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

Enact Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware	46-1579166
(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 class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	ACT	The 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. Yes ☐ No ☒

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). Yes ☒ No ☐

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 filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller 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): Yes ☐ No ☒

As of May 2, 2022, there were 162,842,219 shares of Common Stock, par value $0.01 per share, outstanding.

TABLE OF CONTENTS

	Page
Part I. Financial Information	4
Item 1. Financial Statements	4
Condensed Consolidated Balance Sheets	4
Condensed Consolidated Statements of Income	5
Condensed Consolidated Statements of Comprehensive Income	6
Condensed Consolidated Statements of Changes In Equity	7
Condensed Consolidated Statements of Cash Flows	8
Notes to Condensed Consolidated Financial Statements	9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3. Quantitative and Qualitative Disclosures About Market Risk	53
Item 4. Controls and Procedures	54
Part II. Other Information	55
Item 1. Legal Proceedings	55
Item 1A. Risk Factors	55
Item 2. Recent Sales of Unregistered Securities	55
Item 5. Other Information	55
Item 6. Exhibits	56
Signatures	57

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 equivalents	440,160		425,828
Accrued investment income	32,565		31,061
Deferred acquisition costs	27,000		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 asset	56,060		—
Other assets	103,157		73,059
Total assets	5,792,407		5,865,773
Liabilities and equity
Liabilities:
Loss reserves	625,279		641,325
Unearned premiums	236,410		246,319
Other liabilities	141,125		130,604
Long-term borrowings	741,004		740,416
Deferred tax liability	—		1,586
Total liabilities	1,743,818		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 capital	2,374,568		2,371,861
Accumulated other comprehensive income	(140,690)		83,581
Retained earnings	1,813,083		1,648,453
Total equity	4,048,589		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)	2022		2021
Revenues:
Premiums	$	234,279	$	252,542
Net investment income	35,146		35,259
Net investment losses	(339)		(956)
Other income	502		1,738
Total revenues	269,588		288,583
Losses and expenses:
Losses incurred	(10,446)		55,374
Acquisition and operating expenses, net of deferrals	54,262		57,622
Amortization of deferred acquisition costs and intangibles	3,090		3,838
Interest expense	12,776		12,737
Total losses and expenses	59,682		129,571
Income before income taxes	209,906		159,012
Provision for income taxes	45,276		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:
Basic	162,841		162,840
Diluted	163,054		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)	2022		2021
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 translation	29		—
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)	2022		2021
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 investments	339		956
Amortization of fixed maturity securities discounts and premiums	(961)		(2,845)
Amortization of deferred acquisition costs and intangibles	3,090		3,838
Acquisition costs deferred	(1,629)		(1,777)
Deferred income taxes	2,943		2,349
Stock-based compensation expense	2,715		—
Amortization of debt issuance costs	588		549
Other	(8)		83
Change in certain assets and liabilities:
Accrued investment income	(1,504)		389
Premiums receivable	1,885		4,010
Other assets	2,845		(2,129)
Loss reserves	(16,046)		47,849
Unearned premiums	(9,909)		(26,203)
Other liabilities	11,822		(25,172)
Net cash provided by operating activities	160,800		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-sale	90,422		230,398
Proceeds from maturities of fixed maturity securities available-for-sale	114,211		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 equivalents	29		—
Net decrease in cash and cash equivalents	14,332		(21,459)
Cash and cash equivalents at beginning of period	425,828		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)	2022		2021
Fixed maturity securities available-for-sale	$	36,534	$	36,651
Cash, cash equivalents and short-term investments	10		36
Gross investment income before expenses and fees	36,544		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)	2022		2021
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-sale	173		(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 balance		Cumulative effect of change in accounting		Increase from securities without allowance in previous periods		Securities sold		Ending 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, 2022		December 31, 2021
Net unrealized gains (losses) on investment securities:
Fixed maturity securities	$	(178,724)	$	106,165
Income taxes	38,012		(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)	2022		2021
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 taxes	60,697		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), respectively	404		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 gains		Gross unrealized losses		Fair value
U.S. government, agencies and GSEs	$	56,696	$	322	$	(267)	$	56,751
State and political subdivisions	548,075		4,703		(44,387)		508,391
Non-U.S. government	22,293		—		(764)		21,529
U.S. corporate	2,958,915		22,709		(99,127)		2,882,497
Non-U.S. corporate	654,365		3,232		(27,802)		629,795
Other asset-backed	1,031,464		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 gains		Gross unrealized losses		Fair value
U.S. government, agencies and GSEs	$	56,547	$	1,863	$	(2)	$	58,408
State and political subdivisions	531,927		10,982		(4,456)		538,453
Non-U.S. government	22,358		248		(190)		22,416
U.S. corporate	2,863,100		98,293		(16,090)		2,945,303
Non-U.S. corporate	652,503		17,556		(3,465)		666,594
Other asset-backed	1,033,739		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 more					Total
(Amounts in thousands)	Fair value		Gross unrealized losses		Number of securities	Fair value		Gross unrealized losses		Number of securities	Fair value		Gross unrealized losses		Number of securities
Fixed maturity securities:
U.S. government, agencies and GSEs	$	32,790	$	(260)	10	$	98	$	(7)	1	$	32,888	$	(267)	11
State and political subdivisions	420,551		(42,684)		80	14,755		(1,703)		4	435,306		(44,387)		84
Non-U.S. government	21,529		(764)		2	—		—		—	21,529		(764)		2
U.S. corporate	1,397,388		(77,705)		235	176,407		(21,422)		21	1,573,795		(99,127)		256
Non-U.S. corporate	356,324		(22,716)		65	52,058		(5,086)		6	408,382		(27,802)		71
Other asset-backed	784,348		(35,864)		150	35,196		(2,445)		8	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 more					Total
(Amounts in thousands)	Fair value		Gross unrealized losses		Number of securities	Fair value		Gross unrealized losses		Number of securities	Fair value		Gross unrealized losses		Number of securities
Fixed maturity securities:
U.S. government, agencies and GSEs	$	103	$	(2)	1	$	—	$	—	—	$	103	$	(2)	1
State and political subdivisions	255,202		(4,456)		47	—		—		—	255,202		(4,456)		47
Non-U.S. government	10,560		(190)		1	—		—		—	10,560		(190)		1
U.S. corporate	649,927		(14,300)		94	26,181		(1,790)		4	676,108		(16,090)		98
Non-U.S. corporate	183,485		(3,465)		28	—		—		—	183,485		(3,465)		28
Other asset-backed	456,565		(5,549)		76	3,736		(14)		1	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 years	2,101,730		2,093,613
Due after five years through ten years	1,511,589		1,409,678
Due after ten years	319,948		286,887
Subtotal	4,240,344		4,098,963
Other asset-backed	1,031,464		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.

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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

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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.

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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 value		Primary methodologies	Significant inputs
U.S. government, agencies and GSEs	$	56,751	Price quotes from trading desk, broker feeds	Bid 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 vendors	Trade 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 makers	Benchmark 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 models	Bid 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 makers	Benchmark 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 makers	Spreads 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

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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.

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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)	Total		Level 1		Level 2		Level 3
Fixed maturity securities:
U.S. government, agencies and GSEs	$	56,751	$	—	$	56,751	$	—
State and political subdivisions	508,391		—		508,391		—
Non-U.S. government	21,529		—		21,529		—
U.S. corporate	2,882,497		—		2,639,034		243,463
Non-U.S. corporate	629,795		—		545,377		84,418
Other asset-backed	994,121		—		994,121
Total	$	5,093,084	$	—	$	4,765,203	$	327,881

	December 31, 2021
(Amounts in thousands)	Total		Level 1		Level 2		Level 3
Fixed maturity securities:
U.S. government, agencies and GSEs	$	58,408	$	—	$	58,408	$	—
State and political subdivisions	538,453		—		538,453		—
Non-U.S. government	22,416		—		22,416		—
U.S. corporate	2,945,303		—		2,724,570		220,733
Non-U.S. corporate	666,594		—		582,930		83,664
Other asset-backed	1,035,165		—		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)				Purchases		Settlements		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. corporate	83,664		(84)		(5,337)		10,000		(106)		—		(3,719)		84,418		(84)		(5,044)
Other asset-backed	24,223		—		(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.

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Three Months Ended March 31, 2022 and 2021

(Unaudited)

	Beginning balance as of January 1, 2021		Total realized and unrealized gains (losses)				Purchases		Settlements		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)	$	—	$	—	$