Enact Holdings, Inc. 10-K

Item 8. Financial Statements and Supplementary Data INDEX OF CONSOLIDATED FINANCIAL STATEMENTS Page Audited Financial Statements Report of Independent Registered Public Accounting Firm ( KPMG LLP , Raleigh, North Carolina , Auditor Firm ID: 185 ) 115 Consolidated Balance Sheets as of December 31, 202 2 and 20 21 117 Consolidated Statements of Income for the years ended December 31, 202 2 , 202 1 and 20 20 118 Consolidated Statements of Comprehensive Income for the years ended December 31, 202 2 , 202 1 and 20 20 119 Consolidated Statements of Changes in Equity for the years ended December 31, 202 2 , 202 1 and 20 20 120 Consolidated Statements of Cash Flows for the years ended December 31, 202 2 , 202 1 and 20 20 121 Notes to the Consolidated Financial Statements 122 Supplemental Schedules: Supplemental Schedule I, Summary of Investments- Other than Investments in Related Parties 161 Supplemental Schedule II, Financial Statements of Enact Holdings, Inc. (Parent Company Only) 162 114 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Enact Holdings, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Enact Holdings, Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes and financial statement schedules I to II (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Loss reserves As described in Notes 2 and 5 to the consolidated financial statements, the Company estimates the liabilities for losses on insured mortgage loans (loss reserves) by estimating the number of loans in their inventory of delinquent loans that will result in a claim payment, which is referred to as the claim 115 rate, and further estimating the amount of the claim payment, which is referred to as claim severity. The estimates are determined using a factor-based approach, in which assumptions of claim rates for loans in default and the average amount paid for loans that result in a claim are calculated using traditional actuarial techniques. The Company’s loss reserves were $519 million as of December 31, 2022. We identified the assessment of the valuation of loss reserves to be a critical audit matter. The claim severity and claim rate assumptions used to develop reserves were inherently uncertain and involved significant management judgment, which required especially subjective auditor judgment. Additionally, the audit effort to assess the valuation of loss reserves required the involvement of professionals with specialized knowledge and experience. The following are the primary procedures we performed to address the critical audit matter. We evaluated, with the assistance of actuarial professionals, the design and tested the operating effectiveness of certain internal controls related to the valuation of loss reserves. This included controls related to the review and approval of the claim severity and claim rate reserve factors used in the estimate for loss reserves. We involved actuarial professionals with specialized knowledge and experience, who assisted in: • Assessing the Company’s reserving methodology by comparing to accepted actuarial methodologies; and • Developing an independent estimate and range for a portion of the loss reserves, using the Company’s underlying historical claims and delinquency data and independently developed models and assumptions and assessing the position in the range and the year-over-year movements of the Company’s recorded loss reserves within the developed independent range. /s/ KPMG LLP We have served as the Company’s auditor since 1989. Raleigh, North Carolina February 28, 2023 116 ENACT HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS December 31, (Amounts in thousands, except par value per share amount) 2022 2021 Assets Fixed maturity securities available-for-sale, at fair value (amortized cost $ 5,371,673 and $ 5,160,174 as of December 31, 2022 and 2021, respectively) $ 4,884,760 $ 5,266,339 Short term investments 3,047 — Total investments 4,887,807 5,266,339 Cash and cash equivalents 513,775 425,828 Accrued investment income 35,844 31,061 Deferred acquisition costs 26,121 27,220 Premiums receivable (net of allowance for credit losses of $ 873 and $ 893 as of December 31, 2022 and 2021, respectively) 41,738 42,266 Other assets 76,391 73,059 Deferred tax asset 127,473 — Total assets $ 5,709,149 $ 5,865,773 Liabilities and equity Liabilities: Loss reserves $ 519,008 $ 641,325 Unearned premiums 202,717 246,319 Other liabilities 143,686 130,604 Long-term borrowings 742,830 740,416 Deferred tax liability — 1,586 Total liabilities $ 1,608,241 $ 1,760,250 Equity: Common stock, $ 0.01 par value; 600,000 shares authorized; 162,779 and 162,840 shares issued and outstanding as of December 31, 2022 and 2021, respectively $ 1,628 $ 1,628 Additional paid-in capital 2,382,068 2,371,861 Accumulated other comprehensive income ( 382,744 ) 83,581 Retained earnings 2,099,956 1,648,453 Total equity $ 4,100,908 $ 4,105,523 Total liabilities and equity $ 5,709,149 $ 5,865,773 See Notes to Consolidated Financial Statements 117 ENACT HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, (Amounts in thousands, except per share amounts) 2022 2021 2020 Revenues: Premiums $ 939,462 $ 974,949 $ 971,365 Net investment income 155,311 141,189 132,843 Net investment gains (losses) ( 2,036 ) ( 2,124 ) ( 3,324 ) Other income 2,309 3,841 5,575 Total revenues 1,095,046 1,117,855 1,106,459 Losses and expenses: Losses incurred ( 94,221 ) 125,473 379,834 Acquisition and operating expenses, net of deferrals 226,941 231,453 215,024 Amortization of deferred acquisition costs and intangibles 12,405 14,704 20,939 Interest expense 51,699 51,009 18,244 Total losses and expenses 196,824 422,639 634,041 Income before income taxes 898,222 695,216 472,418 Provision for income taxes 194,065 148,531 101,997 Net income $ 704,157 $ 546,685 $ 370,421 Net income per common share: Basic $ 4.32 $ 3.36 $ 2.27 Diluted $ 4.31 $ 3.36 $ 2.27 Weighted average common shares outstanding: Basic 162,838 162,840 162,840 Diluted 163,294 162,879 162,840 See Notes to Consolidated Financial Statements 118 ENACT HOLDINGS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years ended December 31, (Amounts in thousands) 2022 2021 2020 Net income $ 704,157 $ 546,685 $ 370,421 Other comprehensive income (loss), net of taxes: Net unrealized gains (losses) on securities ( 466,484 ) ( 125,071 ) 114,947 Foreign currency translation 159 ( 7 ) — Other comprehensive income (loss) ( 466,325 ) ( 125,078 ) 114,947 Total comprehensive income (loss) $ 237,832 $ 421,607 $ 485,368 See Notes to Consolidated Financial Statements 119 ENACT HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Amounts in thousands) Common stock Additional paid-in capital Accumulated other comprehensive income (loss) Retained earnings Total equity Balance December 31, 2019 $ 1,628 $ 2,361,978 $ 93,431 $ 1,370,038 $ 3,827,075 Comprehensive income: Net income — — — 370,421 370,421 Other comprehensive income, net of taxes — — 114,947 — 114,947 Dividends to Genworth — — — ( 437,353 ) ( 437,353 ) Capital contributions from Genworth — 6,721 — — 6,721 Balance 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: Net income — — — 546,685 546,685 Other comprehensive income, net of taxes — — ( 125,078 ) — ( 125,078 ) Stock-based compensation expense and exercises and other — 2,259 — ( 763 ) 1,496 Dividends to Genworth — — — ( 200,294 ) ( 200,294 ) Capital contributions from Genworth — 903 — — 903 Balance December 31, 2021 $ 1,628 $ 2,371,861 $ 83,581 $ 1,648,453 $ 4,105,523 Comprehensive income: Net income — — — 704,157 704,157 Other comprehensive income, net of taxes — — ( 466,325 ) — ( 466,325 ) Repurchase of common stock — ( 1,532 ) — — ( 1,532 ) Stock-based compensation expense and exercises and other — 11,739 — ( 1,878 ) 9,861 Dividends — — — ( 250,776 ) ( 250,776 ) Balance December 31, 2022 $ 1,628 $ 2,382,068 $ ( 382,744 ) $ 2,099,956 $ 4,100,908 See Notes to Consolidated Financial Statements 120 ENACT HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, (Amounts in thousands) 2022 2021 2020 Cash flows from operating activities: Net income $ 704,157 $ 546,685 $ 370,421 Adjustments to reconcile net income to net cash provided by operating activities: Net (gains) losses on investments 2,036 2,124 3,324 Amortization of fixed maturity securities discounts and premiums ( 3,163 ) ( 8,490 ) ( 5,354 ) Amortization of deferred acquisition costs and intangibles 12,405 14,704 20,939 Acquisition costs deferred ( 6,678 ) ( 7,266 ) ( 12,722 ) Deferred income taxes ( 2,298 ) ( 1,424 ) 11,133 Stock-based compensation expense 9,883 1,496 — Amortization of debt issuance costs 2,414 2,254 — Other ( 21 ) 907 6,720 Change in certain assets and liabilities: Accrued investment income ( 4,783 ) ( 1,851 ) ( 5,051 ) Premiums receivable 528 4,198 ( 5,303 ) Other assets ( 2,297 ) ( 7,319 ) 5,031 Loss reserves ( 122,317 ) 85,646 320,617 Unearned premiums ( 43,602 ) ( 60,626 ) ( 76,513 ) Other liabilities 14,246 1,072 71,108 Net cash provided by operating activities 560,510 572,110 704,350 Cash flows from investing activities: Purchases of fixed maturity securities available-for-sale ( 1,216,234 ) ( 1,583,244 ) ( 1,942,464 ) Purchase of equity interest ( 6,516 ) ( 27,304 ) — Proceeds from sales of fixed maturity securities available-for-sale 534,730 498,811 278,482 Maturities of fixed maturity securities available-for-sale 470,842 712,955 527,070 Change in short-term investments ( 3,077 ) — — Net cash used in investing activities ( 220,255 ) ( 398,782 ) ( 1,136,912 ) Cash flows from financing activities: Proceeds from the issuance of long-term debt — — 737,651 Repurchase of common stock ( 1,532 ) — — Dividends paid ( 250,776 ) ( 200,294 ) ( 437,353 ) Net cash provided by (used in) financing activities ( 252,308 ) ( 200,294 ) 300,298 Net (decrease) increase in cash and cash equivalents 87,947 ( 26,966 ) ( 132,264 ) Cash and cash equivalents at beginning of year 425,828 452,794 585,058 Cash and cash equivalents at end of year $ 513,775 $ 425,828 $ 452,794 Supplementary disclosure of cash flow information: Non-cash contributions of capital from Genworth $ — $ — $ 6,721 Income taxes paid $ 186,152 $ 145,951 $ 56,994 Interest paid $ 49,090 $ 47,938 $ — See Notes to Consolidated Financial Statements 121 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 (1) Nature of business and organization structure Nature of Business Enact Holdings, Inc. (“EHI,” together with its subsidiaries, the “Company,” “we,” “us,” or “our”) (formerly known as Genworth Mortgage Holdings, Inc.) was a wholly owned subsidiary of Genworth Financial, Inc. (“Genworth” or “Parent”) since EHI’s incorporation in Delaware in 2012. 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 the 100 shares of our common stock owned by it, representing all of our 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 consolidated financial statements, notes to the consolidated financial statements and supplemental schedules to the financial statements has been adjusted to reflect the share exchange on a retroactive basis for all periods and as of all dates presented. 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 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, including EMICO, 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.” 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. 122 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 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 consolidated financial statements. On July 20, 2020, Genworth reached a settlement agreement with AXA S.A. (“AXA”) regarding a dispute over payment protection insurance mis-selling claims sold by Genworth’s former lifestyle protection insurance business that was acquired by AXA in 2015. As part of the settlement agreement, Genworth issued a secured promissory note agreeing to pay AXA in two installments in 2023. Under the terms of the secured promissory note, as amended, Genworth pledged as collateral to AXA a 19.9 % security interest in our outstanding common stock. On March 3, 2021, Genworth repaid the first installment payment originally due to AXA in June 2022 and a portion of the second installment payment due to AXA in September 2022 from cash proceeds received from the sale of Genworth Mortgage Insurance Australia Limited. On September 21, 2021, Genworth used a portion of the net proceeds from our IPO to repay the remaining outstanding balance of the secured promissory note of approximately £ 215 million ($ 296 million), excluding future claims still being processed. Following the full repayment of the secured promissory note, AXA released its 19.9 % security interest in our outstanding common shares. (2) Summary of significant accounting policies Basis of Presentation Our consolidated financial statements have been prepared on the basis of United States 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. Certain prior year amounts have been reclassified to conform to the current year presentation. Our consolidated financial statements have been prepared on a standalone basis. The consolidated financial statements include the accounts of EHI, its subsidiaries and those entities required to be consolidated under the applicable accounting standards. All intercompany transactions and balances have been eliminated. The consolidated financial statements include allocations of certain Genworth expenses. The allocated expenses relate to various services that have historically been provided to us by Genworth, including investment management, information technology services and administrative services (such as finance, human resources and employee benefit administration). These allocations were made on a direct usage basis when identifiable, with the remainder allocated on the basis of equity, proportional effort or other relevant measures. Expenses allocated to us are not necessarily representative of the amounts that would have been incurred had we operated independently of Genworth. See Note 11 for further information regarding the allocation of Genworth expenses. Premiums For monthly insurance contracts, we report premiums as revenue over the period that coverage is provided. For single premium mortgage insurance contracts, we report premiums over the estimated policy life in accordance with the expected pattern of risk emergence as further described in our accounting policy for unearned premiums. In addition, we refund post-delinquent premiums received to the insured party if the delinquent loan goes to claim. We record a liability for premiums received on the delinquent loans consistent with our expectations of ultimate claim rates. Net Investment Income and Net Investment Gains and Losses Investment income is recognized when earned. Income or loss upon call or prepayment of available-for-sale fixed maturity securities is recognized in net investment income, except for hybrid securities 123 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 where the income or loss upon call is recognized in net investment gains and losses. Investment gains and losses are calculated on the basis of specific identification on the trade date. Investment income on asset-backed securities is initially based upon yield, cash flow and prepayment assumptions at the date of purchase. Subsequent revisions in those assumptions are recorded using the retrospective or prospective method. Under the retrospective method used for asset-backed securities of high credit quality (ratings equal to or greater than “AA” or that are backed by a U.S. agency) which cannot be contractually prepaid in such a manner that we would not recover a substantial portion of the initial investment, amortized cost of the security is adjusted to the amount that would have existed had the revised assumptions been in place at the date of purchase. The adjustments to amortized cost are recorded as a charge or credit to net investment income. Under the prospective method, which is used for all other asset-backed securities, future cash flows are estimated, and interest income is recognized going forward using the new internal rate of return . Other Income Other income primarily includes underwriting fee revenue and other revenue. Underwriting fee revenue is earned for underwriting services provided on a per-unit or per-diem basis, as defined in the underwriting agreements. Underwriting fee revenue is recognized at the point in time when the service obligation is satisfied. Investments The investment portfolios of our subsidiaries are managed by Genworth. We conduct the purchases, sales and related investment management decisions with the advice of Genworth. As part of these services, we are charged an investment management fee, as agreed between both parties. These fees are charged to investment expense and are included in net investment income in the consolidated statements of income. Refer to Note 11 for further details. Investments held at EHI are managed by a third party. Fixed maturity securities classified as available-for-sale are reported in our consolidated balance sheets at fair value. Our portfolio of fixed maturity securities comprises primarily investment grade securities. Changes in the fair value of available-for-sale fixed maturity securities, net of deferred income taxes, are reflected as unrealized investment gains or losses in a separate component of accumulated other comprehensive income (“OCI”). Allowance for Credit Losses and Impairments on Available-For-Sale Securities On January 1, 2021, we adopted new accounting guidance related to accounting for credit losses on financial instruments. The guidance requires entities to recognize an allowance equal to its estimate of lifetime expected credit losses and applies to most debt instruments not measured at fair value. The guidance retained most of the existing impairment guidance for available-for-sale fixed maturity securities but amends the presentation of credit losses to be presented as an allowance as opposed to a write-down and permits the reversal of credit losses when reassessing changes in the credit losses each reporting period. Available-for-sale fixed maturity securities in an unrealized loss position are evaluated to determine whether the decline in fair value is related to credit losses or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency/agencies and adverse conditions specifically related to the security, among other factors. If a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Estimating the cash flows expected to be collected is a quantitative and qualitative process that incorporates information received from third-party sources along with internal assumptions and judgments. When developing the estimate of cash flows expected to be collected, we utilize an analytical 124 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 model that provides for various loss scenarios and consider the industry sector, current levels of subordination, geographic location and other relevant characteristics of the security or underlying assets, as well as reasonable and supportable forecasts. Losses are written off against the allowance when deemed uncollectible or when we intend to sell or expect we will be required to sell a security prior to recovering our amortized cost. We exclude accrued interest related to available-for-sale fixed maturity securities from the estimate of allowance for credit losses. Accrued interest is included in accrued investment income in our condensed consolidated balance sheet. We do not measure an allowance for credit losses related to accrued interest as uncollectible accrued interest related to our available-for-sale fixed maturity securities is written off after 90 days and once collectability is determined to be uncertain and not probable. Amounts written off related to accrued interest are recorded as a credit loss expense included in net investment gains (losses). We adopted the guidance related to our available-for-sale fixed maturity securities using the modified retrospective method, which did not have a significant impact on our consolidated financial statements. Prior to the adoption of new accounting guidance related to credit losses on financial instruments on January 1, 2021, we evaluated securities in an unrealized loss position for other-than-temporary impairment as of each balance sheet date. For debt securities, we considered all available information relevant to the collectability of the security, including information about past events, current conditions, and reasonable and supportable forecasts, when developing the estimate of cash flows expected to be collected. More specifically for asset-backed securities, we also utilized performance indicators of the underlying assets including default or delinquency rates, loan to collateral value ratios, third-party credit enhancements, current levels of subordination, vintage and other relevant characteristics of the security or underlying assets to develop our estimate of cash flows. Estimating the cash flows expected to be collected was a quantitative and qualitative process that incorporates information received from third-party sources along with certain internal assumptions and judgments regarding the future performance of the underlying collateral. Where possible, this data is benchmarked against third-party sources. We recognized other-than-temporary impairments on debt securities in an unrealized loss position when one of the following circumstances existed: • we did not expect full recovery of our amortized cost basis when due, • the present value of cash flows expected to be collected was less than our amortized cost basis, • we intended to sell a security, or • it was more likely than not that we would be required to sell a security prior to recovery. Total other-than-temporary impairments that emerged in the period were calculated as the difference between the amortized cost and fair value. For other-than-temporarily impaired securities where we did not intend to sell the security and it was not more likely than not that we would be required to sell the security prior to recovery, total other-than-temporary impairments were adjusted by the portion of other-than-temporary impairments recognized in OCI (“non-credit”). Net other-than-temporary impairments recorded in net income (loss) represented the credit loss on the other-than-temporarily impaired securities with the offset recognized as an adjustment to the amortized cost to determine the new amortized cost basis of the securities. For securities that were deemed to be other-than-temporarily impaired and a non-credit loss was recorded in OCI, the amount recorded as an unrealized gain (loss) represented the difference between the current fair value and the new amortized cost for each period presented. The unrealized gain (loss) on an other-than-temporarily impaired security was recorded as a separate component in OCI until the security was sold or until we recorded an other-than-temporary impairment where we intended to sell the security or were required to sell the security prior to recovery. To estimate the amount of other-than-temporary impairment attributed to credit losses on debt securities where we did not intend to sell the security and it was not more likely than not that we would be 125 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 required to sell the security prior to recovery, we determined our best estimate of the present value of the cash flows expected to be collected from a security using the effective yield on the security prior to recording any other-than-temporary impairment. If the present value of the discounted cash flows was lower than the amortized cost of the security, the difference between the present value and amortized cost represented the credit loss associated with the security with the remaining difference between fair value and amortized cost recorded as a non-credit other-than-temporary impairment in OCI. While the other-than-temporary impairment model for debt securities generally included fixed maturity securities, there were certain hybrid securities that are classified as fixed maturity securities where the application of a debt impairment model depended on whether there has been any evidence of deterioration in credit of the issuer, such as a downgrade to below investment grade. Under certain circumstances, evidence of deterioration in credit of the issuer may have resulted in the application of the equity securities impairment model where we recognized an impairment charge in the period in which we determined that the security would not recover to book value within a reasonable period of time. We determined what constitutes a reasonable period on a security-by-security basis based upon consideration of all the evidence available to us, including the magnitude of an unrealized loss and its duration. In any event, this period did not exceed 15 months. We measured other-than-temporary impairments based upon the difference between the amortized cost of a security and its fair value. Equity Method Investments Investments in which we are deemed to exert significant influence, but not control, are accounted for using the equity method of accounting except in cases where the fair value option has been elected. Equity method investments not carried at fair value, which are not material as of December 31, 2022, are recorded in other assets on the consolidated balance sheets with their related income recorded within other income in the consolidated statements of income. See Note 3 for details. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We have fixed maturity securities, which are carried at fair value, and previously had an investment in an unconsolidated affiliate for which the fair value option had been elected. Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. All assets and liabilities carried at fair value are classified and disclosed in one of the following three categories: • Level 1—Quoted prices for identical instruments in active markets. • Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations for which inputs are observable or where those significant value drivers are observable. • Level 3—Instruments for which significant value drivers are unobservable. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as equity securities and actively traded mutual fund investments. Level 2 includes those financial instruments that are valued using industry-standard pricing methodologies, models or other valuation methodologies. These models are primarily industry-standard models that consider various inputs, such as interest rate, credit spread and foreign exchange rates for the underlying financial instruments. All significant inputs are observable, or derived from observable, 126 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace. Financial instruments in this category primarily include: certain public and private corporate fixed maturity securities; government or agency securities; and certain asset-backed securities. Level 3 comprises financial instruments whose fair value is estimated based on industry-standard pricing methodologies and internally developed models utilizing significant inputs not based on, nor corroborated by, readily available market information. In certain instances, this category may also utilize non-binding broker quotes. This category primarily consists of certain less liquid fixed maturity securities where we cannot corroborate the significant valuation inputs with market observable data. As of each reporting period, all assets and liabilities recorded at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability, such as the relative impact on the fair value as a result of including a particular input. We review the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur. See Note 4 for additional information related to fair value measurements. Cash and Cash Equivalents Certificates of deposit, money market funds and other highly liquid investments with original maturities of three months or less are considered cash equivalents in the consolidated balance sheets and consolidated statements of cash flows. Items with maturities greater than three months but less than one year at the time of acquisition are generally considered short-term investments. Accrued Investment Income Accrued investment income consists primarily of interest earned on available-for-sale securities. Interest is recognized on an accrual basis, and dividends are recorded as earned on the ex-dividend date. Interest income is not recorded on fixed maturity securities in default and fixed maturity securities delinquent more than 90 days or where collection of interest is improbable. Deferred Acquisition Costs (“DAC”) Acquisition costs include costs that are directly related to the successful acquisition of new insurance contracts. Acquisition costs are deferred and amortized to the extent they are recoverable from future profits. Acquisition costs primarily consist of underwriting costs and are amortized in proportion to estimated gross profit. Judgment is used in evaluating these estimates and the assumptions upon which they are based. The use of different assumptions may have a significant effect on the amortization of deferred acquisition costs. Deferred acquisition costs were $ 26.1 million and $ 27.2 million as of December 31, 2022 and 2021, respectively. Amortization of DAC was $ 7.8 million, $ 14.7 million and $ 14.2 million for the years ended December 31, 2022, 2021 and 2020, respectively, and was included within amortization of deferred acquisition costs and intangibles in the consolidated statements of income. Premium Deficiency Reserves (“PDR”) Premium deficiency reserves are established, if necessary, when the present value of expected future losses and expenses exceeds the present value of expected future premium and already established reserves. The discount rate used in the calculation is based upon our pretax investment yield. We do not utilize anticipated investment income on our assets when evaluating the need for a PDR. The calculation of premium deficiency reserves requires the use of significant judgments and estimates to determine the present value of future premium and present value of expected losses and expenses in our business. The 127 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 differences between the actual results and our estimates could vary materially. We completed a PDR analysis as of December 31, 2022 and 2021 and determined that no PDR was required. Reinsurance Premium revenue, benefits and acquisition and operating expenses, net of deferrals, are reported net of the amounts relating to reinsurance ceded to other companies. The cost of reinsurance is accounted for over the terms of the related treaties using assumptions consistent with those used to account for the underlying reinsured policies. See Note 6 for details. Loss Reserves Loss reserves represent the amount needed to provide for the estimated ultimate cost of settling claims relating to insured events that have occurred on or before the end of the respective reporting period. The estimated liability includes requirements for future payments of: (a) losses that have been reported to the insurer; (b) losses related to insured events that have occurred but that have not been reported to the insurer as of the date the liability is estimated; and (c) loss adjustment expenses (“LAE”). Loss adjustment expenses include costs incurred in the claim settlement process such as legal fees and costs to record, process and adjust claims. Consistent with U.S. GAAP and industry accounting practices, we do not establish loss reserves for future claims on insured loans that are not in default or believed to be in default. Estimates and actuarial assumptions used for establishing loss reserves involve the exercise of significant judgment, and changes in assumptions or deviations of actual experience from assumptions can have material impacts on our loss reserves and net income (loss). Because these assumptions relate to factors that are not known in advance, change over time, are difficult to accurately predict and are inherently uncertain, we cannot determine with precision the ultimate amounts we will pay for actual claims or the timing of those payments. The sources of uncertainty affecting the estimates are numerous and include factors internal and external to us. Internal factors include, but are not limited to, changes in the mix of exposures, loss mitigation activities and claim settlement practices. Significant external influences include changes in home prices, unemployment, government housing policies, state foreclosure timeline, general economic conditions, interest rates, tax policy, credit availability and mortgage products. Small changes in assumptions or small deviations of actual experience from assumptions can have, and in the past have had, material impacts on our reserves, results of operations and financial condition. We establish reserves to recognize the estimated liability for losses and LAE related to defaults on insured mortgage loans. Loss reserves are established by estimating the number of loans in our inventory of delinquent loans that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity. The estimates are determined using a factor-based approach, in which assumptions of claim rates for loans in default and the average amount paid for loans that result in a claim are calculated using traditional actuarial techniques. Over time, as the status of the underlying delinquent loans moves toward foreclosure and the likelihood of the associated claim loss increases, the amount of the loss reserves associated with the potential claims may also increase. Management monitors actual experience, and where circumstances warrant, will revise its assumptions. Our liability for loss reserves is reviewed regularly, with changes in our estimates of future claims recorded through net income. Estimation of losses are based on historical claim and cure experience and covered exposures and is inherently judgmental. Future developments may result in losses greater or less than the liability for loss reserves provided. Unearned Premiums Premiums written on single premium policies and annual premium policies are initially deferred as unearned premium reserve and earned over the policy life. A portion of the revenue from single premium 128 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 policies is recognized in premiums earned in the current period, and the remaining portion is deferred as unearned premiums and earned over the estimated expiration of risk of the policy. If single premium policies are cancelled and the premium is non-refundable, then the remaining unearned premium related to each cancelled policy is recognized to earned premiums upon notification of the cancellation. For borrower-paid mortgage insurance, coverage ceases at the earlier of prepayment, or when the original principal is amortized to a 78% loan-to-value ratio in accordance with the Homeowners Protection Act of 1998. We periodically review our premium earnings recognition models with any adjustments to the estimates reflected as a cumulative adjustment on a retrospective basis in current period net income. These reviews include the consideration of recent and projected loss and policy cancellation experience, and adjustments to the estimated earnings patterns are made, if warranted. Share-Based Compensation Prior to our IPO, certain of our employees participated in Genworth’s incentive plans, under which our employees were granted share-based awards, including stock options. In 2021, we approved an incentive compensation plan that allows EHI to grant share-based awards to its employees and directors. For grants from both of these plans, compensation expense is recognized based on a grant date fair value, adjusted for expected forfeitures, through the income statement over the respective vesting period of the awards. See Note 10 for additional information related to share-based compensation. Employee Benefit Plans Our employees are provided a number of Genworth employee benefits. Genworth, as sponsor of these employee benefit plans, is ultimately responsible for maintenance of these plans in compliance with applicable laws. The plans are accounted for by Genworth in accordance with relevant accounting guidance. We account for these employee benefit plans as multiemployer benefit plans. Accordingly, we do not record an asset or liability to recognize the funded status of the employee benefit plans. Expenses related to employee benefits are included within acquisition and operating expenses, net of deferrals in the consolidated statements of income. See Note 9 for additional information related to employee benefits. Income Taxes We determine deferred tax assets and/or liabilities by multiplying the differences between the financial reporting and tax reporting bases for assets and liabilities by the enacted tax rates expected to be in effect when such differences are recovered or settled if there is no change in law. The effect on deferred taxes of a change in tax rates is recognized in net income (loss) in the period that includes the enactment date. Valuation allowances on deferred tax assets are estimated based on our assessment of the realizability of such amounts. We have elected to participate in a single U.S. consolidated income tax return filing (the “Genworth consolidated return”). All Genworth companies domesticated in the United States are included in the Genworth consolidated return as allowed by the tax law and regulations. We have a tax sharing agreement in place and all intercompany balances related to this agreement are settled at least annually. Refer to Note 8 for further details. Variable Interest Entities We are involved in certain entities that are considered variable interest entities (“VIEs”) as defined under U.S. GAAP, and, accordingly, we evaluate the VIE to determine whether we are the primary beneficiary and are required to consolidate the assets and liabilities of the entity. The primary beneficiary of a VIE is the enterprise that has the power to direct the activities of a VIE that most significantly impacts the VIE’s economic performance and has the obligation to absorb losses or receive benefits that could 129 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 potentially be significant to the VIE. The determination of the primary beneficiary for a VIE can be complex and requires management judgment regarding the expected results of the entity and how those results are absorbed by variable interest holders, as well as which party has the power to direct activities that most significantly impact the performance of the VIEs. Our involvement with VIEs consists of excess of loss reinsurance agreements with special purpose insurers domiciled in Bermuda. These entities finance the reinsurance coverage by issuing mortgage insurance-linked notes to unaffiliated investors. The assets of the VIEs are deposited in reinsurance trusts for our benefit that will be the source of reinsurance claim payments. Our involvement with these VIEs does not result in the unilateral power to direct the activities that most significantly affect the VIEs’ economic performance or result in the obligation to absorb losses or the right to receive benefits. Accordingly, consolidation of the VIEs is not required. See Note 6 f or details. Leases Our leased assets are classified as operating leases and consist of office space in two locations in the United States. Lease payments included in the calculation of our lease liability include fixed amounts contained within each rental agreement and variable lease payments that are based upon an index or rate. We have elected to combine lease and non-lease components, as permitted under the accounting guidance, and as a result, non-lease components are included in the calculation of our lease liability as opposed to being separated and accounted for as consideration under revenue recognition accounting. The right-of-use asset and the lease liability are included in other assets and other liabilities, respectively. Accounting Pronouncements Adopted Credit Losses On January 1, 2021, we early adopted new accounting guidance related to accounting for credit losses on financial instruments. The guidance requires entities to recognize an allowance equal to its estimate of lifetime expected credit losses and applies to most debt instruments not measured at fair value. Discussion of adoption of this guidance in relation to our portfolio of fixed maturity securities is included in the discussion of the allowance for credit losses and impairments of available-for-sale securities, above. The new guidance further requires that expected credit losses on premiums receivable are measured in accordance with the credit loss requirements for financial instruments measured at amortized cost. Due to the short-term nature of our premiums receivable, we consider lifetime expected credit losses on premiums receivable to be consistent with our current allowance and as a result the new accounting guidance did not have an impact on premiums receivable upon adoption. The allowance for credit losses on premiums receivable is not material. The new guidance also requires the recognition of an allowance for expected credit losses as a liability in our consolidated balance sheet for off-balance sheet credit exposures, including private placement investments. We adopted the guidance related to our off-balance sheet credit exposures using the modified retrospective method, which did not have an impact on our consolidated financial statements. Fair Value Disclosures On January 1, 2020, we adopted new accounting guidance related to fair value disclosure requirements as part of the Financial Accounting Standards Board’s (the “FASB”) disclosure framework project. The guidance adds, eliminates and modifies certain disclosure requirements for fair value measurements. The guidance includes new disclosure requirements related to changes in unrealized gains and losses included in other comprehensive income (loss) for recurring Level 3 fair value 130 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 measurements held at the end of the reporting period and the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements. We adopted this new accounting guidance using the prospective method for disclosures related to changes in unrealized gains and losses included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period, the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty and the retrospective method for all other disclosures. This accounting guidance did not impact our consolidated financial statements but impacted our fair value disclosures. Reference Rate Reform In March 2020 and January 2021, the FASB issued new accounting guidance related to reference rate reform, which was effective for us on January 1, 2020. The guidance provides temporary guidance to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform, which includes the transition away from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. This new guidance provides optional practical expedients and exceptions for applying generally accepted accounting principles to investments, derivatives or other transactions affected by reference rate reform. In addition to the optional practical expedients, the guidance includes a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. We adopted this guidance prospectively and it did not have a significant impact on our consolidated financial statements or disclosures. However, the amendments in this guidance may be elected over time, as reference rate reform activities occur and therefore, this guidance may impact our procedures as we implement measures to transition away from LIBOR. Income Taxes In December 2019, the FASB issued new accounting guidance related to simplifying the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. We early adopted this new accounting guidance on January 1, 2021, using the retrospective method or modified retrospective method for certain changes and prospective method for all other changes, which did not have a significant impact on our consolidated financial statements and disclosures. Accounting Pronouncements Not Yet Adopted No significant new pronouncements. (3) Investments Net Investment Income Sources of net investment income were as follows for the year ended December 31: (Amounts in thousands) 2022 2021 2020 Fixed maturity securities available-for-sale $ 153,649 $ 146,587 $ 136,143 Cash, cash equivalents and short-term investments 7,167 74 2,180 Gross investment income before expenses and fees 160,816 146,661 138,323 Investment expenses and fees ( 5,505 ) ( 5,472 ) ( 5,480 ) Net investment income $ 155,311 $ 141,189 $ 132,843 131 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 Net Investment Gains (Losses) The following table sets forth net investment gains (losses) for the years ended December 31: (Amounts in thousands) 2022 2021 2020 Fixed maturity securities available-for-sale: Gross realized gains $ 1,997 $ 2,077 $ 1,884 Gross realized (losses) ( 4,206 ) ( 1,871 ) ( 3,478 ) Net realized gains (losses) ( 2,209 ) 206 ( 1,594 ) Other-than-temporary impairments — — ( 1,730 ) Change in allowance for credit losses on fixed maturity securities 173 ( 2,330 ) — Net investment gains (losses) $ ( 2,036 ) $ ( 2,124 ) $ ( 3,324 ) 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 December 31: (Amounts in thousands) 2022 2021 2020 Net unrealized gains (losses) on investment securities: Fixed maturity securities $ ( 486,913 ) $ 106,165 $ 264,680 Short-term investments ( 30 ) — — Unrealized gains (losses) on investment securities ( 486,943 ) 106,165 264,680 Income taxes 104,047 ( 22,577 ) ( 56,302 ) Net unrealized investment gains (losses) $ ( 382,896 ) $ 83,588 $ 208,378 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 years ended December 31: (Amounts in thousands) 2022 2021 2020 Beginning balance $ 83,588 $ 208,378 $ 93,431 Cumulative effect of change in accounting, net of taxes — 281 — Unrealized gains (losses) arising during the period: Unrealized gains (losses) on investment securities ( 595,317 ) ( 158,665 ) 140,253 Provision for income taxes 127,088 33,757 ( 27,946 ) Change in unrealized gains (losses) on investment securities ( 468,229 ) ( 124,908 ) 112,307 Reclassification adjustments to net investment (gains) losses, net of taxes of $( 464 ), $ 43 and $( 702 ), respectively 1,745 ( 163 ) 2,640 Change in net unrealized investment gains (losses) ( 466,484 ) ( 125,071 ) 114,947 Ending balance $ ( 382,896 ) $ 83,588 $ 208,378 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. 132 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 Fixed Maturity Securities Available-For-Sale As of December 31, 2022, the amortized cost, gross unrealized gains (losses) and fair value of our investment securities were as follows: (Amounts in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value U.S. government, agencies and GSEs $ 46,319 $ 59 $ ( 1,609 ) $ 44,769 State and political subdivisions 515,935 1,815 ( 97,894 ) 419,856 Non-U.S. government 10,607 — ( 1,258 ) 9,349 U.S. corporate 2,886,269 1,355 ( 240,761 ) 2,646,863 Non-U.S. corporate 716,333 158 ( 63,647 ) 652,844 Residential mortgage-backed 11,162 — ( 119 ) 11,043 Other asset-backed 1,185,048 462 ( 85,474 ) 1,100,036 Total fixed maturity securities available-for-sale $ 5,371,673 $ 3,849 $ ( 490,762 ) $ 4,884,760 Short-term investments $ 3,077 $ — $ ( 30 ) $ 3,047 Total investments $ 5,374,750 $ 3,849 $ ( 490,792 ) $ 4,887,807 As of December 31, 2021, the amortized cost, gross unrealized gains (losses) and fair value of our investment securities 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 on fixed maturity securities classified as available-for-sale as of December 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 December 31, 2022: 133 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 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 $ 43,873 $ ( 1,600 ) 18 $ 96 $ ( 9 ) 1 $ 43,969 $ ( 1,609 ) 19 State and political subdivisions 203,752 ( 40,988 ) 43 196,235 ( 56,906 ) 46 399,987 ( 97,894 ) 89 Non-U.S. government — — — 9,349 ( 1,258 ) 1 9,349 ( 1,258 ) 1 U.S. corporate 2,033,713 ( 131,150 ) 468 568,171 ( 109,611 ) 92 2,601,884 ( 240,761 ) 560 Non-U.S. corporate 486,117 ( 35,515 ) 125 155,345 ( 28,132 ) 27 641,462 ( 63,647 ) 152 Residential mortgage-backed 11,043 ( 119 ) 6 — — — 11,043 ( 119 ) 6 Other asset-backed 655,525 ( 31,684 ) 217 375,810 ( 53,790 ) 71 1,031,335 ( 85,474 ) 288 Total for fixed maturity securities in an unrealized loss position $ 3,434,023 $ ( 241,056 ) 877 $ 1,305,006 $ ( 249,706 ) 238 $ 4,739,029 $ ( 490,762 ) 1,115 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. 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 ) 252 134 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 Contractual Maturities of Fixed Maturity Securities Available-For-Sale The scheduled maturity distribution of fixed maturity securities as of December 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 $ 184,483 $ 183,091 Due after one year through five years 2,241,657 2,104,796 Due after five years through ten years 1,519,920 1,294,391 Due after ten years 229,403 191,403 Subtotal 4,175,463 3,773,681 Residential mortgage-backed 11,162 11,043 Other asset-backed 1,185,048 1,100,036 Total fixed maturity securities available-for-sale $ 5,371,673 $ 4,884,760 As of December 31, 2022, securities issued by the finance and insurance, technology and communications, consumer-non-cyclical and utilities industry groups represented approximately 32 %, 14 %, 11 % 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 December 31, 2022 and 2021, 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 December 31, 2022 and 2021, $ 25.1 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. Equity Method Investments In November 2021, we completed the acquisition of Genworth Financial Mauritius Holdings Limited from Genworth Financial International Holdings, a subsidiary of Genworth, for $ 27 million, its estimated fair value. The primary asset of the entity is a minority ownership interest in a mortgage guarantee business in India. We invested an additional $ 6.5 million during 2022. Based on our ownership percentage, we have concluded that we have significant influence over the entity and have classified our interest as an equity method investment which is recorded within other assets. (4) Fair Value Recurring Fair Value Measurements We hold fixed maturity securities and short-term investments, which are carried at fair value. The fair value of fixed maturity securities and short-term investments 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 or combination approach may be used. These valuation techniques may change from period to period, based on the relevance and availability of market data. 135 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 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 would have resulted in a significant decrease (increase) in the fair value for our fixed maturity securities as of December 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 and short-term investments 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 December 31, 2022 and 2021. 136 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 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 December 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. 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 December 31, 2022: 2022 (Amounts in thousands) Fair value Primary methodologies Significant inputs U.S. government, agencies and GSEs $ 44,769 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 $ 419,856 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 $ 9,349 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 $ 2,246,336 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 $ 481,706 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 137 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 Residential mortgage-backed $ 11,043 OAS-based models, single factor binomial models, internally priced Prepayment and default assumptions, aggregation of bonds with similar characteristics, including collateral type, vintage, tranche type, weighted-average life, weighted-average loan age, issuer program and delinquency ratio, pay up and pay down factors, TRACE reports Other asset-backed $ 1,096,555 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 Internal models A portion of our Level 2 U.S. corporate and non-U.S. corporate securities are valued using internal models. The fair value of these fixed maturity securities was $ 179.9 million and $ 76.0 million, respectively, as of December 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. Short-term investments: The fair value of short-term investments classified as Level 2 is determined after considering prices obtained by pricing services. Level 3 measurements Broker quotes A portion of our 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 $ 6.7 million as of December 31, 2022. Internal models A portion of our U.S. corporate and non-U.S. corporate 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 138 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 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 $ 312.6 million as of December 31, 2022. The following tables set forth our assets by class of instrument that are measured at fair value on a recurring basis as of December 31: 2022 (Amounts in thousands) Total Level 1 Level 2 Level 3 Fixed maturity securities: U.S. government, agencies and GSEs $ 44,769 $ — $ 44,769 $ — State and political subdivisions 419,856 — 419,856 — Non-U.S. government 9,349 — 9,349 — U.S. corporate 2,646,863 — 2,426,237 220,626 Non-U.S. corporate 652,844 — 557,690 95,154 Residential mortgage-backed 11,043 — 11,043 — Other asset-backed 1,100,036 — 1,096,555 3,481 Total fixed maturity securities 4,884,760 — 4,565,499 319,261 Short-term investments 3,047 — 3,047 — Total $ 4,887,807 $ — $ 4,568,546 $ 319,261 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 had no liabilities recorded at fair value as of December 31, 2022 and 2021. 139 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 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: (Amounts in thousands) Beginning balance as of January 1, 2022 Total realized and unrealized gains (losses) Ending balance as of December 31, 2022 Total gains (losses) attributable to assets still held Included in net income Included in OCI Purchases Sales Settlements Transfer into Level 3 (1) Transfer out of Level 3 (1) Included in net income Included in OCI Fixed maturity securities: U.S. corporate $ 220,733 $ ( 54 ) $ ( 35,762 ) $ 54,969 $ ( 5,000 ) $ ( 850 ) $ — $ ( 13,410 ) $ 220,626 $ ( 54 ) $ ( 35,390 ) Non-U.S. corporate 83,664 ( 330 ) ( 10,341 ) 24,687 — ( 10,422 ) 11,615 ( 3,719 ) 95,154 ( 329 ) ( 10,049 ) Other asset-backed 24,223 3 ( 1,996 ) 26,295 — — — ( 45,044 ) 3,481 2 ( 119 ) Total $ 328,620 $ ( 381 ) $ ( 48,099 ) $ 105,951 $ ( 5,000 ) $ ( 11,272 ) $ 11,615 $ ( 62,173 ) $ 319,261 $ ( 381 ) $ ( 45,558 ) _______________ (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. Beginning balance as of January 1, 2021 Total realized and unrealized gains (losses) Ending balance as of December 31, 2021 Total gains (losses) attributable to assets still held (Amounts in thousands) Included in net income Included in OCI Purchases Sales Settlements Transfer into Level 3 (1) Transfer out of Level 3 (1) Included in net income Included in OCI Fixed maturity securities: U.S. corporate $ 119,373 $ ( 121 ) $ ( 6,374 ) $ 126,858 $ — $ ( 8,914 ) $ 7,397 $ ( 17,486 ) $ 220,733 $ ( 121 ) $ ( 6,537 ) Non-U.S. corporate 95,751 786 2,695 46,786 — ( 25,149 ) 3,010 ( 40,215 ) 83,664 ( 251 ) ( 1,148 ) Other asset-backed 13,781 — ( 484 ) 34,493 — ( 11,248 ) — ( 12,319 ) 24,223 — ( 401 ) Total $ 228,905 $ 665 $ ( 4,163 ) $ 208,137 $ — $ ( 45,311 ) $ 10,407 $ ( 70,020 ) $ 328,620 $ ( 372 ) $ ( 8,086 ) _______________ (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. Balance as of January 1, 2020 Total realized and unrealized gains (losses) Balance as of December 31, 2020 Total gains (losses) attributable to assets still held (Amounts in thousands) Included in net income Included in OCI Purchases Sales Settlements Transfer into Level 3 (1) Transfer out of Level 3 (1) Included in net income Included in OCI Fixed maturity securities: U.S. corporate $ 99,862 $ 162 $ 2,663 $ 70,552 $ — $ ( 13,332 ) $ 18,216 $ ( 58,750 ) $ 119,373 $ ( 103 ) $ 4,694 Non-U.S. corporate 77,189 1,683 ( 889 ) 32,000 — ( 16,471 ) 27,641 ( 25,402 ) 95,751 ( 18 ) ( 1,219 ) Other asset-backed 4,038 — 304 40,868 — ( 1,946 ) — ( 29,483 ) 13,781 — ( 122 ) Total $ 181,089 $ 1,845 $ 2,078 $ 143,420 $ — $ ( 31,749 ) $ 45,857 $ ( 113,635 ) $ 228,905 $ ( 121 ) $ 3,353 _______________ (1) The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads. Purchases, sales and settlements represent the activity that occurred during the period that results in a change of the asset but does not represent changes in fair value for the instruments held at the beginning of the period. The amount presented for realized and unrealized gains (losses) included in net income for fixed maturity securities primarily represents amortization and accretion of premiums and discounts on certain fixed maturity securities recorded within net investment income. 140 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 The following table presents a summary of the significant unobservable inputs used for certain asset fair value measurements that are based on internal models and classified as Level 3 as of December 31, 2022: (Amounts in thousands) Valuation technique Fair value (1) Unobservable input Range (bps) Weighted-average (2) (bps) Fixed maturity securities: U.S. corporate Internal models $ 217,399 Credit spreads 55 - 205 140 Non-U.S. corporate Internal models $ 95,154 Credit spreads 83 - 211 129 _______________ (1) Certain classes of instruments classified as Level 3 are excluded as a result of not being material or due to limitations in being able to obtain the underlying inputs used by certain third-party sources, such as broker quotes, used as an input in determining fair value. (2) Unobservable inputs weighted by the relative fair value of the associated instrument. Liabilities not required to be carried at fair value We have certain financial instruments that are not recorded at fair value, including cash and cash equivalents and accrued investment income, the carrying value of which approximate fair value due to the short-term nature of these instruments and are not included in this disclosure. The following represents our estimated fair value of financial liabilities that are not required to be carried at fair value, classified as Level 2, as of the dates indicated: December 31, 2022 2021 (Amounts in thousands) Carrying amount Fair value Carrying amount Fair value Long-term borrowings $ 742,830 $ 739,020 $ 740,416 $ 821,033 (5) Loss reserves Activity for the liability for loss reserves is summarized as follows: (Amounts in thousands) 2022 2021 2020 Loss reserves, beginning of year $ 641,325 $ 555,679 $ 235,062 Run-off reserves ( 681 ) ( 654 ) ( 1,597 ) Net loss reserves, beginning of year 640,644 555,025 233,465 Losses incurred related to current accident year 219,461 141,225 364,548 Losses incurred related to prior accident years ( 313,652 ) ( 15,822 ) 16,202 Total incurred (1) ( 94,191 ) 125,403 380,750 Losses paid related to current accident year ( 352 ) ( 237 ) ( 1,103 ) Losses paid related to prior accident years ( 27,771 ) ( 39,547 ) ( 58,087 ) Total paid (1) ( 28,123 ) ( 39,784 ) ( 59,190 ) Net loss reserves, end of year 518,330 640,644 555,025 Run-off reserves 678 681 654 Loss reserves, end of year $ 519,008 $ 641,325 $ 555,679 _______________ (1) Losses and LAE incurred and paid exclude losses related to our run-off business. 141 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 Losses incurred related to insured events of the current accident year relate to defaults that occurred in that year and represent the estimated ultimate amount of losses to be paid on such defaults. Losses incurred related to insured events of prior accident years represent the (favorable) or unfavorable development of reserves as a result of actual claim rates and claim amounts being different than those we estimated when originally establishing the reserves. Such estimates are based on our historical experience which we believe is representative of expected future losses at the time of estimation. As a result of the extended period of time that may exist between the reporting of a delinquency and the claim payment, as well as changes in economic conditions and the real estate market, significant uncertainty and variability exist on amounts ultimately paid. The liability for loss reserves represents our current best estimate; however, there may be future adjustments to this estimate and related assumptions. Such adjustments, reflecting any variety of new and adverse trends, could possibly be significant and result in future increases to reserves by amounts that could be material to our results of operations, financial condition and liquidity. In 2022, losses and LAE incurred of $ 219.5 million related to insured events of the current accident year was primarily attributable to new delinquencies coupled with $ 46 million of reserve strengthening on current year delinquencies. Due to uncertainty in the current economic environment, we increased the expected claim rate on new delinquencies in 2022, which contributed to these amounts. A portion of new delinquencies in the periods presented were from borrowers participating in deferred or reduced payments (“forbearance”) as a result of COVID-19. Through the third quarter of 2022, when establishing loss reserves for borrowers in forbearance, we assumed a lower rate of delinquencies becoming active claims, which has the effect of producing a lower reserve compared to delinquencies that are not in forbearance. Historical experience with localized natural disasters, such as hurricanes, indicates a higher cure rate for borrowers in forbearance. Unlike a hurricane where the natural disaster occurs at a point in time and the rebuild starts soon after, COVID-19 brought ongoing displacement to the mortgage insurance market, making it more difficult to determine the effectiveness of forbearance and the resulting claim rates for new delinquencies in forbearance plans. Given this difference, we initially leveraged our prior hurricane experience and have recently layered in cure activity from COVID-19 related delinquencies as considerations in the establishment of an appropriate claim rate estimate for new delinquencies in forbearance plans that have emerged as a result of COVID-19. Loss reserves recorded on these new delinquencies have a high degree of estimation due to the level of uncertainty regarding whether delinquencies in forbearance will ultimately cure or result in claim payments as well as the timing and severity of those payments. During 2022, we experienced favorable reserve development of $ 313.7 million in incurred losses attributable to prior years, primarily from better-than-expected cure performance on COVID-19 delinquencies from 2020 and 2021. The change was almost exclusively attributable to $ 314 million in favorable reserves adjustments. During 2021, we experienced favorable reserve development of $ 15.8 million in incurred losses attributable to prior years, primarily from lower expected claim rates on pre-COVID-19 delinquencies. Included within this decrease to incurred losses attributable to prior years, we recorded $ 22.0 million in favorable reserve adjustments. In 2020, losses and LAE incurred of $ 364.5 million related to insured events of the current accident year was primarily attributable to a significant increase in the number of new delinquencies driven mostly by borrower forbearance as a result of COVID-19. During 2020, we experienced unfavorable reserve development of $ 16.2 million in incurred losses attributable to prior years, primarily from higher expected claim rates due to economic conditions occurring in the COVID-19 environment. Included within this increase to incurred losses attributable to prior years, we recorded $ 28.4 million in unfavorable reserves adjustments, primarily associated with higher expected, future claim rates, partially offset by a $ 12.2 million decrease, primarily due to higher-than-expected delinquency cures. 142 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 The following table sets forth information about incurred claims, as well as cumulative number of reported delinquencies and the total of incurred-but-not-reported (“IBNR”) liabilities plus expected development on reported claims included within the net incurred claims as of December 31, 2022. The information about the incurred claims development for the years ended December 31, 2012 to 2022, is presented as supplementary information. (Dollar amounts in thousands) Incurred claims and allocated loss adjustment expenses, net of reinsurance (2) Total IBNR liabilities including expected development on reported claims as of December 31, 2022 Number of reported delinquencies (3) For the years ended December 31, Accident year (1) 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Unaudited 2013 $ 475,120 $ 407,106 $ 391,523 $ 386,794 $ 383,366 $ 382,231 $ 380,949 $ 381,546 $ 381,064 $ 380,444 $ 74 22,502 2014 — 327,857 287,865 268,980 260,752 258,872 258,172 259,006 258,807 258,272 105 17,809 2015 — — 235,251 208,149 186,077 180,923 179,650 179,599 179,258 178,664 120 15,400 2016 — — — 198,121 161,041 138,784 136,381 136,754 136,258 135,199 155 13,970 2017 — — — — 170,713 120,568 101,755 105,079 103,565 101,419 147 15,097 2018 — — — — — 116,842 83,959 84,138 78,367 73,164 235 11,269 2019 — — — — — — 105,734 111,089 97,490 71,053 468 11,883 2020 — — — — — — — 364,547 362,347 107,337 402 38,863 2021 — — — — — — — — 141,225 119,364 513 12,585 2022 — — — — — — — — — 219,461 24,266 14,329 Total incurred $ 1,644,377 $ 26,485 _______________ (1) Represents the year in which first monthly mortgage payments have been missed by the borrower. (2) Excludes incurred claims and allocated LAE related to run-off business. (3) Represents reported and outstanding delinquencies less actual cures as of December 31 for each respective accident year. The following table sets forth paid claims development, net of reinsurance, for the year ended December 31, 2022, and a reconciliation to our total loss reserves as of December 31, 2022. The information about paid claims development for the years ended December 31, 2012 to 2022, is presented as supplementary information. (Amounts in thousands) Cumulative paid claims and allocated claim adjustment expenses, net of reinsurance (2) Accident year (1) For the years ended December 31, 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Unaudited 2013 $ 44,334 $ 202,095 $ 297,029 $ 340,031 $ 361,973 $ 372,374 $ 375,243 $ 376,138 $ 377,111 $ 377,462 2014 — 21,494 126,404 195,461 232,502 246,963 252,549 254,218 254,835 255,273 2015 — — 12,688 84,706 145,362 167,458 172,825 174,561 175,513 176,433 2016 — — — 9,593 63,585 109,793 123,800 126,893 128,160 129,267 2017 — — — — 5,733 45,879 77,297 87,272 89,896 92,079 2018 — — — — — 3,134 31,625 48,183 55,267 59,046 2019 — — — — — — 1,871 17,595 30,728 38,283 2020 — — — — — — — 1,104 8,268 12,854 2021 — — — — — — — — 237 2,192 2022 — — — — — — — — — 352 Total paid $ 1,143,241 Total incurred $ 1,644,377 Total paid 1,143,241 All outstanding liabilities before 2013, net of reinsurance 17,194 Run-off reserves 678 Total loss reserves $ 519,008 _______________ (1) Represents the year in which first monthly mortgage payments have been missed by the borrower. (2) Excludes cumulative paid claims and allocated claim adjustment expenses related to run-off business. 143 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 The following table sets forth our average payout of incurred claims by age as of December 31, 2022: Average annual percentage payout of incurred claims, net of reinsurance, by age (unaudited) (1) Years 1 2 3 4 5 6 7 8 9 10 Percentage of payout 4.8 % 30.1 % 24.5 % 11.2 % 4.1 % 1.8 % 0.7 % 0.3 % 0.2 % 0.1 % _______________ (1) Excludes run-off business. (6) Reinsurance We reinsure a portion of our policy risks to other companies in order to reduce our ultimate losses, diversify our exposures and comply with regulatory requirements. We also assume certain policy risks written by other companies. Reinsurance does not relieve us from our obligations to policyholders. In the event that the reinsurers are unable to meet their obligations, we remain liable for the reinsured claims. We monitor both the financial condition of individual reinsurers and risk concentrations arising from similar geographic regions, activities and economic characteristics of reinsurers to lessen the risk of default by such reinsurers. The following table sets forth the effects of reinsurance on premiums written and earned for the years ended December 31: (Amounts in thousands) 2022 2021 2020 Net premiums written: Direct $ 975,351 $ 985,826 $ 943,504 Assumed 259 319 432 Ceded ( 79,750 ) ( 71,822 ) ( 49,083 ) Net premiums written $ 895,860 $ 914,323 $ 894,853 Net premiums earned: Direct $ 1,018,953 $ 1,046,452 $ 1,020,016 Assumed 259 319 432 Ceded ( 79,750 ) ( 71,822 ) ( 49,083 ) Net premiums earned $ 939,462 $ 974,949 $ 971,365 The difference of $ 43.6 million between written premiums of $ 895.9 million and earned premiums of $ 939.5 million represents the decrease in unearned premiums for the year ended December 31, 2022. The decrease in unearned premiums was mainly the result of policy cancellations in our single premium mortgage insurance product. Assumed premium as a percentage of net premium earned is 0.0 % for the years ended December 31, 2022, 2021 and 2020. Excess-of-loss reinsurance We engage in excess-of-loss (“XOL”) insurance transactions either through a panel of traditional reinsurance providers or through collateralized reinsurance with unaffiliated special purpose insurers (“Triangle Re Entities”). During the respective coverage periods of these agreements, EMICO retains the first layer of aggregate loss exposure on covered policies while the reinsurer provides the second layer of coverage, up to the defined reinsurance coverage amount. EMICO retains losses in excess of the respective reinsurance coverage amount. The Triangle Re Entities fully collateralize their coverage by issuing insurance-linked notes (“ILNs”) to eligible capital market investors in unregistered private offerings. Traditional reinsurance providers collateralize a portion of their coverage by holding funds in trust. We believe that the risk transfer 144 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 requirements for reinsurance accounting were met as these excess of loss insurance transactions assume significant insurance risk and a reasonable possibility of significant loss. EMICO has rights to terminate the ILNs or traditional XOL reinsurance agreements upon the occurrence of certain events. The following table presents the issue date, policy dates, initial and current first layer retained aggregate loss and initial and current reinsurance coverage amount under each reinsurance transaction. Current amounts are presented as of December 31, 2022: Mortgage insurance-linked notes (Amounts in millions) Issue date Policy dates Initial first layer retained loss Current first layer retained loss Initial reinsurance coverage Current reinsurance coverage Triangle Re 2020-1 Ltd. 10/22/2020 1/01/2020 - 8/31/2020 $ 522 $ 522 $ 350 $ 65 Triangle Re 2021-1 Ltd. 3/02/2021 1/01/2014 - 12/31/2018, 10/01/2019 - 12/31/2019 $ 212 $ 212 $ 495 $ 147 Triangle Re 2021-2 Ltd. 4/16/2021 9/01/2020 - 12/31/2020 $ 189 $ 189 $ 303 $ 248 Triangle Re 2021-3 Ltd. 9/02/2021 1/01/2021 - 6/30/2021 $ 304 $ 303 $ 372 $ 346 Total $ 806 Traditional excess-of-loss reinsurance (Amounts in millions) Issue date Policy dates Initial first layer retained loss Current first layer retained loss Initial reinsurance coverage Current reinsurance coverage 2020 XOL 1/01/2020 1/01/2020 - 12/31/2020 $ 691 $ 691 $ 168 $ 54 2021 XOL 2/04/2021 1/01/2021 - 12/31/2021 $ 671 $ 671 $ 206 $ 192 2022-1 XOL 1/27/2022 1/01/2022 - 12/31/2022 $ 462 $ 462 $ 196 $ 196 2022-2 XOL 1/27/2022 1/01/2022 - 12/31/2022 $ 385 $ 385 $ 25 $ 25 2022-3 XOL 3/24/2022 7/01/2021 - 12/31/2021 $ 317 $ 317 $ 289 $ 282 2022-4 XOL 3/24/2022 7/01/2021 - 12/31/2021 $ 264 $ 264 $ 36 $ 36 2022-5 XOL 9/15/2022 1/01/2022 - 6/30/2022 $ 256 $ 256 $ 201 $ 193 Total $ 978 (7) Borrowings The following table sets forth long-term borrowings as of December 31: (Amounts in thousands) 2022 2021 6.5 % Senior Notes, due 2025 $ 750,000 $ 750,000 Deferred borrowing charges ( 7,170 ) ( 9,584 ) Total $ 742,830 $ 740,416 On August 21, 2020, we issued $ 750 million in aggregate principal amount of 6.5 % senior notes due in 2025. The notes mature on August 15, 2025, but at any time on or after February 15, 2025, we may redeem the notes in whole or in part at our option at 100 % of the principal amount plus accrued and unpaid interest. The 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. We committed to retain $ 300 million of the net proceeds from the issuance of these notes that can be drawn down exclusively for our debt service or to contribute to EMICO to meet its regulatory capital needs. As of December 31, 2022, the balance of the 2025 Senior Notes proceeds required to be held by the holding company was approximately $ 203 million. 145 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 Revolving Credit Agreement On June 30, 2022, we entered into a credit agreement with a syndicate of lenders that provides for a five-year , unsecured revolving credit facility (the “Facility”) in the initial aggregate principal amount of $ 200 million, including the ability for EHI to increase the commitments under the Facility, on an uncommitted basis, by an additional aggregate principal amount of up to $ 100 million. Borrowings under the Facility will accrue interest at a floating rate tied to a standard short-term borrowing index, selected at EHI’s option, plus an applicable margin. The applicable margins are based on the ratings established by certain debt rating agencies for EHI’s senior unsecured debt. We may use borrowings under the Facility for working capital needs and general corporate purposes, including the execution of dividends to our shareholders and capital contributions to our insurance subsidiaries. The Facility contains several covenants, including financial covenants relating to minimum net worth, capital and liquidity levels, maximum debt to capitalization level and PMIERs compliance. We are in compliance of all covenants of the Facility and the Facility remained undrawn as of December 31, 2022. (8) Income taxes Income before income taxes of $ 898.2 million, $ 695.1 million and $ 472.4 million in 2022, 2021 and 2020, respectively, was domestic. The total provision for income taxes was as follows for the years ended December 31: (Amounts in thousands) 2022 2021 2020 Current federal income taxes $ 192,191 $ 147,213 $ 89,940 Deferred federal income taxes ( 1,971 ) ( 1,454 ) 9,619 Total federal income taxes 190,220 145,759 99,559 Current state income taxes 4,171 2,742 924 Deferred state income taxes ( 326 ) 30 1,514 Total state income taxes 3,845 2,772 2,438 Total provision for income taxes $ 194,065 $ 148,531 $ 101,997 We had current income taxes payable of $ 9.1 million as of December 31, 2022 which was recorded in other liabilities. We had current income taxes receivable of $ 1.1 million as of December 31, 2021 which was recorded in other assets. We paid federal taxes of $ 182.2 million and state taxes of $ 4.0 million for the year ended December 31, 2022; federal taxes of $ 143.5 million and state taxes of $ 2.4 million for the year ended December 31, 2021; and federal taxes of $ 55.4 million and state taxes of $ 1.6 million for the year ended December 31, 2020. The reconciliation of the federal statutory tax rate to the effective income tax rate was as follows for the years ended December 31: 2022 2021 2020 Statutory U.S. federal income tax rate 21.0 % 21.0 % 21.0 % Increase (reduction) in rate resulting from: State income tax, net of federal income tax effect 0.3 0.3 0.4 Other, net (1) 0.3 0.1 0.2 Effective rate 21.6 % 21.4 % 21.6 % _______________ (1) “Other, net” is comprised primarily of nondeductible expenses, prior year true-ups and tax-exempt income. 146 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 The components of the deferred income taxes were as follows as of December 31: (Amounts in thousands) 2022 2021 Assets: Accrued commissions and general expenses $ 12,162 $ 8,670 Net unrealized losses on investment securities 104,047 — Unearned premium and loss reserves 33,576 35,331 State income taxes 8,297 6,961 Other 3,330 3,696 Gross deferred income tax assets 161,412 54,658 Valuation allowance ( 7,284 ) ( 6,268 ) Total deferred income tax assets 154,128 48,390 Liabilities: Deferred acquisition costs 5,460 5,697 Net unrealized gains on investment securities — 22,577 Investments 17,512 16,923 Other 3,683 4,779 Total deferred income tax liabilities 26,655 49,976 Net deferred income tax asset (liability) $ 127,473 $ ( 1,586 ) The above valuation allowances of $ 7.3 million and $ 6.3 million as of December 31, 2022 and 2021, respectively, related to state deferred tax assets. The state deferred tax assets related primarily to the future deductions associated with non-insurance and insurance net operating loss (“NOL”) carryforwards. As of December 31, 2022, there were no U.S. federal NOL carryforwards. Except as discussed above with regard to our state deferred tax assets, we have not established a valuation allowance with respect to any other deferred tax assets as of December 31, 2022, based primarily upon projections of future taxable income. With respect to deferred tax assets associated with unrealized losses on investment securities, management has the ability and intent to execute tax planning strategies, including to hold those investment assets to recovery or maturity. We have determined that such strategies are prudent and feasible, and would be implemented, if necessary, to ensure recognition of the deferred tax asset. After consideration of all available evidence, we concluded that it is more likely than not that these deferred tax assets will be realized. If our actual results do not validate the current projections of pre-tax income, we may be required to record an additional valuation allowance which could have a material impact on our consolidated financial statements in future periods. There were no unrecognized tax benefits as of December 31, 2022 and 2021. We recognize accrued interest and penalties related to unrecognized tax benefits as components of the provision for income taxes. We have recorded $ 0 of benefits related to interest and penalties for 2022, 2021 and 2020. As previously discussed, we have elected to participate in the Genworth consolidated return. All Genworth companies domesticated in the United States are included in the Genworth consolidated return as allowed by the tax law and regulations. We have a tax sharing agreement in place and all intercompany balances related to this agreement are settled at least annually. We are not currently subject to any significant examinations by federal or state income tax authorities. Generally, we are no longer subject to federal or state income tax examinations for years prior to 2019. We are part of the 2021 Amended and Restated Tax Allocation Agreement (“TAA”) between Genworth and certain of our subsidiaries. The TAA was approved by state insurance regulators and our 147 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 Board of Directors. The tax allocation methodology is based on the separate return liabilities with offsets for losses and credits utilized to reduce the current consolidated tax liability as allowed by applicable law and regulation. Our policy is to settle intercompany tax balances quarterly, with a final settlement after filing of Genworth’s federal consolidated U.S. corporate income tax return. Additionally, Enact Mortgage Insurance Corporation, Enact Mortgage Reinsurance Corporation, Enact Mortgage Insurance Corporation of North Carolina and Enact Financial Assurance Corporation (collectively, the “MI Group”), were parties to a supplemental tax sharing agreement that allowed them to accelerate the utilization of benefits as if they filed a stand-alone MI Group federal income tax return, even if those benefits had not been utilized in the consolidated federal return (“deemed used losses”). If any deemed used losses are subsequently actually used in a consolidated return, the members of the MI Group which received the benefit for such deemed used losses would not receive a second benefit for such losses. Also, if any member of the MI Group received benefit for any deemed used losses and leaves the consolidated group before such deemed used losses are actually used in a consolidated return, such member will repay such benefit received. Any benefits generated by the MI Group after January 1, 2021 will follow the TAA mentioned above, which does not allow for an acceleration when utilizing benefits. The TAA prevents any allocation of tax to a separate company that is greater than the tax incurred on a separate company basis, subject to consolidated loss carry-forward adjustments. The total tax refund allocated to the MI Group, therefore, may exceed the consolidated tax refund received. Separate Return Method If during the year ended December 31, 2022, we had computed taxes using the separate return method, the unaudited pro forma provision for income taxes would remain unchanged. (9) Employee benefits As a consolidated company within Genworth, our employees are generally provided a number of Genworth employee benefits. Genworth, as sponsor of the plans described below (collectively, “Shared Plans”), is ultimately responsible for maintenance of these plans in compliance with applicable laws. Our obligation results from an allocation of our share of expenses from Genworth’s plans based on benefits eligible earnings. Benefits eligible earnings includes base pay, overtime, annual incentives and sales commissions. We account for such Shared Plans as multiemployer benefit plans. Accordingly, we do not record an asset or liability to recognize the funded status of the Shared Plans. We recognize a liability only for any required contributions to the Shared Plans that are accrued and unpaid at the balance sheet date, which is included within other liabilities in the consolidated balance sheets. Pension and Retiree Health and Life Insurance Benefit Plans Most of our employees are enrolled in a qualified defined contribution pension plan sponsored by Genworth. The plan is 100 % funded by Genworth. Genworth makes annual contributions to each employee’s pension plan account based on the employee’s age, service and eligible pay. Employees are vested in the plan after three years of service. Expenses associated with the qualified defined contribution pension plan were $ 2.1 million, $ 2.1 million, and $ 2.7 million in 2022, 2021 and 2020, respectively. In addition, certain employees also participate in non-qualified defined contribution plans and qualified and non-qualified defined benefit pension plans sponsored by Genworth. Expenses associated with non-qualified defined contribution plans were $ 1.2 million, $ 1.0 million and $ 0.8 million for 2022, 2021 and 2020, respectively. Expenses allocated to us for qualified and non-qualified defined benefit pension plans were $ 0.3 million, $ 0.4 million, and $ 0.3 million in 2022, 2021 and 2020, respectively. 148 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 Genworth provides retiree health benefits to our employees hired prior to January 1, 2005, who meet certain service requirements. Under this plan, retirees over 65 years of age receive a subsidy towards the purchase of a Medigap policy, and retirees under 65 years of age receive medical benefits similar to our employees’ medical benefits. In December 2009, Genworth announced that eligibility for retiree medical benefits will be limited to associates who were within 10 years of retirement eligibility as of January 1, 2010. Genworth also provides retiree life and long-term care insurance benefits. Expenses allocated to us for retiree health and life insurance benefits plans were $ 0.5 million, $ 0.5 million and $ 0.5 million for the years ended 2022, 2021 and 2020, respectively. Savings Plans Our employees participate in qualified and non-qualified defined contribution savings plans that allow employees to contribute a portion of their pay to the plan on a pre-tax basis. Genworth makes matching contributions equal to 100 % of the first 4 % of pay deferred by an employee and 50 % of the next 2 % of pay deferred by an employee so that our matching contribution does not exceed 5 % of an employee’s pay. Employees do not vest immediately in Genworth matching contributions but fully vest in the matching contributions after two complete years of service. One option available to employees in the defined contribution savings plan is the ClearCourse ® variable annuity option offered by certain of Genworth’s life insurance subsidiaries. Prior to January 2021, employees also had the option of purchasing a fund which invests primarily in Genworth stock as part of the defined contribution savings plan. Several years ago, Genworth had contracted with Newport Trust Company (“Newport”) to act as an independent fiduciary and investment manager with respect to Genworth stock in the defined contribution savings plan. The independent fiduciary’s role is to act on behalf of a plan to protect the interests of participants and beneficiaries. As part of its on-going process, on January 8, 2021, Newport froze the fund and accordingly, future investments or transfers into the fund are no longer permitted. Our cost associated with these plans was $ 3.2 million, $ 3.4 million and $ 3.2 million for the years ended December 31, 2022, 2021 and 2020, respectively. Health and Welfare Benefits for Active Employees We provide health and welfare benefits to our employees, including health, life, disability dental and long-term care insurance, among others. Our long-term care insurance is provided through Genworth’s long-term care insurance products. (10) Share-based compensation EHI share-based compensation Beginning with our initial public offering in 2021, we offer share-based awards to employees and directors including restricted stock units (“RSUs”) and performance stock units (“PSUs”) for employees and deferred stock units (“DSUs”) to directors. In 2021, the Enact Holdings, Inc. 2021 Omnibus Incentive Plan (the “2021 Omnibus Plan”) was adopted and approved by EHI’s stockholders. Under the 2021 Omnibus incentive Plan, EHI was authorized to grant a maximum number of shares of Common Stock for issuance not to exceed 4 million shares. Share-based compensation expense under the 2021 Omnibus Plan was $ 9.9 million and $ 1.5 million, for the years ended December 31, 2022 and 2021, respectively, and is recorded with acquisition and operating expenses, net of deferrals in the consolidated statement of income. Stock-based compensation expense was recognized evenly on a straight-line attribution method over the awards’ respective vesting period. 149 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 During 2022 and 2021, the Company issued RSUs to our employees with average restriction periods of three years and a weighted average fair value of $ 22.18 and $ 19.02 , respectively. Each grant was measured at the fair value of a share of the Company’s Class A Common Stock on the grant date. The PSUs granted in 2022 have a three-year measurement period starting on January 1, 2022, going through December 31, 2024. The performance metrics are based on Enact’s consolidated book value per share growth at the end of the performance period, calculated as the increase in book value divided by the number of shares outstanding from January 1, 2022 to December 31, 2024. The PSUs were granted at fair value as of the approval date by Enact Holdings’ Board of Directors. In connection with cash dividends paid in 2022 and the fourth quarter of 2021, dividend equivalent shares were issued to RSU, PSU and DSU holders as of the dividend date. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our board of directors. The following table summarizes the status of the equity-based awards as of December 31, 2022: RSUs PSUs DSUs Awards in thousands Number of awards Weighted- average grant date fair value Number of awards Weighted- average grant date fair value Number of awards Weighted- average grant date fair value Balance as of December 31, 2020 — $ — — $ — — $ — Granted 628 $ 19.02 — $ — 17 $ 20.87 Dividend equivalents 36 $ 21.25 — $ — — $ — Terminated ( 10 ) $ 19.00 — $ — — $ — Balance as of December 31, 2021 654 $ 19.02 — $ — 17 $ 20.87 Granted 322 $ 22.18 156 $ 22.15 78 $ 22.02 Dividend equivalents 62 $ 24.00 10 $ 24.00 5 $ 23.98 Exercised ( 3 ) $ 19.00 — $ — — $ — Terminated ( 26 ) $ 19.73 — $ — — $ — Balance as of December 31, 2022 1,009 $ 20.07 166 $ 22.15 100 $ 21.81 As of December 31, 2022 and December 31, 2021, total unrecognized share-based compensation expense related to non-vested awards not yet recognized was $ 12.6 million and $ 11.0 million, respectively. This expense is expected to be recognized over a weighted-average period of approximately two years . Genworth share-based compensation Prior to May 2012, share-based awards were granted to employees and directors, including stock options, stock appreciation rights (“SARs”) and RSUs under the 2004 Genworth Financial, Inc. Omnibus Incentive Plan (the “2004 Omnibus Incentive Plan”). In May 2012, the 2012 Genworth Financial, Inc. Omnibus Incentive Plan (the “2012 Omnibus Incentive Plan”) was approved by Genworth’s stockholders. Under the 2012 Omnibus Incentive Plan, Genworth was authorized to grant 16 million equity awards, plus a number of additional shares not to exceed 25 million underlying awards outstanding under the 2004 Omnibus Incentive Plan. In December 2018, the 2018 Genworth Financial, Inc. Omnibus Incentive Plan (the “2018 Omnibus Incentive Plan”) was approved by Genworth’s stockholders. Under the 2018 Omnibus Incentive Plan, Genworth is authorized to grant 25 million equity awards, plus a number of additional shares not to exceed 20 million underlying awards outstanding under the prior Plans. The 2004 Omnibus Incentive Plan together with the 2012 Omnibus Incentive Plan and the 2018 Omnibus Incentive Plan are referred to collectively as the “Omnibus Incentive Plans.” Share-based compensation expense under the Omnibus Incentive Plans was $ 3.9 million, $ 5.5 million and $ 4.4 million for the years ended December 31, 2022, 2021 and 2020, respectively, and was 150 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 included within acquisition and operating expenses, net of deferrals in the consolidated statements of income. For awards issued prior to January 1, 2006, share-based compensation expense was recognized on a graded vesting attribution method over the awards’ respective vesting schedule. For awards issued after January 1, 2006, share-based compensation expense was recognized evenly on a straight-line attribution method over the awards’ respective vesting period. For purposes of determining the fair value of share-based payment awards on the date of grant, Genworth has historically used the Black-Scholes Model. However, no SARs or stock options were granted during 2022, 2021 or 2020 and therefore the Black-Scholes Model was not used in those respective years. The Black-Scholes Model requires the input of certain assumptions that involve judgment. Circumstances may change, and additional data may become available over time, which could result in changes to these assumptions and methodologies. During 2021 and 2020, Genworth issued RSUs to our employees with average restriction periods of three years , with a fair value of $ 3.31 and $ 3.53 , respectively, which were measured at the market price of a share of Genworth’s Class A Common Stock on the grant date. During 2021 and 2020, we granted PSUs with a weighted-average fair value of $ 3.45 and $ 3.03 , respectively. The PSUs were granted at market price as of the approval date by Genworth’s Board of Directors. PSUs may be earned over a three-year period based upon the achievement of certain performance goals. The PSUs granted in 2021 have a three-year measurement period starting on January 1, 2021, going through December 31, 2023. The performance metrics are based on Genworth’s consolidated adjusted operating income and its stockholder return relative to certain of its peer companies as of the grant date. The PSUs granted in 2020 have a three-year measurement period starting on January 1, 2020, going through December 31, 2022. The performance metrics are based on adjusted operating income of Genworth’s U.S. Mortgage Insurance and Australia Mortgage Insurance segments and gross incremental annual premiums in Genworth’s long-term care insurance business, defined as approved weighted-average premium rate increases multiplied by the annualized in-force premiums. For all PSU awards granted, the compensation committee of Genworth’s Board of Directors determines and approves no later than March 15, following the end of the three-year performance period for each applicable performance period, the number of units earned and vested for each distinct performance period. Expense associated with our PSUs was less than $ 1.0 million in 2022, $ 1.3 million in 2021 and less than $ 1.0 million in 2020. In 2021 and 2020, Genworth granted cash awards with a fair value of $ 1.00 . Genworth has performance-based cash awards, which vested and paid out in 2021. Genworth also has time-based cash awards, which vest over three years , with a third of the payout occurring per year as determined by the 151 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 vesting period, beginning on the first anniversary of the grant date. The following table summarizes cash award activity as of December 31, 2022, 2021 and 2020: (Number of awards in thousands) Performance-based cash awards Time-based cash awards Balance as of January 1, 2020 1,453 5,536 Granted — 3,569 Performance adjustment 261 — Vested ( 1,178 ) ( 2,324 ) Forfeited ( 6 ) ( 214 ) Balance as of January 1, 2021 530 6,567 Granted — 4,330 Performance adjustment 449 83 Vested ( 979 ) ( 3,348 ) Forfeited — ( 685 ) Balance as of December 31, 2021 — 6,947 Granted — — Employee transfer — 556 Vested — ( 3,600 ) Forfeited — ( 115 ) Balance as of December 31, 2022 — 3,788 The following table summarizes stock option activity as of December 31, 2020: (Shares in thousands) Shares subject to option Weighted-average exercise price Balance as of January 1, 2020 78 $ 14.18 Granted — $ — Exercised — $ — Expired and forfeited ( 78 ) $ 14.18 Balance as of December 31, 2020 — $ — There was no stock option activity for the periods ended December 31, 2022 and 2021 and no stock options outstanding as of December 31, 2022. 152 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 The following table summarizes the status of other equity-based awards as of December 31, 2022, 2021 and 2020: RSUs PSUs SARs Awards in thousands Number of awards Weighted- average grant date fair value Number of awards Weighted- average grant date fair value Number of awards Weighted- average grant date fair value Balance as of January 1, 2020 135 $ 3.36 135 $ 4.61 642 $ 2.76 Granted 134 $ 3.53 134 $ 3.03 — $ — Exercised ( 45 ) $ 3.36 — $ — — $ — Terminated — $ — — $ — ( 97 ) $ 2.77 Balance as of January 1, 2021 224 $ 3.46 269 $ 3.82 545 $ 2.76 Granted 316 $ 3.31 303 $ 3.45 — $ — Employee transfer — $ — — $ — 18 $ 2.77 Exercised ( 90 ) $ 3.44 — $ — — $ — Terminated — $ — — $ — ( 87 ) $ 3.12 Balance as of December 31, 2021 450 $ 3.36 572 $ 3.63 476 $ 2.70 Granted — $ — — $ — — $ — Performance adjustment — $ — 135 $ 4.61 — $ — Employee transfer 32 $ 5.13 — $ — 49 $ 2.71 Exercised ( 195 ) $ 3.37 ( 270 ) $ 4.61 — $ — Terminated — $ — — $ — ( 160 ) $ 2.54 Balance as of December 31, 2022 287 $ 3.55 437 $ 3.32 365 $ 2.77 As of December 31, 2022, and 2021, total unrecognized share-based compensation expense related to non-vested awards not yet recognized was $ 1.1 million and $ 2.5 million, respectively. This expense is expected to be recognized over a weighted-average period of approximately one year and less than one year , respectively. In 2022 and 2021, there was no cash received from stock options exercised in each year. New shares were issued to settle all exercised awards. The actual tax benefit realized for the tax deductions from the exercise of share-based awards was $ 0.7 million and $ 0.7 million as of December 31, 2022 and 2021, respectively. (11) Related party transactions Related Party Transactions We have various agreements with Genworth that provide for reimbursement to and from Genworth of certain administrative and operating expenses that include, but are not limited to, information technology services and administrative services (such as finance, human resources and employee benefit administration). These agreements provide for an allocation of corporate expenses to all Genworth businesses or subsidiaries. We incurred costs for these services of $ 30.4 million, $ 44.5 million and $ 50.3 million in 2022, 2021 and 2020, respectively. The investment portfolios of our insurance subsidiaries are managed by Genworth. Under the terms of the investment management agreement, we are charged a fee by Genworth. All fees paid to Genworth are charged to investment expense and are included in net investment income in the consolidated statements of income. The total investment expenses paid to Genworth were $ 5.5 million, $ 5.2 million and $ 5.2 million for the years ended December 31, 2022, 2021 and 2020, respectively. 153 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 Our employees participate in certain benefit plans sponsored by Genworth and certain share-based compensation plans that utilize shares of Genworth common stock and other incentive plans. See Note 9 and Note 10 for further information. We provide certain information technology and administrative services (such as facilities and maintenance) to Genworth. We charged Genworth $ 0.7 million, $ 0.3 million and $ 1.3 million for these services in 2022, 2021 and 2020, respectively. In November 2021, we completed the acquisition of Genworth Financial Mauritius Holdings Limited from Genworth Financial International Holdings. Refer to Note 3 for further details. We paid cash dividends of $ 204.6 million, $ 163.4 million and $ 437.4 million to Genworth in 2022, 2021 and 2020, respectively. The amount and timing of future dividends will be based upon the prevailing and prospective macro-economic conditions, regulatory landscape and business performance and remain subject to required approvals. Refer to Note 15 for further details on dividend restrictions. We have a tax sharing agreement in place with Genworth, such that we participate in a single U.S. consolidated income tax return filing. All intercompany balances related to this agreement are settled at least annually. Refer to Note 8 for further details. The consolidated financial statements include the following amounts due to and from Genworth relating to recurring service and expense agreements as of December 31: (Amounts in thousands) 2022 2021 Amounts payable to Genworth $ 9,291 $ 8,316 Amounts receivable from Genworth $ 167 $ 133 (12) Commitments and contingencies Leases Our operating leases consist predominantly of office space. Operating lease right-of-use assets of $ 13.6 million and $ 15.5 million as of December 31, 2022 and 2021, respectively, were recorded in other assets on the consolidated balance sheets. Operating lease liabilities of $ 15.9 million and $ 17.7 million as of December 31, 2022 and 2021, respectively, were recorded in other liabilities on the consolidated balance sheets. Operating lease expenses were approximately $ 3.4 million, $ 3.9 million and $ 4.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. Our remaining lease terms ranged from less than 4 years to 5 years and had a weighted-average remaining lease term of 5 years and 6 years as of December 31, 2022, and 2021, respectively. The implicit rate of our lease agreements was not readily determinable; therefore, we utilized our incremental borrowing rate to discount future lease payments. The weighted-average discount rate was 7.1 % as of 154 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 December 31, 2022 and 2021. The following table presents future minimum rent payments under operating leases as of December 31, 2022: (Amounts in thousands) Future minimum payments under operating leases 2023 $ 3,443 2024 3,800 2025 3,885 2026 3,890 2027 3,936 2028 and thereafter — Total lease payments 18,954 Imputed interest ( 3,019 ) Operating lease liabilities $ 15,935 Litigation and Regulatory Matters We face the risk of litigation and regulatory investigations and actions in the ordinary course of operating our business and are also subject to litigation arising out of our general business activities, such as our contractual and employment relationships. Past legal and regulatory actions include proceedings specific to us and others generally applicable to business practices in the mortgage insurance industry in which we operate. We have been, or may become, subject to lawsuits or regulatory investigations alleging, among other things, issues relating to violations of the Real Estate Settlement and Procedures Act of 1974 (“RESPA”) or related state anti-inducement laws, mortgage insurance policy rescissions and curtailments, pricing structures and general business practices, and breaching duties related to the privacy and information security of customer information. Plaintiffs in lawsuits against us may seek very large or indeterminate amounts which may remain unknown for substantial periods of time. In addition, we are also subject to various regulatory inquiries, such as information requests, subpoenas, books and record examinations and market conduct and financial examinations from state and federal regulators and other authorities. A substantial legal liability or a significant regulatory action against us could have an adverse effect on our business, financial condition and results of operations. Moreover, even if we ultimately prevail in the litigation, regulatory action or investigation, we could suffer significant reputational harm, which could have an adverse effect on our business, financial condition or results of operations. (13) Stockholders’ Equity Share Repurchase Program On November 1, 2022, our board of directors approved a share repurchase program authorizing the Company to spend up to $ 75 million, excluding commissions, to repurchase EHI common stock in the open market or in privately negotiated transactions, based on market and business conditions, stock price and other factors. EHI generally operates its share repurchase programs pursuant to a trading plan under Rule 10b5-1 of the Exchange Act, which permits the Company to purchase shares, at predetermined price targets, when it may otherwise be precluded from doing so. During the year ended December 31, 2022, the Company purchased 63,571 shares at an average price of $ 24.10 per share, including commissions. As of December 31, 2022, $ 73.5 million remained available under this program. All treasury stock has been constructively retired as of December 31, 2022. Subsequent to year end, the Company purchased 253,689 shares at an average price of $ 24.13 through January 31, 2023. 155 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 Cash Dividends In the second, third, and fourth quarters of 2022, we paid quarterly cash dividends of $ 0.14 per share. On December 6, 2022, we paid a special cash dividend of $ 1.12 per share, totaling approximately $ 183 million. (14) Accumulated other comprehensive income (loss) The following table presents a roll-forward of accumulated other comprehensive income (loss), net of taxes: (Amounts in thousands) Net unrealized gains (losses) on investments Foreign currency translation Total Balance January 1, 2020, net of tax $ 93,431 $ — $ 93,431 Other comprehensive income (loss) before reclassifications 112,307 — 112,307 Amounts reclassified from other comprehensive income (loss) 2,640 — 2,640 Total other comprehensive income (loss) 114,947 — 114,947 Balance January 1, 2021, net of tax 208,378 — 208,378 Cumulative effect of changes in accounting 281 — 281 Other comprehensive income (loss) before reclassifications ( 124,908 ) ( 7 ) ( 124,915 ) Amounts reclassified from other comprehensive income (loss) ( 163 ) — ( 163 ) Total other comprehensive income (loss) and other adjustments ( 124,790 ) ( 7 ) ( 124,797 ) Balance December 31, 2021, net of tax 83,588 ( 7 ) 83,581 Other comprehensive income (loss) before reclassifications ( 468,229 ) 159 ( 468,070 ) Amounts reclassified from other comprehensive income (loss) 1,745 — 1,745 Total other comprehensive income (loss) ( 466,484 ) 159 ( 466,325 ) Balance December 31, 2022, net of tax $ ( 382,896 ) $ 152 $ ( 382,744 ) The following table presents the effect of the reclassification of significant items out of accumulated other comprehensive income (loss) on the respective line items of the consolidated statements of income: Amounts reclassified from accumulated other comprehensive income (loss) Affected line item in consolidated statement of income (Amounts in thousands) 2022 2021 2020 Net unrealized gains (losses) on investments $ ( 2,209 ) $ 206 $ ( 3,342 ) Net investment gains (losses) Benefit (expense) for income taxes 464 ( 43 ) 702 Provision for income taxes 156 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 (15) Statutory information Statutory Accounting Principles We prepare our statutory financial statements in accordance with the accounting practices required or permitted, if applicable, by the insurance departments of the respective states of domicile of our insurance subsidiaries. These statements of statutory accounting principles (“SSAP”) are established by a variety of National Association of Insurance Commissioners ("NAIC") publications, as well as state laws, regulations and general administrative rules. In addition, insurance departments have the right to permit other specific practices that may deviate from prescribed practices. As of December 31, 2022, we did not have any prescribed or permitted statutory accounting practices that resulted in reported statutory surplus or risk-to-capital ratios being different from what would have been reported had NAIC statutory accounting practices been followed. The key areas where SSAP financial statements differ from financial statements presented on a U.S. GAAP basis include: (a) Under SSAP, mortgage insurance companies are required each year to establish a special contingency reserve in their statutory financial statements to provide for losses in the event of significant economic declines. Annual additions to the statutory contingency reserve must be at least 50% of net earned premiums earned in such year. Such amount must be maintained in the contingency reserve for 10 years, after which time it is released to unassigned surplus. Prior to 10 years, the contingency reserve may be reduced with regulatory approval to the extent that losses in any calendar year exceed 35% of earned premiums for such year. (b) Under SSAP, insurance policy acquisition costs are charged against operations in the year incurred. Under U.S. GAAP, such costs are deferred and amortized. (c) Under SSAP, income tax expense is calculated on the basis of amounts currently payable. Generally, deferred tax assets are recognized under both SSAP and U.S. GAAP when it is more likely than not that the deferred tax asset will be realized. However, SSAP standards impose additional admissibility requirements whereby deferred tax assets are only recognized to the extent they are expected to be recovered within a one- to three-year period subject to a capital and surplus limitation. Changes in deferred tax assets and liabilities are recognized as a direct benefit or charge to unassigned surplus, whereas under U.S. GAAP changes in deferred tax assets and liabilities, except for changes in unrealized gains and losses on available-for-sale securities, are recorded as a component of income tax expense. (d) Under SSAP, most of our fixed maturity investments are recorded at amortized cost while securities with certain NAIC designations are carried at the lower of amortized cost or market value. Under U.S. GAAP, our fixed maturity securities are classified as available-for-sale and are recorded at fair value, with the unrealized gain or loss recognized, net of tax, as an increase or decrease to accumulated other comprehensive income. (e) Under SSAP, certain assets, designated as non-admitted assets, are charged directly against statutory surplus. Such assets are reflected in our U.S. GAAP financial statements. The table below presents statutory net income, statutory policyholders’ surplus and contingency reserve for the combined insurance subsidiaries as of and for the years ended December 31: (Amounts in thousands) 2022 2021 2020 Statutory net income $ 747,150 $ 593,093 $ 404,315 Statutory policyholders’ surplus $ 1,135,797 $ 1,397,229 $ 1,555,035 Contingency reserve $ 3,551,022 $ 3,042,117 $ 2,518,194 157 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 Statutory Capital Requirements Mortgage insurers are not subject to the NAIC’s risk-based capital (“RBC”) requirements, but certain states and other regulators impose another form of capital requirement on mortgage insurers requiring maintenance of a risk-to-capital ratio not to exceed 25:1. Our insurance subsidiaries are domiciled in North Carolina. Fifteen other states maintain similar risk-to-capital requirements. As of December 31, 2022 and 2021, the risk-to-capital ratio for our combined insurance subsidiaries under the current regulatory framework as established under North Carolina law and enforced by the North Carolina Department of Insurance (“NCDOI”) was approximately 12.8 :1 and 12.2 :1, respectively. Each of our insurance subsidiaries met its respective capital requirement as of 2022 and 2021. PMIERs Regulatory Requirements Mortgage insurers must meet the private mortgage insurer eligibility requirements (“PMIERs”) as set forth by each GSE in order to remain eligible to insure loans that are purchased by the GSEs. Each approved mortgage insurer is required to provide the GSEs with an annual certification and a quarterly report as to its compliance with PMIERs. Since its adoption in 2015, PMIERs has been amended on several occasions, including as a result of COVID-19 (as amended, the “PMIERs Amendment”). The PMIERs include financial requirements for mortgage insurers under which a mortgage insurer’s “Available Assets” (generally only the most liquid assets of an insurer) must meet or exceed “Minimum Required Assets” (which are based on an insurer’s risk-in-force (“RIF”) and are calculated from tables of factors with several risk dimensions and are subject to a floor amount) and otherwise generally establish when a mortgage insurer is qualified to issue coverage that will be acceptable to the respective GSE for acquisition of high loan-to-value (“LTV”) mortgages. The GSEs may amend or waive PMIERs at their discretion, impose additional conditions or restrictions on us and also have broad discretion to interpret PMIERs, which could impact the calculation of our “Available Assets” and/or “Minimum Required Assets.” The amount of capital that EMICO may be required in the future to maintain the “Minimum Required Assets” as defined in PMIERs, and operate our business is dependent upon, among other things: (i) the way PMIERs are applied and interpreted by the GSEs and the Federal Housing Finance Agency (“FHFA”); (ii) the future performance of the housing market; (iii) our generation of earnings in our business, “Available Assets” and “Minimum Required Assets,” reducing RIF and reducing delinquencies as anticipated, and writing anticipated amounts and types of new mortgage insurance business; and (iv) our overall financial performance, capital and liquidity levels. Depending on our actual experience, the amount of capital required under PMIERs may be higher than currently anticipated. In the absence of a premium increase for new business, if we hold more capital relative to insured loans, our returns will be lower. We may be unable to increase premium rates for various reasons, principally due to competition. Our inability, to increase the capital as required in the anticipated timeframes and on the anticipated terms, and to realize the anticipated benefits, could have a material adverse impact on our business, results of operations and financial condition. More particularly, our ability to continue to meet the PMIERs financial requirements and maintain a prudent amount of capital in excess of those requirements, given the dynamic nature of asset valuations and requirement changes over time, is dependent upon, among other things: (i) our ability to complete credit risk transfer (“CRT”) transactions on our anticipated terms and timetable, which, as applicable, are subject to market conditions, third-party approvals and other actions (including approval by the GSEs), and other factors that are outside of our control and (ii) our ability to contribute holding company cash or other sources of capital to satisfy the portion of the financial requirements that are not satisfied through these transactions. The PMIERs Amendment implemented both permanent and temporary revisions to PMIERs. For loans that became non-performing due to a COVID-19 hardship, PMIERs was amended with respect to each non-performing loan that (i) had an initial missed monthly payment occurring on or after March 1, 2020 and prior to April 1, 2021 or (ii) is subject to a forbearance plan granted in response to a financial hardship related to COVID-19, the terms of which are materially consistent with terms of forbearance 158 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 plans offered by the GSEs. The risk-based required asset amount factor for a non-performing loan is the greater of (a) the applicable risk-based required asset amount factor for a performing loan were it not delinquent, and (b) the product of a 0.30 multiplier and the applicable risk-based required asset amount factor for a non-performing loan. In the case of (i) above, absent the loan being subject to a forbearance plan described in (ii) above, the 0.30 multiplier will be applicable for no longer than three calendar months beginning with the month in which the loan became a non-performing loan due to having missed two monthly payments. Loans subject to a forbearance plan described in (ii) above include those that are either in a repayment plan or loan modification trial period following the forbearance plan unless reported to the approved insurer that the loan is no longer in such forbearance plan, repayment plan, or loan modification trial period. The PMIERs Amendment additionally made permanent revisions to the risk-based required asset amount factor for non-performing loans for properties located in future Federal Emergency Management Agency (“FEMA”)-Declared Major Disaster Areas eligible for individual assistance. Our assessment of PMIERs compliance is based on a number of factors, including our understanding of the GSEs’ interpretation of the PMIERs financial requirements. The GSEs require our mortgage insurance subsidiaries not to exceed a maximum statutory RTC ratio of 18:1 or they reserve the right to reevaluate the amount of PMIERs credit for reinsurance and other CRT transactions available under PMIERs indicated in their approval letters. Freddie Mac has also imposed additional requirements on our option to commute these reinsurance agreements. Both GSEs reserved the right to periodically review the reinsurance transactions for treatment under PMIERs. If we are unable to continue to meet the requirements mandated by PMIERs, the GSE Restrictions (as defined herein) and any additional restrictions imposed on us by the GSEs, we may not be eligible to write new insurance on loans acquired by the GSEs, which would have a material adverse effect on our business, results of operations and financial condition. We have met all PMIERs reporting requirements as required by the GSEs. As of December 31, 2022, we had available assets of $ 5,206 million against $ 3,156 million net required assets under PMIERs, compared to available assets of $ 5,077 million against $ 3,074 million net required assets as of December 31, 2021. The sufficiency above the published PMIERs financial requirements as of December 31, 2022, was $ 2,050 million, compared to $ 2,003 million above the published PMIERs requirements as of December 31, 2021, resulting in a PMIERs sufficiency ratio of 165 % as of both December 31, 2022 and 2021, which in each case, was above the requirement imposed by the GSE Restrictions that required us to maintain a PMIERs sufficiency ratio of 120 % in 2022 and 115 % in 2021. In addition, our PMIERs required assets as of December 31, 2022 and December 31, 2021, benefited from the application of a 0.30 multiplier applied to the risk-based required asset amount factor for certain non-performing loans. The application of the 0.30 multiplier to all eligible delinquencies provided $ 132 million of benefit to our December 31, 2022 PMIERs required assets and $ 390 million to our December 31, 2021 required assets. Our CRT transactions provided an estimated aggregate of $ 1,578 million of PMIERs capital credit as of December 31, 2022 compared to $ 1,404 million on as of December 31, 2021. Dividend Restrictions The majority of our investments are held by our regulated U.S. mortgage insurance subsidiaries which may be limited in their ability to make dividends or distributions to a holding company in the future due to restrictions related to their capital levels. Our U.S. mortgage insurance subsidiaries are required to maintain minimum capital on a statutory basis, as well as pursuant to the PMIERs promulgated by the GSEs. Moreover, even where such dividends or distributions would not cause capital to fall below the minimum levels required by state insurance regulators and the GSEs, all proposed dividends or distributions, regardless of amount and source, by our U.S. mortgage insurance subsidiaries are subject to review and potential disapproval by the North Carolina Commissioner of Insurance (the “Commissioner”). Within that general regulatory right of review process, there are three (3) minor procedural variances depending on (i) the amount of the dividend or distribution as well as (ii) the source 159 ENACT HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022, 2021 and 2020 thereof. As regards amount, dividends and distributions may be classified as either “ordinary” or “extraordinary.” (1) The review standard for an “ordinary” dividend or distribution is that notice must be given to the Commissioner 30 days in advance of the proposed payment date, during which period the Commissioner may disapprove the proposed dividend or distribution. An “extraordinary dividend or distribution” is defined by statute as one, which combined with all others made in the preceding 12 months, exceeds the greater of (i) 10% of the insurer’s surplus as regards policyholders as of the preceding December 31, or (ii) net income, excluding realized capital gains, for the 12-month period ending the preceding December 31. (2) The review standard for an “extraordinary” dividend or distribution is effectively the same as that for an “ordinary” dividend or distribution that the insurer must give 30 days’ notice and the Commissioner has not disapproved the proposal in that 30-day period. For both “ordinary” and “extraordinary” dividends, the Commissioner has the option to affirmatively grant approval prior to the expiration of the 30-day notice period. (3) Finally, as regards source of funds, the payment of any dividend or distribution from any source other than unassigned surplus, regardless of the amount, requires prior written approval of the Commissioner. In each of the three (3) instances, approval or non-disapproval of any dividend or distribution is based upon the reasonableness of the insurer’s surplus in relation to its outstanding liabilities and the adequacy of its surplus relative to its financial needs. Based on estimated statutory results as of December 31, 2022, in accordance with applicable dividend restrictions, our insurance subsidiaries could pay dividends of approximately $ 292 million from unassigned surplus in 2023 without obtaining prior regulatory approval, although notice of the intent to pay must be provided to the Commissioner 30 days in advance thereof during which period the Commissioner may review the dividend pursuant to statutory standards. (16) Earnings per share The basic earnings per share computation is based on the weighted average number of shares of common stock outstanding. For the years ended December 31, 2022 and December 31, 2021, the calculation of dilutive weighted average shares considers the impact of restricted stock units and performance stock units issued to employees as well deferred stock units issued to our directors. For the year ended December 31, 2020, we had no instruments outstanding that would be dilutive to earnings per share. The following table presents the computation of earnings per share for the years ended December 31: (Amounts in thousands, except per share amounts) 2022 2021 2020 Net income available to EHI common stockholders $ 704,157 $ 546,685 $ 370,421 Net income per common share: Basic $ 4.32 $ 3.36 $ 2.27 Diluted $ 4.31 $ 3.36 $ 2.27 Weighted average common shares outstanding: Basic 162,838 162,840 162,840 Diluted 163,294 162,879 162,840 160 SCHEDULE I ENACT HOLDINGS, INC. Summary of Investments—Other Than Investments in Related Parties As of December 31, 2022, the amortized cost, fair value and carrying value of our invested assets were as follows: (Amounts in thousands) Amortized cost Fair value Carrying value Fixed maturity securities: U.S. government, agencies and GSEs $ 46,319 $ 44,769 $ 44,769 State and political subdivisions 515,935 419,856 419,856 Non-U.S. government 10,607 9,349 9,349 U.S. corporate 2,886,269 2,646,863 2,646,863 Non-U.S. corporate 716,333 652,844 652,844 Residential mortgage-backed 11,162 11,043 11,043 Other asset-backed 1,185,048 1,100,036 1,100,036 Total fixed maturity securities $ 5,371,673 $ 4,884,760 $ 4,884,760 Short-term investments $ 3,077 $ 3,047 $ 3,047 Total investments $ 5,374,750 $ 4,887,807 $ 4,887,807 See Report of Independent Registered Public Accounting Firm 161 SCHEDULE II ENACT HOLDINGS, INC. (PARENT COMPANY ONLY) BALANCE SHEETS December 31, (Amounts in thousands) 2022 2021 Assets Investments in subsidiaries $ 4,402,529 $ 4,597,088 Fixed maturity securities available-for-sale, at fair value (amortized cost $ 246,680 as of December 31, 2022) 243,568 — Short-term investments 3,047 — Total investments 4,649,144 4,597,088 Cash and cash equivalents 206,428 264,207 Accrued investment income 1,683 — Other assets 5,233 3,731 Total assets $ 4,862,488 $ 4,865,026 Liabilities and equity Liabilities: Other liabilities $ 18,750 $ 19,087 Long-term borrowings 742,830 740,416 Total liabilities $ 761,580 $ 759,503 Equity: Common stock $ 1,628 $ 1,628 Additional paid-in capital 2,382,068 2,371,861 Accumulated other comprehensive income ( 382,744 ) 83,581 Retained earnings 2,099,956 1,648,453 Total equity $ 4,100,908 $ 4,105,523 Total liabilities and equity $ 4,862,488 $ 4,865,026 See Notes to Schedule II See Report of Independent Registered Public Accounting Firm 162 SCHEDULE II ENACT HOLDINGS, INC. (PARENT COMPANY ONLY) STATEMENTS OF INCOME Years ended December 31, (Amounts in thousands) 2022 2021 2020 Revenues: Net investment income $ 8,412 $ 43 $ 23 Total revenues 8,412 43 23 Expenses: Acquisition and operating expenses, net of deferrals 10,532 4,500 1 Interest expense 51,699 51,009 18,244 Total expenses 62,231 55,509 18,245 Loss before income taxes and equity in income of subsidiaries ( 53,819 ) ( 55,466 ) ( 18,222 ) Benefit for income taxes ( 11,343 ) ( 11,683 ) ( 3,831 ) Loss before equity in income of subsidiaries ( 42,476 ) ( 43,783 ) ( 14,391 ) Equity in income of subsidiaries 746,633 590,468 384,812 Net income $ 704,157 $ 546,685 $ 370,421 See Notes to Schedule II See Report of Independent Registered Public Accounting Firm 163 SCHEDULE II ENACT HOLDINGS, INC. (PARENT COMPANY ONLY) STATEMENTS OF COMPREHENSIVE INCOME Years ended December 31, (Amounts in thousands) 2022 2021 2020 Net income $ 704,157 $ 546,685 $ 370,421 Other comprehensive income (loss), net of taxes: Net unrealized gains (losses) on securities ( 466,484 ) ( 125,071 ) 114,947 Foreign currency translation 159 ( 7 ) — Other comprehensive income (loss) ( 466,325 ) ( 125,078 ) 114,947 Total comprehensive income (loss) $ 237,832 $ 421,607 $ 485,368 See Notes to Schedule II See Report of Independent Registered Public Accounting Firm 164 SCHEDULE II ENACT HOLDINGS, INC. (PARENT COMPANY ONLY) STATEMENTS OF CASH FLOWS Years ended December 31, (Amounts in thousands) 2022 2021 2020 Cash flows from operating activities: Net income $ 704,157 $ 546,685 $ 370,421 Adjustments to reconcile net income to net cash provided by operating activities: Equity in income from subsidiaries ( 746,633 ) ( 590,468 ) ( 384,812 ) Dividends from subsidiaries 484,500 230,000 — Amortization of fixed maturity securities discounts and premiums ( 1,191 ) — — Stock-based compensation expense 9,883 1,496 — Amortization of debt issuance costs 2,414 2,254 — Other ( 22 ) 67 — Change in certain assets and liabilities: Accrued investment income ( 1,683 ) — — Other assets ( 803 ) 94 ( 3,832 ) Other liabilities ( 337 ) 1,359 18,240 Net cash provided by operating activities 450,285 191,487 17 Cash flows from investing activities: Purchases of fixed maturity securities available-for-sale ( 249,141 ) — — Purchase of equity interest — ( 27,304 ) — Proceeds from maturities of fixed maturity securities 3,612 — — Change in short-term investments ( 3,077 ) — — Contributions to subsidiaries ( 7,150 ) — — Net cash used in investing activities ( 255,756 ) ( 27,304 ) — Cash flows from financing activities: Proceeds from the issuance of long-term debt — — 737,651 Repurchase of common stock ( 1,532 ) — — Dividends paid ( 250,776 ) ( 200,294 ) ( 437,353 ) Net cash provided by (used in) financing activities ( 252,308 ) ( 200,294 ) 300,298 Net increase (decrease) in cash and cash equivalents ( 57,779 ) ( 36,111 ) 300,315 Cash and cash equivalents at beginning of year 264,207 300,318 3 Cash and cash equivalents at end of year $ 206,428 $ 264,207 $ 300,318 Supplementary disclosure of cash flow information: Non-cash capital contributions from Genworth $ — $ 903 $ 6,721 Non-cash capital contributions to subsidiaries $ — $ ( 903 ) $ ( 6,721 ) See Notes to Schedule II See Report of Independent Registered Public Accounting Firm 165 SCHEDULE II ENACT HOLDINGS, INC. (PARENT COMPANY ONLY) NOTES TO SCHEDULE II Years Ended December 31, 2022, 2021 and 2020 (1) Organization and purpose Enact Holdings, Inc. (“EHI,” “we,” or “our”) has been a subsidiary of Genworth since EHI’s incorporation in Delaware in 2012. On May 3, 2021, EHI amended its certificate of incorporation to change its name from Genworth Mortgage Holdings, Inc. Concurrently, we entered into a share exchange agreement with Genworth Holdings, Inc. (“Genworth Holdings”), pursuant to which Genworth Holdings exchanged the 100 shares of our common stock owned by it, representing all of our 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 consolidated financial statements, notes to the consolidated financial statements and supplemental schedules to the financial statements has been adjusted to reflect the share exchange on a retroactive basis for all periods and as of all dates presented. In November 2021, we completed the acquisition of Genworth Financial Mauritius Holdings Limited from Genworth Financial International Holdings. Refer to Note 3 in our audited consolidated financial statements for further details. (2) Summary of significant accounting policies The accompanying EHI financial statements have been prepared on the same basis and using the same accounting policies as described in the consolidated financial statements included herein. These financial statements should be read in conjunction with our consolidated financial statements and the accompanying notes thereto. EHI includes equity in the income of subsidiaries in its statements of income, which represents the net income of each of its consolidated subsidiaries. (3) Borrowings The following table sets forth long-term borrowings as of December 31: (Amounts in thousands) 2022 2021 6.5 % Senior Notes, due 2025 $ 750,000 $ 750,000 Deferred borrowing charges ( 7,170 ) ( 9,584 ) Total $ 742,830 $ 740,416 On August 21, 2020, EHI issued $ 750.0 million in aggregate principal amount of 6.5 % senior notes due in 2025. These notes mature on August 15, 2025, but EHI may redeem the notes in whole or in part at any time prior to February 15, 2025, at EHI’s option by paying a make-whole premium plus accrued and unpaid interest, if any. At any time on or after February 15, 2025, EHI may redeem the notes in whole or in part at its option at 100 % of the principal amount plus accrued and unpaid interest. The 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 EHI breaches the terms of the indenture. Per the GSE Restrictions, EHI committed to retain $ 300 million of the net proceeds from the issuance of these notes that can be drawn down exclusively for its debt service or to contribute to EMICO to meet its regulatory capital needs. As of December 31, 2022, the balance of the 2025 Senior Notes proceeds required to be held by the holding company was approximately $ 203 million. 166 SCHEDULE II ENACT HOLDINGS, INC. (PARENT COMPANY ONLY) Revolving Credit Agreement On June 30, 2022, we entered into a credit agreement with a syndicate of lenders that provides for a five-year , unsecured revolving credit facility (the “Facility”) in the initial aggregate principal amount of $ 200 million, including the ability for EHI to increase the commitments under the Facility, on an uncommitted basis, by an additional aggregate principal amount of up to $ 100 million. Borrowings under the Facility will accrue interest at a floating rate tied to a standard short-term borrowing index, selected at EHI’s option, plus an applicable margin. The applicable margins are based on the ratings established by certain debt rating agencies for EHI’s senior unsecured debt. We may use borrowings under the Facility for working capital needs and general corporate purposes, including the execution of dividends to our shareholders and capital contributions to our insurance subsidiaries. The Facility contains several covenants, including financial covenants relating to minimum net worth, capital and liquidity levels, maximum debt to capitalization level and PMIERS compliance. We are in compliance of all covenants of the Facility and the Facility remained undrawn as of December 31, 2022. 167 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.