year offset by lower income from bond calls. Portfolio investment yields remained flat.
Net investment losses in the first quarter of 2022 were primarily driven by realized losses from the sale of fixed maturity securities, while net investment losses from the first quarter of 2021 were driven by credit losses related to United States corporate fixed maturity securities and realized losses from sales.
Other income primarily includes underwriting fee revenue charged on a per-unit or per-diem basis, as defined in the underwriting agreement. Other income decreased primarily due to lower contract underwriting revenue.
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Losses and expenses
Losses incurred during the first quarter of 2022 decreased largely due to development related to performance of delinquencies from 2020, as we experienced better than expected cures on loans impacted by COVID-19, resulting in a $50 million reserve release. Current period primary delinquencies of 8,724 contributed $39 million of loss expense in the three months ended March 31, 2022. This compares to $44 million of loss expense from 10,053 current period primary delinquencies in the first quarter of 2021. In the period year, we strengthened reserves on pre-COVID-19 delinquencies.
The following table shows incurred losses related to current and prior accident years for the three months ended March 31,:
(Amounts in thousands)20222021
Losses and LAE incurred related to current accident year$41,274 $45,064 
Losses and LAE incurred related to prior accident years(51,707)10,321 
Total incurred (1)
$(10,433)$55,385 
_______________
(1)Excludes run-off business.
Acquisition and operating expenses, net of deferrals, decreased modestly in the three months ended March 31, 2022, as a result of lower costs allocated by our Parent, partially offset by higher general and administrative expenses.
The expense ratio remained flat as premiums and expenses both declined slightly in the current quarter.
Interest expense relates to our 2025 Senior Notes. For additional details see Note 7 to our unaudited condensed consolidated financial statements for the three months ended March 31, 2022 and 2021.
Provision for income taxes
The effective tax rate was 21.6% and 21.3% for the three months ended March 31, 2022 and 2021, respectively, consistent with the United States corporate federal income tax rate.

Use of Non-GAAP Measures
We use a non-U.S. GAAP (“non-GAAP”) financial measure entitled “adjusted operating income.” This non-GAAP financial measure aligns with the way our business performance is evaluated by both management and by our Board of Directors. This measure has been established in order to increase transparency for the purposes of evaluating our core operating trends and enabling more meaningful comparisons with our peers. Although “adjusted operating income” is a non-GAAP financial measure, for the reasons discussed above we believe this measure aids in understanding the underlying performance of our operations. Our senior management, including our chief operating decision maker (who is our Chief Executive Officer), uses “adjusted operating income” as the primary measure to evaluate the fundamental financial performance of our business and to allocate resources.
“Adjusted operating income” is defined as U.S. GAAP net income excluding the effects of (i) net investment gains (losses), (ii) change in fair value of unconsolidated affiliate and (iii) restructuring costs and infrequent or unusual non-operating items.
(i)Net investment gains (losses)—The recognition of realized investment gains or losses can vary significantly across periods as the activity is highly discretionary based on the timing of individual securities sales due to such factors as market opportunities or exposure management. Trends in the profitability of our fundamental operating activities can be more clearly identified without the
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fluctuations of these realized gains and losses. We do not view them to be indicative of our fundamental operating activities. Therefore, these items are excluded from our calculation of adjusted operating income.
(ii)Restructuring costs and infrequent or unusual non-operating items are also excluded from adjusted operating income if, in our opinion, they are not indicative of overall operating trends.
In reporting non-GAAP measures in the future, we may make other adjustments for expenses and gains we do not consider reflective of core operating performance in a particular period. We may disclose other non-GAAP operating measures if we believe that such a presentation would be helpful for investors to evaluate our operating condition by including additional information.
Adjusted operating income is not a measure of total profitability, and therefore should not be considered in isolation or viewed as a substitute for U.S. GAAP net income. Our definition of adjusted operating income may not be comparable to similarly named measures reported by other companies, including our peers.
Adjustments to reconcile net income to adjusted operating income assume a 21% tax rate (unless otherwise indicated).
The following table includes a reconciliation of net income to adjusted operating income for the periods indicated:
Three months ended
March 31,
(Amounts in thousands)20222021
Net income$164,630 $125,131 
Adjustments to net income:
Net investment (gains) losses339 956 
Costs associated with reorganization222 — 
Taxes on adjustments(118)(201)
Adjusted operating income$165,073 $125,886 
Adjusted operating income increased for the three months ended March 31, 2022, as compared to March 31, 2021, primarily from decreased losses, partially offset by lower premiums.

Key Metrics
Management reviews the key metrics included within this section when analyzing the performance of our business. The metrics provided in this section exclude activity related to our run-off business, which is immaterial to our consolidated results.
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The following table sets forth selected operating performance measures on a primary basis as of or for the three months ended March 31,:
(Dollar amounts in millions)20222021
New insurance written$18,823$24,934
Primary insurance in-force(1)
$231,853$210,187
Primary risk in-force$58,295$52,866
Persistency rate76 %56 %
Policies in-force (count)941,689922,186
Delinquent loans (count)22,57141,332
Delinquency rate2.40 %4.48 %
_______________
(1)Represents the aggregate unpaid principal balance for loans we insure. Original loan balances are primarily used to determine premiums.
New insurance written (“NIW”)
NIW for the three months ended March 31, 2022 decreased 25% compared to the three months ended March 31, 2021, primarily due to lower mortgage refinancing originations in the current period. We manage the quality of new business through pricing and our underwriting guidelines, which we modify from time to time as circumstances warrant.
The following table presents NIW by product for the periods indicated:
Three months ended
March 31,
(Amounts in millions)20222021
Primary$18,823 100 %$24,934 100 %
Pool— — — — 
Total$18,823 100 %$24,934 100 %
The following table presents primary NIW by underlying type of mortgage for the periods indicated:
Three months ended
March 31,
(Amounts in millions)20222021
Purchases$17,326 92 %$15,500 62 %
Refinances1,497 9,434 38 
Total$18,823 100 %$24,934 100 %




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The following table presents primary NIW by policy payment type for the periods indicated:
Three months ended
March 31,
(Amounts in millions)20222021
Monthly$17,071 91 %$23,358 94 %
Single1,690 1,446 
Other62 — 130 — 
Total$18,823 100 %$24,934 100 %
The following table presents primary NIW by FICO score for the periods indicated:
Three months ended
March 31,
(Amounts in millions)20222021
Over 760$8,359 45 %$10,520 42 %
740-7593,08516 3,83615 
720-7392,51513 3,42314 
700-7191,95210 2,97912 
680-6991,3162,48010 
660-679 (1)
931983
640-659486511
620-639173202
<620— — — 
Total$18,823 100 %$24,934 100 %
______________
(1)Loans with unknown FICO scores are included in the 660-679 category.
LTV ratio is calculated by dividing the original loan amount, excluding financed premium, by the property’s acquisition value or fair market value at the time of origination. The following table presents primary NIW by LTV ratio for the periods indicated:
Three months ended
March 31,
(Amounts in millions)20222021
95.01% and above$3,146 17 %$2,241 %
90.01% to 95.00%6,68235 9,45338 
85.01% to 90.00%5,62030 8,39234 
85.00% and below3,37518 4,84819 
Total$18,823 100 %$24,934 100 %
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DTI ratio is calculated by dividing the borrower’s total monthly debt obligations by total monthly gross income. The following table presents primary NIW by DTI ratio for the periods indicated:
Three months ended
March 31,
(Amounts in millions)20222021
45.01% and above$4,452 24 %$2,566 10 %
38.01% to 45.00%6,36134 8,74635 
38.00% and below8,01042 13,62255 
Total$18,823 100 %$24,934 100 %
Insurance in-force (“IIF”) and Risk in-force (“RIF”)
IIF increased as a result of NIW. Higher interest rates and the declining refinance market led to lower lapse and cancellations during the first quarter of 2022 driving increased persistency. Primary persistency was 76% and 56% for the three months ended March 31, 2022 and 2021, respectively. RIF increased primarily as a result of higher IIF.
The following table sets forth IIF and RIF as of the dates indicated:
(Amounts in millions)March 31, 2022December 31, 2021March 31, 2021
Primary IIF$231,853 100 %$226,514 100 %$210,187 100 %
Pool IIF600 — 641 — 841 — 
Total IIF$232,453 100 %$227,155 100 %$211,028 100 %
Primary RIF$58,295 100 %$56,881 100 %$52,866 100 %
Pool RIF97 — 105 — 134 — 
Total RIF$58,392 100 %$56,986 100 %$53,000 100 %

The following table sets forth primary IIF and primary RIF by origination as of the dates indicated:
(Amounts in millions)March 31, 2022December 31, 2021March 31, 2021
Purchases IIF$184,080 79 %$176,550 78 %$156,298 74 %
Refinances IIF47,773 21 49,964 22 53,889 26 
Total IIF$231,853 100 %$226,514 100 %$210,187 100 %
Purchases RIF$48,326 83 %$46,470 82 %$41,396 78 %
Refinances RIF9,969 17 10,411 18 11,470 22 
Total RIF$58,295 100 %$56,881 100 %$52,866 100 %






38





The following table sets forth primary IIF and primary RIF by product as of the dates indicated:
(Amounts in millions)March 31, 2022December 31, 2021March 31, 2021
Monthly IIF$200,304 86 %$194,826 86 %$177,126 84 %
Single IIF29,198 13 29,205 13 29,653 14 
Other IIF2,351 2,483 3,408 
Total IIF$231,853 100 %$226,514 100 %$210,187 100 %
Monthly RIF$51,153 88 %$49,614 87 %$45,009 85 %
Single RIF6,561 11 6,658 12 7,049 13 
Other RIF581 609 808 
Total RIF$58,295 100 %$56,881 100 %$52,866 100 %

The following table sets forth primary IIF by policy year as of the dates indicated:
(Amounts in millions)March 31, 2022December 31, 2021March 31, 2021
2008 and prior$7,723 %$8,196 %$10,500 %
2009 to 20142,946 3,369 5,570 
20153,960 4,488 6,729 
20168,076 8,997 13,213 
20178,023 8,962 13,817 
20188,306 9,263 14,618 
201919,609 21,730 10 33,430 16 
202065,807 28 69,963 31 87,599 42 
202188,757 38 91,546 40 24,711 12 
202218,646 — — — 
Total$231,853 100 %$226,514 100 %$210,187 100 %
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The following table sets forth primary RIF by policy year as of the dates indicated:
(Amounts in millions)March 31, 2022December 31, 2021March 31, 2021
2008 and prior$1,991 %$2,112 %$2,705 %
2009 to 2014788 904 1,510 
20151,058 1,197 1,795 
20162,147 2,388 3,503 
20172,094 2,324 3,556 
20182,092 2,330 3,671 
20194,935 5,454 10 8,361 16 
202016,606 28 17,574 31 21,787 41 
202121,959 38 22,598 40 5,978 11 
20224,625 — — — 
Total$58,295 100 %$56,881 100 %$52,866 100 %

The following table presents the development of primary IIF for the periods indicated:
Three months ended
March 31,
(Amounts in millions)20222021
Beginning balance$226,514 $207,947 
NIW18,823 24,934 
Cancellations, principal repayments and other reductions (1)
(13,484)(22,694)
Ending balance$231,853 $210,187 
______________
(1)Includes the estimated amortization of unpaid principal balance of covered loans
The following table sets forth primary IIF by LTV ratio at origination as of the dates indicated:
(Amounts in millions)March 31, 2022December 31, 2021March 31, 2021
95.01% and above$36,867 16 %$35,455 16 %$33,757 16 %
90.01% to 95.00%96,419 42 95,149 42 92,124 44 
85.01% to 90.00%66,226 28 64,549 28 58,098 28 
85.00% and below32,341 14 31,361 14 26,208 12 
Total$231,853 100 %$226,514 100 %$210,187 100 %
The following table sets forth primary RIF by LTV ratio at origination as of the dates indicated:
(Amounts in millions)March 31, 2022December 31, 2021March 31, 2021
95.01% and above$10,379 18 %$9,907 17 %$9,151 17 %
90.01% to 95.00%27,987 48 27,608 49 26,637 51 
85.01% to 90.00%16,082 27 15,644 27 13,997 26 
85.00% and below3,847 3,722 3,081 
Total$58,295 100 %$56,881 100 %$52,866 100 %
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The following table sets forth primary IIF by FICO score at origination as of the dates indicated:
(Amounts in millions)March 31, 2022December 31, 2021March 31, 2021
Over 760$93,222 40 %$89,982 40 %$79,285 38 %
740-75936,821 16 35,874 16 33,607 16 
720-73932,363 14 31,730 14 30,295 14 
700-71927,620 12 27,359 12 26,309 13 
680-69921,259 21,270 20,777 10 
660-679 (1)
10,805 10,549 10,001 
640-6596,188 6,124 5,981 
620-6392,774 2,783 2,893 
<620801 — 843 — 1,039 — 
Total$231,853 100 %$226,514 100 %$210,187 100 %
______________
(1)Loans with unknown FICO scores are included in the 660-679 category.
The following table sets forth primary RIF by FICO score at origination as of the dates indicated:
(Amounts in millions)March 31, 2022December 31, 2021March 31, 2021
Over 760$23,326 40 %$22,489 40 %$19,829 37 %
740-7599,267 16 9,009 16 8,442 16 
720-7398,224 14 8,055 14 7,715 15 
700-7196,974 12 6,907 12 6,678 13 
680-6995,334 5,334 5,231 10 
660-679 (1)
2,715 2,638 2,484 
640-6591,550 1,530 1,485 
620-639699 702 734 
<620206 — 217 — 268 — 
Total$58,295 100 %$56,881 100 %$52,866 100 %
______________
(1)Loans with unknown FICO scores are included in the 660-679 category.
The following table sets forth primary IIF by DTI score at origination as of the dates indicated:
(Amounts in millions)March 31, 2022December 31, 2021March 31, 2021
45.01% and above$36,428 16 %$34,076 15 %$30,225 14 %
38.01% to 45.00%80,741 35 79,147 35 74,674 36 
38.00% and below114,684 49 113,291 50 105,288 50 
Total$231,853 100 %$226,514 100 %$210,187 100 %
The following table sets forth primary RIF by DTI score at origination as of the dates indicated:
(Amounts in millions)March 31, 2022December 31, 2021March 31, 2021
45.01% and above$9,227 16 %$8,631 15 %$7,643 14 %
38.01% to 45.00%20,392 35 19,974 35 18,888 36 
38.00% and below28,676 49 28,276 50 26,335 50 
Total$58,295 100 %$56,881 100 %$52,866 100 %
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Delinquent loans and claims
Our delinquency management process begins with notification by the loan servicer of a delinquency on an insured loan. “Delinquency” is defined in our master policies as the borrower’s failure to pay when due an amount equal to the scheduled monthly mortgage payment under the terms of the mortgage. Generally, the master policies require an insured to notify us of a delinquency if the borrower fails to make two consecutive monthly mortgage payments prior to the due date of the next mortgage payment. We generally consider a loan to be delinquent and establish required reserves after the insured notifies us that the borrower has failed to make two scheduled mortgage payments. Borrowers may cure delinquencies by making all of the delinquent loan payments, agreeing to a loan modification, or by selling the property in full satisfaction of all amounts due under the mortgage. In most cases, delinquencies that are not cured result in a claim under our policy.
The following table shows a roll forward of the number of primary loans in default for the periods indicated:
Three months ended
March 31,
(Loan count)20222021
Number of delinquencies, beginning of period24,820 44,904 
New defaults8,724 10,053 
Cures(10,860)(13,478)
Claims paid(107)(134)
Rescissions and claim denials(6)(13)
Number of delinquencies, end of period22,571 41,332 
The following table sets forth changes in our direct primary case loss reserves for the periods indicated:
Three months ended
March 31,
(Amounts in thousands) (1)
20222021
Loss reserves, beginning of period$606,102 $516,863 
Claims paid(5,617)(5,933)
Change in reserve(9,977)53,278 
Loss reserves, end of period$590,508 $564,208 
______________
(1)Direct primary case reserves exclude LAE, IBNR and reinsurance reserves.
The following tables set forth primary delinquencies, direct case reserves and RIF by aged missed payment status as of the dates indicated:
 March 31, 2022
(Dollar amounts in millions)Delinquencies
Direct case
reserves (1)
Risk
in-force
Reserves as % of risk in-force
Payments in default:   
3 payments or less6,837 $38 $359 11 %
4 - 11 payments6,875 115 392 29 %
12 payments or more8,859 438 515 85 %
Total22,571 $591 $1,266 47 %
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December 31, 2021
(Dollar amounts in millions)Delinquencies
Direct case
reserves (1)
Risk
in-force
Reserves as % of risk in-force
Payments in default:   
3 payments or less6,586 $35 $340 10 %
4 - 11 payments7,360 111 426 26 %
12 payments or more10,874 460 643 72 %
Total24,820 $606 $1,409 43 %
 March 31, 2021
(Dollar amounts in millions)Delinquencies
Direct case
reserves (1)
Risk
in-force
Reserves as % of risk in-force
Payments in default:    
3 payments or less8,296 $40 $436 %
4 - 11 payments21,011 227 1,232 18 %
12 payments or more12,025 297 724 41 %
Total41,332 $564 $2,392 24 %
______________
(1)Direct primary case reserves exclude loss adjustment expenses, incurred but not reported and reinsurance reserves.
The total increase in reserves as a percentage of RIF as of March 31, 2022 compared to December 31, 2021 was primarily driven by the decrease in delinquent RIF. Delinquent RIF decreased mainly due to lower total delinquencies as cures outpaced new delinquencies in the first three months of 2022, while reserves decreased due to our reserve release. While the number of loans that are delinquent for 12 months or more has decreased since December 31, 2021, it remains elevated compared to pre-COVID-19 levels due, in large part, to borrowers entering a forbearance plan over a year ago driven by COVID-19.
Resolution of a delinquency in a forbearance plan, whether it ultimately results in a cure or a claim, remains difficult to estimate and may not be known for several quarters, if not longer. In addition, due to foreclosure moratoriums and the uncertainty around the lack of progression through the foreclosure process there is still uncertainty around the likelihood and timing of delinquencies going to claim.
Primary insurance delinquency rates differ from region to region in the United States at any one time depending upon economic conditions and cyclical growth patterns. Delinquency rates are shown by region based upon the location of the underlying property, rather than the location of the lender.
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The table below sets forth our primary delinquency rates for the ten largest states by our primary RIF as of March 31, 2022:
 Percent of RIF
Percent of direct
primary case
reserves
Delinquency
rate
By State:  
California11 %11 %2.75 %
Texas2.51 %
Florida (1)
2.51 %
New York12 3.51 %
Illinois2.85 %
Michigan1.87 %
Arizona1.92 %
North Carolina1.96 %
Pennsylvania2.30 %
Washington2.68 %
All other states (2)
46 41 2.25 %
Total100 %100 %2.40 %
______________
(1)Jurisdiction predominantly uses a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.
(2)Includes the District of Columbia.
The table below sets forth our primary delinquency rates for the ten largest states by our primary RIF as of December 31, 2021:
 Percent of RIF
Percent of direct
primary case
reserves
Delinquency
rate
By State:   
California11 %12 %3.17 %
Texas2.89 %
Florida (1)
2.97 %
New York (1)
12 3.80 %
Illinois (1)
3.09 %
Michigan1.87 %
Arizona2.31 %
North Carolina (1)
2.18 %
Pennsylvania2.38 %
Washington2.98 %
All other states (2)
47 41 2.46 %
Total100 %100 %2.65 %
______________
(1)Jurisdiction predominantly uses a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.
(2)Includes the District of Columbia.
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The table below sets forth our primary delinquency rates for the ten largest Metropolitan Statistical Areas (“MSA”) or Metro Divisions (“MD”) by our primary RIF as of March 31, 2022:
 Percent of RIFPercent of direct primary case reserves
Delinquency
rate
By MSA or MD:
Chicago-Naperville, IL MD%%3.39 %
Phoenix, AZ MSA1.92 %
New York, NY MD4.68 %
Atlanta, GA MSA2.92 %
Washington-Arlington, DC MD2.50 %
Houston, TX MSA3.20 %
Riverside-San Bernardino CA MSA3.05 %
Los Angeles-Long Beach, CA MD3.22 %
Dallas, TX MD2.04 %
Nassau County, NY MD5.02 %
All Other MSAs/MDs77 67 2.23 %
Total100 %100 %2.40 %
The table below sets forth our primary delinquency rates for the ten largest MSAs or MDs by our primary RIF as of December 31, 2021:
 Percent of RIFPercent of direct primary case reservesDelinquency
rate
By MSA or MD:   
Chicago-Naperville, IL MD%%3.68 %
Phoenix, AZ MSA2.36 %
New York, NY MD5.32 %
Atlanta, GA MSA3.28 %
Washington-Arlington, DC MD2.96 %
Houston, TX MSA3.61 %
Riverside-San Bernardino CA MSA3.42 %
Los Angeles-Long Beach, CA MD3.95 %
Dallas, TX MD2.31 %
Nassau County, NY MD5.55 %
All Other MSAs/MDs77 67 2.44 %
Total100 %100 %2.65 %
The frequency of delinquencies may not correlate directly with the number of claims received because delinquencies may cure. The rate at which delinquencies cure is influenced by borrowers’ financial resources and circumstances and regional economic differences. Whether a delinquency leads to a claim correlates highly with the borrower’s equity at the time of delinquency, as it influences the borrower’s willingness to continue to make payments, the borrower’s or the insured’s ability to sell the home for an amount sufficient to satisfy all amounts due under the mortgage loan and the borrower’s financial ability to continue making payments. When we receive notice of a delinquency, we use our proprietary model to determine whether a delinquent loan is a candidate for a modification. When our model identifies such a candidate, our loan workout specialists prioritize cases for loss mitigation based upon the likelihood that the loan will result in a claim. Loss mitigation actions include loan modification,
45


extension of credit to bring a loan current, foreclosure forbearance, pre-foreclosure sale and deed-in-lieu. These loss mitigation efforts often are an effective way to reduce our claim exposure and ultimate payouts.
The following table sets forth the dispersion of primary RIF and direct primary case reserves by policy year and delinquency rates as of March 31, 2022:
 
Percent
of RIF
Percent of direct
primary case
reserves
Delinquency
rate
Cumulative
delinquency
rate (1)
Policy Year:    
2008 and prior%25 %10.41 %5.59 %
2009-20145.34 %0.77 %
20154.06 %0.92 %
20163.48 %1.02 %
201710 4.43 %1.34 %
201812 5.48 %1.60 %
201917 3.44 %1.37 %
202028 15 1.49 %1.08 %
202138 0.58 %0.55 %
20220.04 %0.04 %
Total portfolio100 %100 %2.40 %4.36 %
______________
(1)Calculated as the sum of the number of policies where claims were ever paid to date and number of policies for loans currently in default divided by policies ever in-force.
The following table sets forth the dispersion of primary RIF and loss reserves by policy year and delinquency rates as of December 31, 2021:
 
Percent
of RIF
Percent of direct
primary case
reserves
Delinquency
rate
Cumulative
delinquency
rate (1)
Policy Year:    
2008 and prior%24 %10.54 %5.59 %
2009 to 20135.54 %0.74 %
20145.51 %0.99 %
20154.24 %1.04 %
20163.69 %1.16 %
201710 4.78 %1.56 %
201813 5.93 %1.88 %
201910 19 3.89 %1.68 %
202031 14 1.50 %1.14 %
202140 0.37 %0.36 %
Total portfolio100 %100 %2.65 %4.42 %
______________
(1)Calculated as the sum of the number of policies where claims were ever paid to date and number of policies for loans currently in default divided by policies ever in-force.
46


Loss reserves in policy years in 2008 and prior are outsized compared to their representation of RIF. The size of these policy years at origination combined with the significant decline in home prices led to significant losses in these policy years. Although uncertainty remains with respect to the ultimate losses we will experience on these policy years, they have become a smaller percentage of our total mortgage insurance portfolio. The largest portion of loss reserves has shifted to newer book years as a result of COVID-19 given their significant representation of RIF. As of March 31, 2022, our 2015 and newer policy years represented approximately 96% of our primary RIF and 70% of our total direct primary case reserves.
Investment Portfolio
Our investment portfolio is affected by factors described below, each of which in turn may be affected by COVID-19 as noted above in “—Trends and Conditions.” Management of our investment portfolio has been delegated to our Parent’s investment committee and chief investment officer. Our Parent’s investment team, with oversight from our Board of Directors and our senior management team, is responsible for the execution of our investment strategy. Our investment portfolio is an important component of our consolidated financial results and represents our primary source of claims paying resources. Our investment portfolio primarily consists of a diverse mix of highly rated fixed income securities and is designed to achieve the following objectives:
Meet policyholder obligations through maintenance of sufficient liquidity;
Preserve capital;
Generate investment income;
Maximize statutory capital; and
Increase shareholder value, among other objectives.
To achieve our portfolio objectives, our investment strategy focuses primarily on:
Our business outlook, current and expected future investment conditions;
Investments selection based on fundamental, research-driven strategies;
Diversification across a mix of fixed income, low-volatility investments while actively pursuing strategies to enhance yield;
Regular evaluation and optimization of our asset class mix;
Continuous monitoring of investment quality, duration, and liquidity;
Regulatory capital requirements; and
Restriction of investments correlated to the residential mortgage market.
47


Fixed Maturity Securities Available-for-Sale
The following table presents the fair value of our fixed maturity securities available-for-sale as of the dates indicated:
 March 31, 2022December 31, 2021
(Amounts in thousands)Fair value
% of
total
Fair value
% of
total
U.S. government, agencies and government-sponsored enterprises$56,751 %$58,408 %
State and political subdivisions508,391 10 538,453 10 
Non-U.S. government21,529 — 22,416 
U.S. corporate2,882,497 57 2,945,303 56 
Non-U.S. corporate629,795 12 666,594 13 
Other asset-backed994,121 20 1,035,165 20 
Total available-for-sale fixed maturity securities
$5,093,084 100 %$5,266,339 100 %
Our investment portfolio did not include any direct residential real estate or whole mortgage loans as of March 31, 2022 or December 31, 2021. We have no derivative financial instruments in our investment portfolio.
As of March 31, 2022, and December 31, 2021, 97% of our investment portfolio was rated investment grade, respectively. The following table presents the security ratings of our fixed maturity securities as of the dates indicated:
 March 31, 2022December 31, 2021
AAA%%
AA16 17 
A34 34 
BBB38 37 
BB & below
Total
100 %100 %
The table below presents the effective duration and investment yield on our investments available-for-sale, excluding cash and cash equivalents as of the dates indicated:
 March 31, 2022December 31, 2021
Duration (in years)3.83.9
Pre-tax yield (% of average investment portfolio assets)2.7 %2.7 %
We manage credit risk by analyzing issuers, transaction structures and any associated collateral. We also manage credit risk through country, industry, sector and issuer diversification and prudent asset allocation practices.
We primarily mitigate interest rate risk by employing a buy and hold investment philosophy that seeks to match fixed income maturities with expected liability cash flows in modestly adverse economic scenarios.
48


Liquidity and Capital Resources
Cash Flows
The following table summarizes our consolidated cash flows for the periods indicated:
Three months ended
March 31,
(Amounts in thousands)20222021
Net cash provided by (used in): 
Operating activities$160,800 $127,028 
Investing activities(146,497)(148,487)
Financing activities— — 
Effect of exchange rate changes on cash and cash equivalents29  
Net increase (decrease) in cash and cash equivalents$14,332 $(21,459)
Our most significant source of operating cash flows is from premiums received from our insurance policies, while our most significant uses of operating cash flows are generally for claims paid on our insured policies and our operating expenses. Net cash from operating activities increased due to timing of tax payments made to our Parent and lower unearned premium declines from cancelled single premium policies.
Investing activities are primarily related to purchases, sales, and maturities of our investment portfolio. Net cash used by investing activities decreased slightly as a result of lower net purchases of fixed maturity securities in the current year.
There were no dividends paid or other financing activity during the three months ended March 31, 2022. The amount and timing of future dividends is discussed within “—Trends and Conditions” as well as below.
Capital Resources and Financing Activities
We issued our 2025 Senior Notes in 2020 with interest payable semi-annually in arrears on February 15 and August 15 of each year. The 2025 Senior Notes mature on August 15, 2025. We may redeem the 2025 Senior Notes, in whole or in part, at any time prior to February 15, 2025, at our option, by paying a make-whole premium, plus accrued and unpaid interest, if any. At any time on or after February 15, 2025, we may redeem the 2025 Senior Notes, in whole or in part, at our option, at 100% of the principal amount, plus accrued and unpaid interest. The 2025 Senior Notes contain customary events of default, which subject to certain notice and cure conditions, can result in the acceleration of the principal and accrued interest on the outstanding 2025 Senior Notes if we breach the terms of the indenture.
Pursuant to the GSE Restrictions, we were required to retain $300 million of the net proceeds from the 2025 Senior Notes offering that can be drawn down exclusively for our debt service or to contribute to EMICO to meet its regulatory capital needs including PMIERs. The current balance of the 2025 Senior Notes proceeds required to be held by our holding company is approximately $228 million. See “—Trends and Conditions” for additional information regarding the GSE Restrictions.
Restrictions on the Payment of Dividends
The ability of our regulated insurance operating subsidiaries to pay dividends and distributions to us is restricted by certain provisions of North Carolina insurance laws. Our insurance subsidiaries may pay dividends only from unassigned surplus; payments made from sources other than unassigned surplus, such as paid-in and contributed surplus, are categorized as distributions. Notice of all dividends must be submitted to the Commissioner of the NCDOI (the “Commissioner”) within 5 business days after declaration of the dividend or distribution, and at least 30 days before payment thereof. No dividend may
49


be paid until 30 days after the Commissioner has received notice of the declaration thereof and (i) has not within that period disapproved the payment or (ii) has approved the payment within the 30-day period. Any distribution, regardless of amount, requires that same 30-day notice to the Commissioner, but also requires the Commissioner’s affirmative approval before being paid. Based on our estimated statutory results and in accordance with applicable dividend restrictions, EMICO has the capacity to pay dividends from unassigned surplus of $110 million as of March 31, 2022, with 30 day advance notice to the Commissioner of the intent to pay. In addition to dividends and distributions, alternative mechanisms, such as share repurchases, subject to any requisite regulatory approvals, may be utilized from time to time to upstream surplus.
In addition, we review multiple other considerations in parallel to determine a prospective dividend strategy for our regulated insurance operating subsidiaries. Given the regulatory focus on the reasonableness of an insurer’s surplus in relation to its outstanding liabilities and the adequacy of its surplus relative to its financial needs for any dividend, our insurance subsidiaries consider the minimum amount of policyholder surplus after giving effect to any contemplated future dividends. Regulatory minimum policyholder surplus is not codified in North Carolina law and limitations may vary based on prevailing business conditions including, but not limited to, the prevailing and future macroeconomic conditions. We estimate regulators would require a minimum policyholder surplus of approximately $300 million to meet their threshold standard. Given (i) we are subject to statutory accounting requirements that establish a contingency reserve of at least 50% of net earned premiums annually for ten years, after which time it is released into policyholder surplus and (ii) that no material 10-year contingency reserve releases are scheduled before 2024, we expect modest growth in policyholder surplus through 2024. As a result, minimum policyholder surplus could be a limitation on the future dividends of our regulated operating subsidiaries.
Another consideration in the development of the dividend strategies for our regulated insurance operating subsidiaries is our expected level of compliance with PMIERs. Prior to the satisfaction of the GSE Conditions, the GSE Restrictions also require EMICO to maintain 120% of PMIERs Minimum Required Assets through 2022, and 125% thereafter. In addition, under PMIERs, EMICO is subject to other operational and financial requirements that approved insurers must meet in order to remain eligible to insure loans purchased by the GSEs. Refer to “—Trends and Conditions” for recent updates related to these requirements.
Our regulated insurance operating subsidiaries are also subject to statutory “risk-to-capital” (“RTC”) requirements that affect the dividend strategies of our regulated operating subsidiaries. EMICO’s domiciliary regulator, the NCDOI, requires the maintenance of a statutory RTC ratio not to exceed 25:1. See “—Risk-to-Capital Ratio” for additional RTC trend analysis.
We consider potential future dividends compared to the prior year statutory net income in the evaluation of dividend strategies for our regulated operating subsidiaries. We also consider the dividend payout ratio, or the ratio of potential future dividends compared to the estimated U.S. GAAP net income, in the evaluation of our dividend strategies. In either case, we do not have prescribed target or maximum thresholds, but we do evaluate the reasonableness of a potential dividend relative to the actual or estimated income generated in the proceeding or preceding calendar year after giving consideration to prevailing business conditions including, but not limited to the prevailing and future macroeconomic conditions. In addition, the dividend strategies of our regulated operating subsidiaries are made in consultation with our Parent.
In April 2022, EMICO completed a distribution of approximately $242 million to EHI that will support our ability to pay a quarterly dividend. We intend to use these proceeds and future EMICO distributions to fund a quarterly dividend as well as to bolster our financial flexibility at EHI and return additional capital to shareholders. All future dividends from EHI will be subject to Parent consent and EHI Board of Directors approval.
50


Risk-to-Capital Ratio
We compute our RTC ratio on a separate company statutory basis, as well as for our combined insurance operations. The RTC ratio is net RIF divided by policyholders’ surplus plus statutory contingency reserve. Our net RIF represents RIF, net of reinsurance ceded, and excludes risk on policies that are currently delinquent and for which loss reserves have been established. Statutory capital consists primarily of statutory policyholders’ surplus (which increases as a result of statutory net income and decreases as a result of statutory net loss and dividends paid), plus the statutory contingency reserve. The statutory contingency reserve is reported as a liability on the statutory balance sheet.
Certain states have insurance laws or regulations that require a mortgage insurer to maintain a minimum amount of statutory capital (including the statutory contingency reserve) relative to its level of RIF in order for the mortgage insurer to continue to write new business. While formulations of minimum capital vary in certain states, the most common measure applied allows for a maximum permitted RTC ratio of 25:1.
The following table presents the calculation of our RTC ratio for our combined insurance subsidiaries as of the dates indicated:
(Dollar amounts in millions)March 31, 2022December 31, 2021
Statutory policyholders’ surplus$1,438 $1,397 
Contingency reserves3,168 3,042 
Combined statutory capital$4,606 $4,439 
Adjusted RIF(1)
$55,512 $54,201 
Combined risk-to-capital ratio12.112.2
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(1)Adjusted RIF for purposes of calculating combined statutory RTC differs from RIF presented elsewhere in this periodic report. In accordance with NCDOI requirements, adjusted RIF excludes delinquent policies.
The following table presents the calculation of our RTC ratio for our principal insurance company, EMICO, as of the dates indicated:
(Dollar amounts in millions)March 31, 2022December 31, 2021
Statutory policyholders’ surplus$1,386 $1,346 
Contingency reserves3,167 3,041 
EMICO statutory capital$4,553 $4,387 
Adjusted RIF(1)
$55,321 $54,033 
EMICO risk-to-capital ratio12.2 12.3
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(1)Adjusted RIF for purposes of calculating EMICO statutory RTC differs from RIF presented elsewhere herein. In accordance with NCDOI requirements, adjusted RIF excludes delinquent policies.
Liquidity
As of March 31, 2022, we maintained liquidity in the form of cash and cash equivalents of $440 million compared to $426 million as of December 31, 2021, and we also held significant levels of investment-grade fixed maturity securities that can be monetized should our cash and cash equivalents be insufficient to meet our obligations. On August 21, 2020, we issued the 2025 Senior Notes. The GSE Restrictions required us to retain $300 million of the net 2025 Senior Notes proceeds that can be drawn down exclusively for our debt service or to contribute to EMICO to meet its regulatory capital needs including PMIERs, until the GSE Conditions are satisfied. See “—Trends and Conditions” for additional details. We distributed $437 million of the net proceeds to Genworth Holdings at the closing of the offering of our 2025 Senior Notes. The 2025 Senior Notes were issued to persons reasonably believed to be qualified institutional buyers in a private offering exempt from registration pursuant to Rule 144A under
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the Securities Act and to non-U.S. persons outside of the United States in compliance with Regulation S under the Securities Act. The current balance of the 2025 Senior Notes proceeds required to be held by our holding company is approximately $228 million.
The principal sources of liquidity in our business currently include insurance premiums, net investment income and cash flows from investment sales and maturities. We believe that the operating cash flows generated by our mortgage insurance subsidiary will provide the funds necessary to satisfy our claim payments, operating expenses and taxes. However, our subsidiaries are subject to regulatory and other capital restrictions with respect to the payment of dividends. As of March 31, 2022, the $300 million of the net proceeds of the 2025 Senior Notes offering retained by EHI comprises substantially all of the cash and cash equivalents held directly by EHI and initially available to pay interest on the 2025 Senior Notes. To the extent the remaining balance of the $300 million of net proceeds retained from the 2025 Senior Notes offering is used to provide capital support to EMICO, the GSEs and the NCDOI may seek to prevent EMICO from returning that capital to EHI in the form of a dividend, distribution or an intercompany loan. We currently have no material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years, other than the 2025 Senior Notes.
Financial Strength Ratings
The following EMICO financial strength ratings have been independently assigned by third-party rating organizations and represent our current ratings, which are subject to change.
Name of AgencyRatingOutlookActionDate of Rating
Moody’s Investor Service, Inc.Baa2StableUpgradeSeptember 24, 2021
Fitch Ratings, Inc.BBB+StableAffirmedApril 27, 2022
S&P Global RatingsBBBPositiveAffirmedMarch 11, 2022
Contractual Obligations and Commitments
Our loss reserves are driven largely by delinquencies from borrower forbearance programs due to COVID-19. We expect a large portion of these delinquencies to cure before becoming an active claim; however, reserves recorded related to borrower forbearance have a high degree of estimation. Therefore, it is possible we could have higher contractual obligations related to these loss reserves if they do not cure as we expect. Other than the aforementioned loss reserves, there have been no material additions or changes to our contractual obligations or other off-balance sheet arrangements as compared to the amounts disclosed within our audited consolidated financial statements for the years ended December 31, 2021 and 2020.
Critical Accounting Estimates
As of the filing date of this report, there were no significant changes in our critical accounting estimates from those discussed in our Annual Report.
New Accounting Standards
Refer to Note 2 in our unaudited condensed consolidated financial statements for the three months ended March 31, 2022 and 2021, and in our audited consolidated financial statements for the years ended December 31, 2021 and 2020, for a discussion of recently adopted and not yet adopted accounting standards.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We own and manage a large investment portfolio of various holdings, types and maturities. Investment income is one of our material sources of revenues and the investment portfolio represents the primary source of cash flows supporting operations and claim payments. The assets within the investment portfolio are exposed to the same factors that affect overall financial market performance. While our investment portfolio is exposed to factors affecting markets worldwide, it is most sensitive to fluctuations in the drivers of United States markets.
We manage market risk via our defined investment policy guidelines implemented by our Parent’s investment team with oversight from our Board of Directors and our senior management. Important drivers of our market risk exposure that we monitor and manage include but are not limited to:
Changes to the level of interest rates. Increasing interest rates may reduce the value of certain fixed-rate bonds held in the investment portfolio. Higher rates may cause variable-rate assets to generate additional income. Decreasing rates will have the reverse impact. Significant changes in interest rates can also affect persistency and claim rates that may require that the investment portfolio be restructured to better align it with future liabilities and claim payments. Such restructuring may cause investments to be liquidated when market conditions are adverse.
Changes to the term structure of interest rates. Rising or falling rates typically change by different amounts along the yield curve. These changes may have unforeseen impacts on the value of certain assets.
Market volatility/changes in the real or perceived credit quality of investments. Deterioration in the quality of investments, identified through changes to our own or third-party (e.g., rating agency) assessments, will reduce the value and potentially the liquidity of investments.
Concentration risk. If the investment portfolio is highly concentrated in one asset, or in multiple assets whose values are highly correlated, the value of the total portfolio may be greatly affected by the change in value of just one asset or a group of highly correlated assets.
Prepayment risk. Bonds may have call provisions that permit debtors to repay prior to maturity when it is to their advantage. This typically occurs when rates fall below the interest rate of the debt.
Market risk is measured for all investment assets at the individual security level. Market risks that are not fully captured by the quantitative analysis and material market risk changes that occur from the last reporting period to the current are discussed within “—Trends and conditions” and “—Investment Portfolio” in “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
At March 31, 2022, the effective duration of our investments available-for-sale was 3.8 years, which means that an instantaneous parallel shift (movement up or down) in the yield curve of 100 basis points would result in a change of 3.8% in fair value of our investments available-for-sale.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of March 31, 2022, an evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2022.
Changes in Internal Control Over Financial Reporting During the Quarter Ended March 31, 2022
There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II. Other Information
Item 1. Legal Proceedings
We are not subject to any pending material legal proceedings.
Item 1A. Risk Factors
We have disclosed within Item 1A in our Annual Report, the risk factors that could have a material adverse effect on our business, results of operations and/or financial condition. There have been no material changes from the risk factors previously disclosed. You should carefully consider the risk factors set forth in the Annual Report and the other information set forth elsewhere in this Form 10-Q. These risk factors and other information may not describe every risk that we face. The occurrence of any additional risks and uncertainties that are currently immaterial or unknown could have a material adverse effect on our business, results of operations and/or financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no sales of unregistered equity securities during the three months ended March 31, 2022.
Item 5. Other Information
On May 3, 2022, EMICO entered into an Investment Management and Services Agreement (the “Agreement”) with Genworth North America Corporation (“Genworth North America”), a subsidiary of Genworth. Pursuant to the Agreement, EMICO has retained Genworth North America to provide investment management and other services for EMICO’s investment portfolio. The Agreement has an initial term of three years, with renewing successive terms of one year unless terminated in writing by either party. The monthly management fee shall be equal to Genworth North America’s costs to provide the services under the Agreement. Historically those costs have amounted to approximately 0.10% to 0.11% of the account assets’ book value. The foregoing description of the Agreement is only a summary and is qualified in its entirety by reference to the full text of the Agreement, which is filed as Exhibit 10.4 to this quarterly filing on Form 10-Q and incorporated by reference herein. The Agreement is filed with this quarterly report on Form 10-Q to provide security holders with information regarding its terms. It is not intended to provide any other factual information about EMICO, Enact, or Genworth. The representations, warranties, and covenants contained in the Agreement were made solely for purposes of such agreement and as of specific dates, are solely for the benefit of the parties to the Agreement, and may be subject to limitations agreed upon by the parties. Security holders should not rely on the representations, warranties, and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of EMICO, Enact, or Genworth. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Agreement, which subsequent information may or may not be fully reflected in Enact’s public disclosures, except to the extent required by law.

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Item 6. Exhibits and Financial Statement Schedules
Exhibit
Number
Description of Exhibit
10.1+
10.2+
10.3
10.4
31.1
31.2
32.1
32.2
101.INSInline XBRL Instance Document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
______________
+      Indicates management contract and compensatory plan
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized.

ENACT HOLDINGS, INC.
(Registrant)
Dated: May 5, 2022
By:/s/ Hardin Dean Mitchell
Hardin Dean Mitchell
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
By:/s/ James McMullen
James McMullen
Vice President, Controller and Principal Accounting Officer

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