Enact Holdings Inc

Previous wording

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, 2024 and 2023, and our audited consolidated financial statements and related notes for the years ended December 31, 2023 and 2022 within our Annual Report on Form 10-K for the fiscal year ending December 31, 2023 (the “Annual Report”).

Current wording

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 six months ended June 30, 2024 and 2023, and our audited consolidated financial statements and related notes for the years ended December 31, 2023 and 2022 within our Annual Report on Form 10-K for the fiscal year ending December 31, 2023 (the “Annual Report”).

Previous wording

Macroeconomic environment. During the first quarter of 2024, the United States economy faced uncertainty due to continued inflationary pressure, the geopolitical environment and lingering concerns around a possible recession.

Current wording

Macroeconomic environment. During the second quarter of 2024, the United States economy has shown positive signs, but faces continued but lessening uncertainty due to inflationary pressure, the geopolitical environment and lingering macroeconomic concerns.

Previous wording

Inflationary pressures have remained a challenge, with the Bureau of Labor Statistics reporting in March 2024 that the Consumer Price Index was 3.5% year-over-year. The Federal Reserve has taken an aggressive approach towards addressing inflation through interest rate increases and a reduction of its balance sheet. The Federal Reserve raised interest rates four times in 2023 following seven rate increases in 2022. Mortgage rates have remained elevated after reaching more than 20-year highs towards the end of 2023.

Current wording

The Bureau of Labor Statistics reported in June 2024 that the Consumer Price Index was 3.0% year-over-year. Despite the first month of price deflation in nearly two years, inflationary pressures have remained a challenge. The Federal Reserve has taken an aggressive approach towards addressing inflation through interest rate increases in recent years and a reduction of its balance sheet. The Federal Reserve raised interest rates four times in 2023 following seven rate increases in 2022. Mortgage rates have remained elevated after reaching more than 20-year highs towards the end of 2023.

Previous wording

Mortgage origination activity remained slow during the first quarter of 2024 in response to elevated mortgage rates and sustained low housing supply. Over the past few years, housing affordability has deteriorated due to high interest rates and elevated home prices, only marginally offset by rising median family income according to the National Association of Realtors Housing Affordability Index. National housing prices rose modestly throughout 2023 but remained consistent into the first quarter of 2024, according to the FHFA Monthly Purchase-Only House Price Index.

Current wording

Mortgage origination activity remained relatively slow during the second quarter of 2024 in response to elevated mortgage rates and sustained low housing supply. Over the past few years, housing affordability has deteriorated as elevated mortgage rates and home price appreciation outpaced median family income according to the National Association of Realtors Housing Affordability Index. National house prices continued to rise into 2024 according to the FHFA Monthly Purchase-Only House Price Index.

Previous wording

The unemployment rate as of March 31, 2024, was 3.8%, up slightly from December 31, 2023. As of March 31, 2024, the number of unemployed Americans stands at approximately 6.4 million and the number of long-term unemployed Americans (over 26 weeks out of the workforce) was approximately 1.2 million.

Current wording

The unemployment rate as of June 30, 2024, was 4.1%, a modest increase from March 31, 2024. As of June 30, 2024, the number of unemployed Americans stood at approximately 6.8 million and the number of long-term unemployed Americans (over 26 weeks out of the workforce) was approximately 1.5 million.

Previous wording

Forbearance and loss mitigation programs. In response to COVID-19, borrowers were allowed extended forbearance options to temporarily suspend mortgage payments up to 18 months subject to certain limits. Extended forbearance timelines permitted through the CARES Act and GSE COVID-19 servicing-related policies were retired in 2023. Borrowers that meet general hardship and program guidelines continue to have access to standard forbearance policies as a loss mitigation option. Additionally, in March 2023, the GSEs announced new loss mitigation programs that allow six-month payment deferrals for borrowers facing financial hardship.

Current wording

Forbearance and loss mitigation programs. Borrowers’ ability to utilize extended forbearance timelines permitted through the CARES Act and GSE COVID-19 servicing-related policies ended in 2023. Borrowers that meet general hardship and program guidelines continue to have access to standard forbearance policies as a loss mitigation option. Additionally, in March 2023, the GSEs announced new loss mitigation programs that allow six-month payment deferrals for borrowers facing financial hardship.

Previous wording

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. As of March 31, 2024, approximately 1.1%, or 10,479, of our active primary policies were reported in a forbearance plan, of which approximately 26% were reported as delinquent.

Current wording

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. As of June 30, 2024, approximately 1.0%, or 9,931, of our active primary policies were reported in a forbearance plan, of which approximately 25% were reported as delinquent. Approximately 7% of our primary new delinquencies in the second quarter of 2024 were subject to a forbearance plan as compared to 14% in the second quarter of 2023.

Previous wording

Our portfolio. New insurance written of $10.5 billion in the first quarter of 2024 decreased 20% compared to the first quarter of 2023 primarily due to a smaller estimated mortgage insurance market and lower estimated market share. Our primary persistency rate was 85% during the first quarter of 2024 and the first quarter of 2023. The persistency rate remains higher than historical levels driven by a large percentage of our in-force policies with mortgage rates below current mortgage rates. Elevated persistency has continued to offset the decline in new insurance written, leading to an increase in primary insurance in-force (“IIF”) of approximately $0.7 billion since December 31, 2023.

Current wording

Our portfolio. New insurance written of $13.6 billion in the second quarter of 2024 decreased 10% compared to the second quarter of 2023. Changes in NIW are primarily impacted by the size of the mortgage insurance market and our market share. Our primary persistency rate was 83% during the second quarter of 2024 and 84% for the second quarter of 2023. The persistency rate remains higher than historical levels driven by a large percentage of our in-force policies with mortgage rates below current mortgage rates. Elevated persistency has continued to offset the decline in new insurance written, leading to an increase in primary insurance in-force (“IIF”) of approximately $3.1 billion since December 31, 2023.

Previous wording

Net earned premiums increased approximately 2% in the first quarter of 2024 compared to the first quarter of 2023 primarily as a result of insurance in-force growth, partially offset by higher ceded premiums.

Current wording

Net earned premiums increased approximately 3% in the second quarter of 2024 compared to the second quarter of 2023 primarily as a result of insurance in-force growth, partially offset by higher ceded premiums.

Previous wording

Loss experience. Our loss ratio for the three months ended March 31, 2024, was 8% as compared to (5)% for the three months ended March 31, 2023. Both periods were impacted by favorable reserve development. In the first quarter of 2024, we released $54 million of reserves primarily on delinquencies from early 2023 and prior, as recent uncertainty in the economic environment has not negatively impacted cure performance to the extent initially expected. This compares to the first quarter of 2023, where we recorded a $70 million reserve release primarily related to favorable cure performance on COVID-19 delinquencies from 2020 and 2021.

Current wording

Loss experience. Our loss ratio for the three months ended June 30, 2024, was (7)% as compared to (2)% for the three months ended June 30, 2023. Both periods were impacted by favorable reserve development. In the second quarter of 2024, we released $77 million of reserves, driven by cure performance of delinquencies from early 2023 and prior. As part of the reserve adjustments, we also decreased our claim rate assumptions for new and existing delinquencies as a result of sustained favorable cure performance and lessening uncertainty in the economic environment, which impacted reserves from current and prior accident years. This compares to the second quarter of 2023, where we recorded a $63 million reserve release primarily related to favorable cure performance on delinquencies from 2021 and earlier, including those as a result of COVID-19.

Previous wording

New delinquencies in the first quarter of 2024 increased compared to the first quarter of 2023 primarily due to the aging of large, newer books of business. Current period primary delinquencies of 11,395 contributed $74 million of loss expense in the first quarter of 2024. We incurred $58 million of losses from 9,599 current period delinquencies in the first quarter of 2023. In determining the loss expense estimate, considerations were given to recent cure and claim experience and the prevailing and prospective economic conditions. Approximately 8% of our primary new delinquencies in the first quarter of 2024 were subject to a forbearance plan as compared to 17% in the first quarter of 2023. Due to the declining number of new delinquencies in forbearance, we no longer differentiate the expected claim rates applied to new delinquencies in forbearance versus those not in forbearance.

Current wording

New delinquencies in the second quarter of 2024 increased compared to the second quarter of 2023 primarily due to the normal loss development pattern of our portfolio. Current period primary delinquencies of 10,461 contributed $60 million of loss expense in the second quarter of 2024. We incurred $58 million of losses from 9,205 delinquencies that were reported in the second quarter of 2023. In determining the loss expense estimate, considerations were given to recent cure and claim experience and the prevailing and prospective economic conditions.

Previous wording

Capital requirements and ratings. As of March 31, 2024, EMICO’s risk-to-capital ratio under North Carolina law and enforced by the North Carolina Department of Insurance (“NCDOI”), EMICO’s domestic insurance regulator, was approximately 11.2:1, compared with a risk-to-capital ratio of 11.6:1 and 12.7:1 as of December 31, 2023, and March 31, 2023, 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 principally on the magnitude of future losses incurred by EMICO, the effectiveness of ongoing loss mitigation activities, new business volume and profitability, the impact of quota share reinsurance, the amount of policy lapses and the amount of additional capital that is generated or distributed by the business.

Current wording

Capital requirements and ratings. As of June 30, 2024, EMICO’s risk-to-capital ratio under North Carolina law and enforced by the North Carolina Department of Insurance (“NCDOI”), EMICO’s domestic insurance regulator, was approximately 10.8:1, compared with a risk-to-capital ratio of 11.6:1 and 11.9:1 as of December 31, 2023, and June 30, 2023, 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 principally on the magnitude of future losses incurred by EMICO, the effectiveness of ongoing loss mitigation activities, new business volume and profitability, the impact of quota share reinsurance, the amount of policy lapses and the amount of additional capital that is generated or distributed by the business.

Previous wording

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. As of March 31, 2024, we had estimated available assets of $4,853 million against $2,970 million net required assets under PMIERs compared to available assets of $5,006 million against $3,119 million net required assets as of December 31, 2023. The sufficiency ratio as of March 31, 2024, was 163%, or $1,883 million, above the PMIERs requirements, compared to 161%, or $1,887 million, above the PMIERs requirements as of December 31, 2023. PMIERs sufficiency for the quarter increased modestly as compared to December 31, 2023. Our PMIERs required assets as of March 31, 2024, and December 31, 2023, benefited from the application of a 0.30 multiplier applied to the risk-based required asset amount factor for certain non-performing loans as defined under PMIERs. The application of the 0.30 multiplier to all eligible delinquencies provided $48 million of benefit to our March 31, 2024 PMIERs required assets compared to $73 million of benefit as of December 31, 2023. These amounts are gross of any incremental reinsurance benefit from the elimination of the 0.30 multiplier. Our PMIERs required assets also benefited from a reinsurance credit of $1,722 million and $1,714 million related to third-party reinsurance as of March 31, 2024, and December 31, 2023, respectively.

Current wording

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. As of June 30, 2024, we had estimated available assets of $5,024 million against $2,967 million net required assets under PMIERs compared to available assets of $4,853 million against $2,970 million net required assets as of March 31, 2024. The sufficiency ratio as of June 30, 2024, was 169%, or $2,057 million, above the PMIERs requirements, compared to 163%, or $1,883 million, above the PMIERs requirements as of March 31, 2024. Our PMIERs required assets as of June 30, 2024, and March 31, 2024, benefited from the application of a 0.30 multiplier applied to the risk-based required asset amount factor for certain non-performing loans as defined under PMIERs. The application of the 0.30 multiplier to all eligible delinquencies provided $31 million of benefit to our June 30, 2024 PMIERs required assets compared to $48 million of benefit as of March 31, 2024. These amounts are gross of any incremental reinsurance benefit from the elimination of the 0.30 multiplier. Our PMIERs required assets also benefited from a reinsurance credit of $1,756 million and $1,722 million related to third-party reinsurance as of June 30, 2024, and March 31, 2024, respectively.

Previous wording

Capital returns. In March 2024, our primary mortgage insurance operating company, EMICO, completed a distribution to EHI that supports our ability to pay a quarterly dividend. We paid a dividend of $0.16 per common share during the first quarter of 2024. 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 quarter.

Current wording

Capital returns. In March 2024, our primary mortgage insurance operating company, EMICO, completed a distribution to EHI that supports our ability to pay a quarterly dividend. We paid a dividend of $0.16 per common share during the first quarter of 2024. On May 1, 2024, we also announced an increase to our quarterly dividend to $0.185 per common share which was paid in June 2024. 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 quarter.

Previous wording

On August 1, 2023, we announced the authorization of a new share repurchase program which allows for the repurchase of up to an additional $100 million of EHI’s common stock. Under the program, share repurchases may be made at our discretion from time to time in open market transactions, privately negotiated transactions, or by other means, including through Rule 10b5-1 and Rule 10b-18 trading plans. In conjunction with this authorization, we have entered into an agreement with Genworth Holdings, Inc. to repurchase its EHI shares on a pro rata basis as part of the program. The share repurchase program is not expected to materially change Genworth’s ownership interest in Enact post completion. We expect the timing and amount of any future share repurchases will be opportunistic and will depend on a variety of factors, including EHI’s share price, capital availability, business and market conditions, regulatory requirements, and debt covenant restrictions. The program does not obligate EHI to acquire any amount of common stock, it may be suspended or terminated at any time at the Company’s discretion without prior notice, and it does not have a specified expiration date.

Current wording

On May 1, 2024, we announced the authorization of a new share repurchase program which allows for the repurchase of up to an additional $250 million of EHI’s common stock. Under the program, share repurchases may be made at our discretion from time to time in open market transactions in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, privately negotiated transactions, or by other means, including through Rule 10b5-1 trading plans. In conjunction with this authorization, we have entered into an agreement with Genworth Holdings, Inc. to repurchase its EHI shares on a pro rata basis as part of the program. The share repurchase program is not expected to materially change Genworth’s ownership interest in Enact. We expect the timing and amount of any future share repurchases will be opportunistic and will depend on a variety of factors, including EHI’s share price, capital availability, business and market conditions, regulatory requirements, and debt covenant restrictions. The program does not obligate EHI to acquire any amount of common stock, it may be suspended or terminated at any time at the Company’s discretion without prior notice, and it does not have a specified expiration date.

Previous wording

Returning capital to shareholders, balanced with our growth and risk management priorities, remains a priority as we look to drive shareholder value through time. Future return of capital 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 macroeconomic conditions, regulatory landscape and business performance.

Current wording

Returning capital to shareholders, balanced with our growth and risk management priorities, remains a priority as we look to drive shareholder value through time. Future return of capital will be shaped by our capital prioritization framework, which sets the following priorities: 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 macroeconomic conditions, regulatory landscape and business performance.

Previous wording

(4)Net earned premium rate is calculated by dividing earned premium by average primary IIF.

Current wording

(4)Net earned premium rate is calculated by dividing direct earned premium less ceded premium, by average primary IIF.

Previous wording

Premiums increased for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily as a result of insurance in-force growth, partially offset by higher ceded premiums. The net earned premium rate was 0.37% for the three months ended March 31, 2024, relatively consistent with 0.38% for the three months ended March 31, 2023.

Current wording

Premiums increased for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily as a result of insurance in-force growth, partially offset by higher ceded premiums. The net earned premium rate was 0.36% for the three months ended June 30, 2024, relatively consistent with the three months ended June 30, 2023.

Previous wording

Net investment losses in the first quarter of 2024 and 2023 were driven by realized losses on the sale of fixed maturity securities. The increase in first quarter of 2024 relates to our yield optimization strategy that allows us to reinvest sales proceeds and recoup higher investment income over the next couple of years.

Current wording

Net investment losses in the second quarter of 2024 and 2023 were driven by realized losses on the sale of fixed maturity securities as part of our yield optimization strategy that allows us to reinvest sales proceeds and recoup higher investment income. Our yield optimization strategy enables opportunistic security sales based on current and changing market conditions. We had more sales in the second quarter of 2023 than 2024.

Previous wording

Losses incurred during the first quarter of 2024 and 2023 were both impacted by prior year development. In the first quarter of 2024, we recorded a reserve release of $54 million primarily related to delinquencies from early 2023 and prior, as recent uncertainty in the economic environment has not negatively impacted cure performance to the extent initially expected. In the first quarter of 2023, we recorded a $70 million reserve release primarily driven by cure performance of delinquencies from 2020 and 2021 related to COVID-19. Current period primary delinquencies of 11,395 contributed $74 million of loss expense in the three months ended March 31, 2024. This compares to $58 million of loss expense from 9,599 primary delinquencies in the first quarter of 2023.

Current wording

Losses incurred during the second quarter of 2024 and 2023 were both impacted by prior year development. In the second quarter of 2024, we recorded a reserve release of $77 million, driven by cure performance of delinquencies from early 2023 and prior. As part of the reserve adjustments, we also decreased our claim rate assumptions for new and existing delinquencies as a result of sustained favorable cure performance and lessening uncertainty in the economic environment, which impacted reserves from current and prior accident years. In the second quarter of 2023, we recorded a reserve release of $63 million on prior years as we experienced better than expected cure performance primarily related to delinquencies from the first half of 2022 and earlier. Current period primary delinquencies of 10,461 contributed $60 million of loss expense in the three months ended June 30, 2024. This compares to $58 million of loss expense from 9,205 primary delinquencies in the second quarter of 2023.

Previous wording

Interest expense primarily 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, 2024 and 2023.

Current wording

Interest expense primarily relates to our 2025 Notes and 2029 Notes. For additional details see Note 7 to our unaudited condensed consolidated financial statements for the three months ended June 30, 2024 and 2023.

Previous wording

The effective tax rate was 21.8% and 21.6% for the three months ended March 31, 2024 and 2023, respectively.

Current wording

The effective tax rate was 21.8% and 21.5% for the three months ended June 30, 2024 and 2023, respectively, consistent with the United States corporate federal income tax rate.

Previous wording

“Adjusted operating income” is defined as U.S. GAAP net income excluding the effects of (i) net investment gains (losses) and (ii) restructuring costs and infrequent or unusual non-operating items.

Current wording

“Adjusted operating income” is defined as U.S. GAAP net income excluding the effects of (i) net investment gains (losses), (ii) restructuring costs and infrequent or unusual non-operating items, and (iii) gains (losses) on the extinguishment of debt.

Previous wording

Adjusted operating income decreased for the three months ended March 31, 2024, as compared to March 31, 2023, primarily due to the larger reserve release in the first quarter of 2023, partially offset by higher revenues and lower operating expenses during the first quarter of 2024.

Current wording

Adjusted operating income increased for the three months ended June 30, 2024, as compared to June 30, 2023, primarily due to the larger reserve release in the second quarter of 2024, coupled with increases in premiums and net investment income.

Previous wording

NIW for the three months ended March 31, 2024, decreased 20% compared to the three months ended March 31, 2023. The decrease was primarily due to a smaller estimated mortgage insurance market and lower estimated market share. We manage the quality of new business through pricing and our underwriting guidelines, which we modify from time to time as circumstances warrant.

Current wording

NIW for the three months ended June 30, 2024, decreased 10% compared to the three months ended June 30, 2023 and decreased 14% compared to the six months ended June 30, 2023. Changes in NIW are primarily impacted by the size of the mortgage insurance market and our market share. We manage the quality of new business through pricing and our underwriting guidelines, which we modify from time to time as circumstances warrant.

Previous wording

IIF increased as a result of NIW. Higher interest rates and the low refinance market led to lower lapse and cancellations during the first quarter of 2024 driving continued elevated persistency. The primary persistency rate was 85% for the three months ended March 31, 2024 and 2023. RIF increased primarily as a result of higher IIF.

Current wording

IIF increased as a result of NIW. Higher interest rates and the low refinance market led to lower lapse and cancellations during the second quarter of 2024 driving continued elevated persistency. The primary persistency rate was 83% and 84% for the three months ended June 30, 2024 and 2023. RIF increased primarily as a result of higher IIF.

Previous wording

The total reserves as a percentage of RIF as of March 31, 2024, remained relatively consistent compared to December 31, 2023, as long-term delinquencies with higher reserves as a result of COVID-19 have cured. The number of loans that are delinquent for 12 months or more has decreased to be more in line with pre-COVID-19 levels.

Current wording

The total reserves as a percentage of RIF as of June 30, 2024, remained consistent compared to December 31, 2023, as long-term delinquencies with higher reserves as a result of COVID-19 have cured. The number of loans that are delinquent for 12 months or more has decreased to be more in line with pre-COVID-19 levels.

Previous wording

Loss reserves in policy years 2008 and prior are outsized compared to their representation of RIF. The size of these policy years at origination, particularly 2005 through 2008, combined with the significant decline in home prices led to significant losses in policy years prior to 2009. 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 concentration of loss reserves has shifted to newer book years in line with changes in RIF. As of March 31, 2024, our 2017 and newer policy years represented approximately 95% of our primary RIF and 78% of our total direct primary case reserves.

Current wording

Loss reserves in policy years 2008 and prior are outsized compared to their representation of RIF. The size of these policy years at origination, particularly 2005 through 2008, combined with the significant decline in home prices led to significant losses in policy years prior to 2009. 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 concentration of loss reserves has shifted to newer book years in line with changes in RIF. As of June 30, 2024, our 2017 and newer policy years represented approximately 96% of our primary RIF and 79% of our total direct primary case reserves.

Previous wording

Our investment portfolio is affected by factors described below, each of which in turn may be affected by current macroeconomic conditions as noted above in “—Trends and Conditions.” The investment portfolios of our insurance subsidiaries are directed by the Enact Investment Committee, a management-level committee, with Genworth serving as the investment manager. The investment portfolio of EHI is directed by a separate management-level EHI Investment Committee with a third-party investment manager. These parties, with oversight from our Board of Directors and our senior management team, are 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 maturity securities and is designed to achieve the following objectives:

Current wording

Our investment portfolio is affected by factors described below, each of which in turn may be affected by current macroeconomic conditions as noted above in “—Trends and Conditions.” The investment portfolios of our insurance subsidiaries are directed by the Enact Investment Committee, a management-level committee, with Genworth serving as the primary investment manager. The investment portfolio of EHI is directed by a separate management-level EHI Investment Committee with a third-party investment manager. These parties, with oversight from our Board of Directors and our senior management team, are 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 maturity securities and is designed to achieve the following objectives:

Previous wording

As of both March 31, 2024, and December 31, 2023, 98% of our investment portfolio was rated investment grade. The following table presents the security ratings of our fixed maturity securities as of the dates indicated:

Current wording

As of both June 30, 2024, and December 31, 2023, 99% of our investment portfolio was rated investment grade. The following table presents the security ratings of our fixed maturity securities as of the dates indicated:

Previous wording

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 largely due to higher net investment income and lower expenses along with timing of tax payments. Cash flows from operations were also impacted by changes in reserves and unearned premiums, net investment losses and stock-based compensation expense.

Current wording

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 largely due to higher net investment income and premiums. Cash flows from operations were also impacted by changes in reserves and unearned premiums and the timing of tax payments.

Previous wording

During the three months ended March 31, 2024, our cash flows from financing activities included dividends paid of $25.5 million and share repurchases of $49.7 million. The amount and timing of future dividends is discussed within “—Trends and Conditions” as well as below. During the three months ended March 31, 2023, our cash flows from financing activities included dividends paid of $22.8 million and share repurchases of $22.2 million.

Current wording

During the six months ended June 30, 2024, our cash flows from financing activities included the issuance of our 2029 Notes and the redemption of our 2025 Notes. Financing activities for the six months ended June 30, 2024, also included dividends paid of $55 million and share repurchases of $98 million. The amount and timing of future dividends is discussed within “—Trends and Conditions” as well as below. During the six months ended June 30, 2023, our cash flows from financing activities included dividends paid of $48 million and share repurchases of $63 million.

Previous wording

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.

Current wording

We issued our 2029 Notes in the second quarter of 2024 with interest payable semi-annually in arrears in May and November of each year. The 2029 Notes mature on May 28, 2029. We may redeem the 2029 Notes, in whole or in part, at any time prior to April 28, 2029, at our option, by paying an additional premium. At any time on or after April 28, 2029, we may redeem the 2029 Senior Notes, in whole or in part, at our option, at 100% of the principal amount, plus accrued and unpaid interest. The 2029 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 notes if we breach the terms of the indenture.

Previous wording

We continually evaluate opportunities based upon market conditions to further increase our financial flexibility including through raising additional capital, restructuring or refinancing some or all of our outstanding debt, which matures in 2025, or pursuing other options such as reinsurance or credit risk transfer transactions. There can be no guarantee that any such opportunities will be available on favorable terms or at all.

Current wording

We continually evaluate opportunities based upon market conditions to further increase our financial flexibility including through raising additional capital, restructuring or refinancing some or all of our outstanding debt or pursuing other options such as reinsurance or credit risk transfer transactions. There can be no guarantee that any such opportunities will be available on favorable terms or at all.

Previous wording

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, and at least 30 days before payment thereof. No dividend may 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, our insurance subsidiaries have the capacity to pay dividends from unassigned surplus of $65 million as of March 31, 2024, 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.

Current wording

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, and at least 30 days before payment thereof. No dividend may 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, our insurance subsidiaries have the capacity to pay dividends from unassigned surplus of $223 million as of June 30, 2024, 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.

Previous wording

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. 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. While we will begin 10-year contingency reserve releases during 2024, minimum policyholder surplus could be a limitation on the future dividends of our regulated operating subsidiaries.

Current wording

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. 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. While we begin 10-year contingency reserve releases during 2024, minimum policyholder surplus could be a limitation on the future dividends of our regulated operating subsidiaries.

Previous wording

As of March 31, 2024, we maintained liquidity in the form of cash and cash equivalents of $614 million compared to $616 million as of December 31, 2023, and we also held significant levels of investment-grade fixed maturity securities and short-term investments that can be monetized should our cash and cash equivalents be insufficient to meet our obligations.

Current wording

As of June 30, 2024, we maintained liquidity in the form of cash and cash equivalents of $699 million compared to $616 million as of December 31, 2023, and we also held significant levels of investment-grade fixed maturity securities and short-term investments that can be monetized should our cash and cash equivalents be insufficient to meet our obligations.

Previous wording

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 in both the short term and long term. However, our subsidiaries are subject to regulatory and other capital restrictions with respect to the payment of dividends. Our most significant need for liquidity in the long term is the maturity of our 2025 Senior Notes. 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 and the Facility.

Current wording

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 in both the short term and long term. However, our subsidiaries are subject to regulatory and other capital restrictions with respect to the payment of dividends. We currently have no material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity, other than the 2029 Notes and the Facility.

Previous wording

Our loss reserves have a high degree of estimation due to macroeconomic uncertainty. Therefore, it is possible we could have higher contractual obligations related to these loss reserves if they do not cure or progress to claim as we expect. Other than changes in our 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, 2023 and 2022.

Current wording

Our loss reserves have a high degree of estimation due to macroeconomic uncertainty. Therefore, it is possible we could have higher contractual obligations related to these loss reserves if they do not cure or progress to claim as we expect. Other than changes in our aforementioned loss reserves, there have been no material additions or changes to our contractual obligations or other off-balance sheet arrangements.

Previous wording

Refer to Note 2 in our unaudited condensed consolidated financial statements for the three months ended March 31, 2024 and 2023, and in our audited consolidated financial statements for the years ended December 31, 2023 and 2022, for a discussion of recently adopted and not yet adopted accounting standards.

Current wording

Refer to Note 2 in our unaudited condensed consolidated financial statements for the six months ended June 30, 2024 and 2023, and in our audited consolidated financial statements for the years ended December 31, 2023 and 2022, for a discussion of recently adopted and not yet adopted accounting standards.