Enact Holdings (ACT)

Mortgage insurance provider Enact Holdings (NASDAQ:ACT) missed Wall Street’s revenue expectations in Q4 CY2025 as sales only rose 1.2% year on year to $312.7 million. Its non-GAAP profit of $1.23 per share was 11.9% 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. Over the last five years, Enact Holdings grew its revenue at a sluggish 2.4% compounded annual growth rate. This was below our standards and is a poor baseline 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 3.4% 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 revenue grew by 1.2% year on year to $312.7 million, falling short of Wall Street’s estimates.

Net premiums earned made up 82.7% 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.

Our experience and research show the market cares primarily about an insurer’s net premiums earned growth as investment and fee income are considered more susceptible to market volatility and economic cycles.

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 paint a similar picture as it recorded an annual growth rate of 1.2%. 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.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For insurance companies, we look at the combined ratio rather than the operating expenses and margins that define sectors such as consumer, tech, and industrials.

The combined ratio is:

• The costs of underwriting (salaries, commissions, overhead) + what an insurer pays out in claims, all divided by net premiums earned

If a company boasts a combined ratio under 100%, it is underwriting profitably. If above 100%, it is losing money on its core operations of selling insurance policies.

Given the calculation, a lower expense ratio is better. Over the last four years, Enact Holdings’s combined ratio has swelled by 3.9 percentage points, going from 37.9% to 34%. However, the company gave back some of its expense savings as its combined ratio worsened by 8.1 percentage points on a two-year basis.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Enact Holdings’s full-year EPS grew at an unimpressive 7.2% compounded annual growth rate over the last four years, worse than the broader insurance sector.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

Enact Holdings’s weak 4.9% 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 Q4, Enact Holdings reported adjusted EPS of $1.23, up from $1.09 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Enact Holdings’s full-year EPS of $4.60 to grow 2.7%.

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. While other (and more commonly known) per-share metrics like EPS can sometimes be lumpy due to reserve releases or one-time items and can be managed or skewed while still following accounting rules, BVPS reflects long-term capital growth and is harder to manipulate.

Enact Holdings’s BVPS grew at an impressive 10.6% annual clip over the last four years. BVPS growth has also accelerated recently, growing by 13.8% annually over the last two years from $29.07 to $37.66 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 $744.5 million of debt and $5.36 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, or ROE, represents the ultimate measure of an insurer's effectiveness, quantifying how well it transforms shareholder investments into profits. Over the long term, insurance companies with robust ROE metrics typically deliver superior shareholder returns through a balanced approach to capital management.

Over the last five years, Enact Holdings has averaged an ROE of 14.6%, 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.

It was good to see Enact Holdings beat analysts’ EPS expectations this quarter. On the other hand, its revenue slightly missed. Overall, this print had some key positives. The stock remained flat at $40.33 immediately after reporting.

Updated: February 3, 2026 at 5:11 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 doesn’t pass our bar. First 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 BVPS growth was impressive over the last four years, 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 $42.20 on the company (compared to the current share price of $40.33).