Enact Holdings (ACT)

Mortgage insurance provider Enact Holdings (NASDAQ:ACT) met Wall Streets revenue expectations in Q3 CY2025, but sales were flat year on year at $311.5 million. Its non-GAAP profit of $1.12 per share was 1% above analysts’ consensus estimates.

Company Overview

Playing a critical role in helping first-time homebuyers access the housing market, Enact Holdings (NASDAQ:ACT) provides private mortgage insurance that enables lenders to offer home loans with lower down payments while protecting against borrower defaults.

Property & Casualty (P&C) insurers protect individuals and businesses against financial loss from damage to property or from legal liability. This is a cyclical industry, and the sector benefits when there is 'hard market', characterized by strong premium rate increases that outpace loss and cost inflation, resulting in robust underwriting margins. The opposite is true in a 'soft market'. Interest rates also matter, as they determine the yields earned on fixed-income portfolios. On the other hand, P&C insurers face a major secular headwind from the increasing frequency and severity of catastrophe losses due to climate change. Furthermore, the liability side of the business is pressured by 'social inflation'—the trend of rising litigation costs and larger jury awards.

Enact Holdings competes directly with other private mortgage insurers including Arch Capital Group Ltd., Essent Group Ltd., MGIC Investment Corporation, NMI Holdings, Inc., and Radian Group Inc. The company also faces significant competition from government agencies, particularly the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA), which offer government-backed mortgage insurance programs.

Insurers earn revenue three ways. The core insurance business itself, often called underwriting and represented in the income statement as premiums earned, is one way. Investment income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities is the second way. Fees from various sources such as policy administration, annuities, or other value-added services is the third. Regrettably, Enact Holdings’s revenue grew at a sluggish 2.4% compounded annual growth rate over the last five years. This was below our standards and is a rough starting point for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Enact Holdings’s annualized revenue growth of 3.9% over the last two years is above its five-year trend, but we were still disappointed by the results. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Enact Holdings’s $311.5 million of revenue was flat year on year and in line with Wall Street’s estimates.

Net premiums earned made up 83.7% of the company’s total revenue during the last five years, meaning Enact Holdings barely relies on non-insurance activities to drive its overall growth.

Net premiums earned commands greater market attention due to its reliability and consistency, whereas investment and fee income are often seen as more volatile revenue streams that fluctuate with market conditions.

When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are:

• Gross premiums - what’s ceded to reinsurers as a risk mitigation and transfer strategy

Enact Holdings’s net premiums earned was flat over the last five years, much worse than the broader insurance industry. This shows that policy underwriting underperformed its other business lines.

When analyzing Enact Holdings’s net premiums earned over the last two years, we can see that growth accelerated to 1.6% annually. Since two-year net premiums earned grew slower than total revenue over this period, it’s implied that other line items such as investment income grew at a faster rate. While these supplementary streams affect the bottom line, their contribution can fluctuate. Some firms have been more successful and consistent in investing their float over the long term, but sharp movements in the fixed income and equity markets can play a substantial role in short-term performance.

Enact Holdings’s net premiums earned came in at $244.7 million this quarter, down 1.8% year on year. But this was still enough to meet Wall Street Consensus estimates.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For insurance companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.

The economics of insurers are driven by their balance sheets, where assets (investing the float + premiums receivable) and liabilities (claims to pay) define the fundamentals. Interest income and expense should therefore be factored into the definition of profit but taxes - which are largely out of a company’s control - should not.

Over the last four years, Enact Holdings’s pre-tax profit margin has fallen by 14.5 percentage points, going from 54.4% to 68.9%. However, the company gave back some of its expense savings as its pre-tax profit margin declined by 4.7 percentage points on a two-year basis.

Enact Holdings’s pre-tax profit margin came in at 67.4% this quarter. This result was 6.7 percentage points worse than the same quarter last year.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Enact Holdings’s weak 4.3% annual EPS growth over the last two years aligns with its revenue trend. This tells us it maintained its per-share profitability as it expanded.

In Q3, Enact Holdings reported adjusted EPS of $1.12, down from $1.16 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 1%. Over the next 12 months, Wall Street expects Enact Holdings’s full-year EPS of $4.46 to grow 7.4%.

Insurers are balance sheet businesses, collecting premiums upfront and paying out claims over time. Premiums collected but not yet paid out, often referred to as the float, are invested and create an asset base supported by a liability structure. Book value per share (BVPS) captures this dynamic by measuring these assets (investment portfolio, cash, reinsurance recoverables) less liabilities (claim reserves, debt, future policy benefits). BVPS is essentially the residual value for shareholders.

We therefore consider BVPS very important to track for insurers and a metric that sheds light on business quality because it reflects long-term capital growth and is harder to manipulate than more commonly-used metrics like EPS.

Enact Holdings’s BVPS grew at a solid 9.1% annual clip over the last four years. BVPS growth has also accelerated recently, growing by 14.5% annually over the last two years from $27.86 to $36.53 per share.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

Enact Holdings currently has $744.1 million of debt and $5.32 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 0.1×. We think this is safe and raises no red flags. In general, we’re comfortable with any ratio below 1.0× for an insurance business. Anything below 0.5× is a bonus.

Return on equity (ROE) is a crucial yardstick for insurance companies, measuring their ability to generate returns on the capital provided by shareholders. Insurers that consistently deliver superior ROE tend to create more value for their investors over time through strategic capital allocation and shareholder-friendly policies.

Over the last five years, Enact Holdings has averaged an ROE of 14.4%, healthy for a company operating in a sector where the average shakes out around 12.5% and those putting up 20%+ are greatly admired. This is a bright spot for Enact Holdings.

EPS beat slightly, but other than that, there wasn't much else to get excited about. The stock remained flat at $35.93 immediately following the results.

Updated: December 3, 2025 at 11:42 PM EST

Are you wondering whether to buy Enact Holdings or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Enact Holdings isn’t a terrible business, but it isn’t one of our picks. To kick things off, its revenue growth was weak over the last five years, and analysts don’t see anything changing over the next 12 months. And while its improving combined ratio shows the business has become more productive, the downside is its net premiums earned growth was weak over the last five years. On top of that, its projected EPS for the next year is lacking.

Enact Holdings’s P/B ratio based on the next 12 months is 1x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $40.60 on the company (compared to the current share price of $38.61).