What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-02-28 · 214 added, 238 removed, 852 unchanged (35% of the section changed)

3 unchanged sentences

For factors that could cause such differences refer to the sections entitled “Cautionary Note Regarding Forward-Looking Statements” and “Item 1A.

Risk Factors.” We are not undertaking any obligation to update any forward-looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances

occurring after the forward-looking statements or other statements were made.

Future results could differ significantly from the historical results presented in this section.

11 unchanged sentences

The amount of premiums earned from our insurance portfolio and the timing of premium recognition are also affected by persistency rate, which we measure as the percentage of loans that remain on our books based on the annualized cancellations for the period.

We also employ a CRT program to transfer a portion of our risk through both traditional XOL reinsurance arrangements and the issuance of ILNs.

We also employ a CRT program to transfer a portion of our risk through traditional XOL and quota share reinsurance arrangements and the issuance of ILNs.

In exchange, we cede a negotiated amount of our premiums to the reinsurers and ILN investors that participate in our CRT transactions.

Our net premiums earned (i.e., materially, the gross premiums charged less premiums ceded as part of our CRT program) represent the largest source of our revenues.

Importantly, our CRT program helps to de-risk our operating model and spread the risk of loss across our counterparties while also providing capital relief.

Importantly, our CRT program helps to manage risk in our operating model and spread the risk of loss across our counterparties while also providing capital relief.

We also invest our premiums in high quality, predominantly fixed income assets with the primary business objectives of preserving capital, generating investment income and maintaining sufficient liquidity to cover our operating expenses and pay future claims.

2 unchanged sentences

Our mortgage insurance coverage protects lenders against loss in the event of a borrower default by covering a portion of the outstanding principal balance of a loan.

In the event of a borrower default, our coverage reduces and, in certain instances eliminates, losses to the insured by transferring the covered portion of the economic loss to us.

In the event of a borrower default, our coverage reduces and, in certain instances eliminates, losses to the

insured by transferring the covered portion of the economic loss to us.

Borrower defaults are first reported to us as new delinquencies when the borrower fails to make two consecutive monthly mortgage payments.

4 unchanged sentences

Our estimates of ultimate claim amounts for each delinquency include loss adjustment expense (“LAE”) that are costs incurred in the settlement of the claim process such as legal fees and costs to record, process and adjust claims.

Incurred losses are generally affected by macroeconomic conditions, borrower credit

quality, certain loan attributes, underwriting quality and our loss mitigation efforts among other factors detailed below.

Incurred losses are generally affected by macroeconomic conditions, borrower credit quality, certain loan attributes, underwriting quality and our loss mitigation efforts among other factors detailed below.

Key Factors Affecting Our Results

13 unchanged sentences

Competitors include other private mortgage insurers that are eligible to write business for the GSEs.

We compete with other private mortgage insurers based on pricing, underwriting guidelines, customer relationships, service levels, policy terms, loss mitigation practices, perceived financial strength (including comparative credit ratings), reputation, strength of management, product features and technology ease-of-use.

comparative credit ratings), reputation, strength of management, product features and technology ease-of-use.

We also compete with governmental agencies (principally the FHA and the VA) primarily based on price and underwriting guidelines.

2 unchanged sentences

Our proprietary risk-based pricing engine evaluates returns and volatility under both the PMIERs capital framework and our internal economic capital framework, which is sensitive to economic cycles and current housing market conditions.

The model assesses the performance of new

business under expected and stress scenarios on an individualized loan basis, which is used to determine pricing and inform our risk selection strategy that optimizes economic value by balancing return and volatility.

The model assesses the performance of new business under expected and stress scenarios on an individualized loan basis, which is used to determine pricing and inform our risk selection strategy that optimizes economic value by balancing return and volatility.

Consistent with the seasonality of home sales, purchase mortgage origination volumes typically increase in late spring and peak during summer months, leading to a rise in NIW volume during the second and third quarters of a given year.

2 unchanged sentences

Therefore, we typically experience lower levels of losses resulting from favorable delinquency activity in the first and second quarters, as typically compared to the third and fourth quarters.

As a result of delinquencies from COVID-19 and subsequent cure activity, trends from the last two years may not follow traditional seasonality.

As a result of delinquencies from COVID-19 and subsequent cure activity, including the impact of forbearance policies on delinquency recognition and performance recent trends may not follow traditional seasonality.

The following table presents our NIW, number of cures and new delinquencies for primary policies, excluding our run-off insurance block with reference properties in Mexico, for the periods indicated:

21 unchanged sentences

Because our insurance premiums are earned over the life of a policy, higher or lower persistency rates can have a significant impact on our profitability.

The rise of interest rates throughout 2022 has significantly increased persistency in the portfolio, but this impact is partially offset by lower NIW.

The rise of interest rates throughout 2022 and 2023 has significantly increased persistency in the portfolio, but this impact is partially offset by lower NIW.

Loan prepayment speeds and the relative mix of business between single premium policies and monthly premium policies also impact our profitability.

7 unchanged sentences

2008 and prior 5.74 %

2009 to 2014 4.45 %

2009-2015 4.34 %

Total portfolio

3 unchanged sentences

Although these cancellations reduce IIF, assuming all other factors remain constant, the profitability of our single premium business increases when persistency rates are lower.

As of December 31, 2022 and 2021, single premium policies comprised 12% and 13% of primary IIF, respectively.

December 31, 2023 and 2022, single premium policies comprised 10% and 12% of primary IIF, respectively.

Credit Quality

2 unchanged sentences

As a result, the industry is insuring loans from borrowers who should be better positioned to meet their mortgage obligations.

More recently, in response to FTHB

demand, there has been modest credit expansion that accommodates LTV over 95% and higher DTI ratios.

More recently, in response to FTHB demand, there has been modest credit expansion that accommodates LTV over 95% and higher DTI ratios.

Even after this expansion, private mortgage insurers and the GSEs have maintained strong credit standards well above historical norms.

20 unchanged sentences

Credit Risk Transfer

We use CRT transactions to transfer a portion of our risk to third parties, through both traditional XOL reinsurance and the issuance of ILNs.

We use CRT transactions to transfer a portion of our risk to third parties, through traditional XOL and quota share reinsurance and the issuance of ILNs.

Our CRT program reduces the volatility of our in-force portfolio and provides capital relief under PMIERs.

6 unchanged sentences

Acquisition costs that are related directly to the successful acquisition of new insurance policies, such as underwriting expenses, are deferred and amortized over the life of the underlying insurance policies.

These deferred acquisition costs are referred to as “DAC.” The ongoing maintenance expenses of our insurance contracts are generally fixed in nature and include costs such as information technology, finance and legal, among others, including costs allocated from our Parent for certain activities on our behalf.

See Note 11 to our consolidated financial statements regarding our related party transactions.

13 unchanged sentences

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.

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.

1 unchanged sentence

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.

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.

11 unchanged sentences

Valuation of Fixed Maturity Securities

Our portfolio of fixed maturity securities was valued at $4,885 million as of December 31, 2022, a decrease of $382 million from December 31, 2021.

Our portfolio of fixed maturity securities was valued at $5,266 million as of December 31, 2023, an increase of $381 million from December 31, 2022.

The methodologies, estimates and assumptions used in valuing our fixed maturity securities evolve over time and are subject to different interpretations, all of which can lead to materially different estimates of fair value.

1 unchanged sentence

For example, widening credit spreads will generally result in a decrease, while tightening of credit spreads will generally result in an increase in the fair value of our fixed maturity securities.

As well, during periods of increasing interest rates, the market values of lower-yielding assets will decline.

See “Item 7A—Quantitative and Qualitative Disclosures About Market Risk—Sensitivity Analysis—Interest Rate Risk” for the impact of hypothetical changes in interest rates on our investments portfolio.

Also, during periods of increasing interest rates, the market values of lower-yielding assets will decline.

See “Item 7A—Quantitative and Qualitative Disclosures About Market Risk” for the impact of hypothetical changes in interest rates on our investments portfolio.

Our portfolio of fixed maturity securities comprises primarily investment grade securities, which are carried at fair value.

Estimates of fair values for fixed maturity securities are obtained primarily from industry-standard pricing methodologies utilizing market observable inputs.

For our less liquid securities, such as our privately placed securities, we utilize independent market data to employ alternative valuation methods commonly used in the financial services industry to estimate fair value.

For our less liquid securities,

such as our privately placed securities, we utilize independent market data to employ alternative valuation methods commonly used in the financial services industry to estimate fair value.

Based on the market observability of the inputs used in estimating the fair value, the pricing level is assigned.

22 unchanged sentences

Trends and Conditions

During 2022, the United States and global economies experienced continued volatility due to high inflation, geopolitical uncertainty and supply chain disruption.

Inflationary pressures lessened in the latter half of 2022 but remain elevated, with the Bureau of Labor Statistics reporting in December that the Consumer Price Index was 6.5% year-over-year.

As a result, the Federal Reserve has continued its aggressive approach towards addressing inflation through interest rate increases and a reduction of its balance sheet.

The Federal Reserve approved an interest rate increase of 0.25% in February 2023, following increases of 0.50% in December 2022, 0.75% in November, September, July and June 2022, 0.50% in May 2022 and 0.25% in March 2022.

Financial markets have reacted with increased volatility and rates have increased across the Treasury yield curve.

The Federal Reserve has signaled that it may make additional interest rate increases to address persistent inflationary pressure.

Mortgage origination activity declined during 2022 in response to rising mortgage rates.

If interest rates remain high, the refinance market is likely to remain depressed.

Housing affordability was challenged in 2022 compared to recent years due to sharply increasing interest rates and elevated home prices, modestly offset by rising median family income according to the National Association of Realtors Housing Affordability Index.

Year-over-year home price appreciation slowed through early 2022, and home prices declined during the second half of the year, according to the FHFA Monthly Purchase-Only House Price Index.

The unemployment rate declined to 3.5% in December 2022 compared to 3.9% in December 2021, following a decline from its peak of 14.8% in April 2020, bringing unemployment in line with the pre-COVID-19 level of 3.5% in February 2020.

Macroeconomic environment.

During 2023, the United States economy faced uncertainty due to continued but lessening inflationary pressure, the geopolitical environment and persistent concerns around a possible recession.

Inflationary pressures have moderated in 2023, with the Bureau of Labor Statistics reporting in December that the Consumer Price Index was down to 3.4% year-over-year.

The Federal Reserve has taken an aggressive approach towards addressing inflation through interest rate increases and a reduction of its balance sheet.

The Federal Reserve raised rates four times in 2023 following seven interest rate increases in 2022.

Mortgage rates continued to rise and reached more than 20-year highs during 2023.

Mortgage origination activity remained slow during 2023 in response to elevated mortgage rates and sustained low housing supply.

Housing affordability continued to deteriorate due to high interest rates and elevated home prices, only marginally offset by rising median family income according to the National Association of Realtors Housing Affordability Index.

National housing prices rose modestly throughout 2023, according to the FHFA Monthly Purchase-Only House Price Index.

The unemployment rate was 3.7% as of December 2023 compared to 3.5% in December 2022.

As of December 31, 2023, the number of unemployed Americans stands at approximately 6.3 million and the number of long term unemployed over 26 weeks was approximately 1.2 million.

Both metrics remain relatively in line with February 2020 levels.

For mortgages insured by the federal government, including those purchased by Fannie Mae and Freddie Mac, forbearance allows borrowers impacted by COVID-19 to temporarily suspend mortgage payments up to 18 months subject to certain limits.

Currently, the GSEs do not have a deadline for requesting an initial forbearance.

Federal laws and regulations continue to require servicers to discuss loss mitigation options with borrowers before proceeding with foreclosures.

These requirements could further extend the foreclosure timeline, which could negatively impact the severity of loss on loans that go to claim.

Forbearance and loss mitigation programs.

For mortgages insured by the federal government, including those purchased by Fannie Mae and Freddie Mac, COVID-19 forbearance allowed borrowers impacted by COVID-19 to temporarily suspend mortgage payments up to 18 months subject to certain limits.

However, the Biden Administration ended the national emergency for COVID-19 in April 2023, so the deadline for requesting a COVID-19 related forbearance under the CARES Act ended in August of 2023.

The GSEs retired their COVID-19 servicing-related policies including with respect to forbearance in November 2023 and reverted to standard forbearance policies as a loss mitigation option for borrowers that meet general hardship and program guidelines.

Further, in March 2023, the GSEs announced new loss mitigation programs that allow for six-month payment deferrals for borrowers facing financial hardship.

Servicers were encouraged to start evaluating borrowers for the new mitigation programs as early as July 1, 2023, but no later than October 1, 2023.

Even though most foreclosure moratoriums expired at the end of 2021, federal laws and regulations continue to require servicers to discuss loss mitigation options with borrowers before proceeding with foreclosures.

These requirements could further extend foreclosure timelines, which could negatively impact the severity of loss on loans that go to claim.

Although it is difficult to predict the future level of reported forbearance and how many of the policies in a forbearance plan that remain current on their monthly mortgage payment will go delinquent, servicer-reported forbearances have generally declined.

As of December 31, 2022, approximately 1.5%, or 14,270, of our active primary policies were reported in a forbearance plan.

Of these policies in forbearance plans, approximately 36% were reported as delinquent at year end.

Natural disasters, such as hurricanes, often lead to temporary increases in delinquencies in forbearance.

We experienced a small increase in delinquencies in the fourth quarter of 2022 related to the recent hurricane affecting the southeastern United States, but these did not have a material impact on reserves as of December 31, 2022.

We will continue to monitor the affected areas and support the measures enacted by the GSEs allowing forbearance, restricting foreclosure actions and providing other forms of mortgage relief for those dealing with damage.

Total delinquencies decreased during 2022 as a result of cures outpacing new delinquencies.

The annual new delinquency rate for 2022 was 3.8%, up slightly from 2021 but in line with historical pre-COVID-19 levels.

As of December 31, 2023, approximately 1.2%, or 11,536, of our active primary policies were reported in a forbearance plan, of which approximately 31% were reported as delinquent.

The full impact of COVID-19 and its ancillary economic effects on our future business results are difficult to predict.

1 unchanged sentence

We continue to monitor regulatory and government actions and the resolution of forbearance delinquencies.

While the associated risks have

moderated and delinquencies have declined, it is possible that COVID-19 could have an adverse impact on our future results of operations and financial condition.

While the associated risks have moderated and delinquencies related to COVID-19 have declined, it is possible that ancillary economic effects of COVID-19 could have an adverse impact on our future results of operations and financial condition.

Regulatory developments.

The FHFA and the GSEs are focused on increasing the accessibility and affordability of homeownership, in particular for low- and moderate-income borrowers and underserved minority communities.

In June 2022, the FHFA announced the release of Fannie Mae’s and Freddie Mac’s respective Equitable Housing Finance Plans.

The plans included many initiatives, including language discussing potential changes that could impact the mortgage insurance industry.

The plans are in their early stages, and we will continue to work with the FHFA, the GSEs, and the broader housing finance industry as these proposals develop and to the extent they are implemented.

In April 2023, FHFA announced updates to Fannie Mae and Freddie Mac’s Equitable Housing Finance Plans which build upon the inaugural plans first announced in 2022 and make adjustments based on initial research and findings.

The proposals included many initiatives, including language discussing potential changes that could impact the mortgage insurance industry.

We will continue to work with the FHFA, the GSEs, and the broader housing finance industry as these proposals develop and to the extent they are implemented.

We cannot predict whether or when any new practices or programs will be implemented under the GSEs’ Equitable Housing Finance Plans or other affordability initiatives, and if so in what form, nor can we predict what effect, if any, such practices or programs may have on our business, results of operations or financial condition.

Private mortgage insurance market penetration and eventual market size are affected in part by actions that impact housing or housing finance policy taken by the GSEs and the U.S.

government, including but not limited to, the FHA and the FHFA.

government, including but not limited to, the Federal Housing Administration and the FHFA.

In the past, these actions have included announced changes, or potential changes, to underwriting standards, including changes to the GSEs’ automated underwriting systems, FHA pricing, GSE guaranty fees, loan limits and alternative products.

On February 25, 2022, the FHFA finalized the rule for the Enterprise Capital Framework, which included technical corrections to its December 17, 2020 rule.

Higher GSE capital requirements could lead to increased costs to borrowers of GSE loans, which in turn could shift the market away from the GSEs to the FHA or lender portfolios.

Such a shift could potentially result in a smaller market for private mortgage insurance.

In January 2022, the FHFA introduced new upfront fees for some high-balance and second-home loans sold to Fannie Mae and Freddie Mac.

Upfront fees for high balance loans increased between 0.25% and 0.75%, tiered by loan-to-value ratio.

For second home loans, the upfront fees increased between 1.125% and 3.875%, also tiered by loan-to-value ratio.

The new pricing framework became effective April 1, 2022.

To date, we have not experienced a significant impact to the mortgage insurance market or our projections based on this initiative.

On October 24, 2022, the FHFA announced two initiatives :

1) t argeted changes to the GSEs’ guarantee fee pricing by eliminating upfront fees for certain borrowers and affordable mortgage products, while implementing targeted increases to the upfront fees for most cash-out refinance loans;

and 2) the validation and approval of both the FICO 10T credit score model and the VantageScore 4.0 credit score model for use by the GSEs as well as changing the requirement that lenders provide credit reports from all three nationwide consumer reporting agencies and instead only require credit reports from two of the three nationwide credit reporting agencies.

The upfront fees are eliminated for certain first-time home buyers with income at or below area median income and certain other GSE affordable housing product s.

The fee reductions went into effect in the fourth quarter of 2022 while the new fees on cash-out refinance loans began February 1, 2023.

We expect these price changes to be a net positive to the mortgage insurance market.

and 2) the validation and approval of both the FICO 10T credit score model and the VantageScore 4.0 credit score model for use by the GSEs as well as changing the requirement that lenders provide credit reports from all three nationwide consumer reporting agencies and instead only requiring credit reports from two of the three nationwide credit reporting agencies.

The upfront fees were eliminated for certain first-time home buyers with income at or below area median income and certain other GSE affordable housing products.

The fee reductions went into effect in the fourth quarter of 2022, while the new fees on cash-out refinance loans began on February 1, 2023.

We have seen a limited impact from these price changes on the private mortgage insurance market.

The validation of the new credit scores requires lenders to deliver both credit scores for each loan sold to the GSEs.

There is currently no implementation deadline, but this is expected to be a multiple year process that will require system and process updates along with coordination across stakeholders of the industry.

In January 2023, the FHFA announced additional updates to its up-front fee structure and a recalibration and reformatting of their entire pricing matrix.

The changes marked the third iteration of FHFA’s ongoing pricing review since early last year and impact purchase and rate-term refinance loans.

The FHFA has announced preliminary implementation expectations, but this is expected to be a multiple year process that will require system and process updates along with coordination across stakeholders of the industry.

In January 2023, the FHFA announced additional updates to its upfront fee structure and a recalibration and reformatting of their entire pricing matrix.

The changes marked the third iteration of the FHFA’s ongoing pricing review since early 2022 and impact purchase and rate-term refinance loans.

Pricing grids are now broken out by loan purpose and are recalibrated to new credit score and loan-to-value ratio categories along with associated loan attributes.

The new pricing matrix also includes new up-front fees for loans with DTI ratios greater than 40%.

The changes are effective May 1, 2023.

The effects of these changes will ultimately be dependent on any changes made by the FHA, but we do not expect a significant impact to the private mortgage insurance market.

The new pricing matrix initially included new upfront fees for loans with debt to income ratios greater than 40%, but those fees were rescinded prior to implementation.

The remaining changes became effective May 1, 2023.

On February 22, 2023, the Department of Housing and Urban Development announced a 30 basis point reduction of the annual insurance premium charged to borrowers with FHA-insured mortgages.

This action is designed to reduce the cost of borrowing for lower- and middle-class homebuyers who are eligible for the federal program The price reduction is expected to have a negative impact on the private mortgage insurance market, but will be partially offset by the effects of the recent FHFA pricing changes referenced above.

We do not believe this net impact will be material.

This action is designed to reduce the cost of borrowing for lower- and middle-class homebuyers who are eligible for the federal program.

The price reduction, which went into effect on March 20, 2023, is expected to have a negative impact on the private mortgage insurance market but will be partially offset by the effects of the recent FHFA pricing changes referenced above.

We do not believe this net impact has been or will be material.

Competitive environment.

private mortgage insurance industry is highly competitive.

Our market share is influenced by the execution of our go to market strategy, including but not limited to, pricing competitiveness relative to our peers and our selective participation in forward commitment transactions.

Our market share is influenced by the execution of our go to market strategy, including but not limited to,

pricing competitiveness relative to our peers and our selective participation in forward commitment transactions.

We continue to manage the quality of new business through pricing and our underwriting guidelines, which are modified from time to time when circumstances warrant.

1 unchanged sentence

Ultimately, we expect our new insurance written with its strong credit profile and attractive pricing to positively contribute to our future profitability and return on equity.

New insurance written of $66.5 billion in 2022 decreased 31% compared to 2021 primarily due to a smaller estimated private mortgage insurance market in the current year as refinance and purchase originations were impacted by rising interest rates.

Our largest customer accounted for 18% and 14% of our total NIW during the years ended December 31, 2022 and 2021, respectively.

No customer had earned premiums that accounted for more than 10% of our total revenues for the years ended December 31, 2022 or 2021.

Our portfolio.

New insurance written of $53.1 billion in 2023 decreased 20% compared to 2022 primarily due to a smaller private mortgage insurance market in the current year as refinance and purchase originations were impacted by rising interest rates.

Our largest customer accounted for 19% of total NIW and 10% of our total revenues for the year ended December 31, 2023.

No other customer accounted for 10% or more of total revenues or NIW for the year ended December 31, 2023.

This customer also accounted for 18% and 14% of our total NIW during the years ended December 31, 2022 and 2021, respectively.

No customer accounted for more than 10% of our total revenues and no other customer accounted for more than 10% of NIW for the years ended December 31, 2022 or 2021.

Our primary persistency rate increased to 85% during 2023 compared to 80% during 2022.

The persistency rate increased throughout 2022, with a rate in the fourth quarter of 86%.

The increase in persistency was primarily driven by a decline in the percentage of our in-force policies with mortgage rates above current mortgage rates as a result of the rising rate environment during 2022.

Higher persistency impacted business performance trends in several ways including, but not limited to, slowing the recognition of earned premiums due to single premium policy cancellations, slowing the amortization of our existing reinsurance transactions and reduction of their associated PMIERs capital credit and shifting the concentration of our primary IIF by policy year.

As of December 31, 2022, primary IIF had approximately 58% concentration in 2022 and 2021 compared to 71% concentration in 2021 and 2020 as of December 31, 2021.

Despite slower NIW production, our IIF grew $21.6 billion, or 10% in 2022, compared to $18.3 billion or 9% in 2021, driven by increased persistency.

Net earned premiums declined in 2022 compared to 2021 primarily as a result of the lapse of older, higher priced policies and a decrease in single premium cancellations.

This was partially offset by IIF growth.

The total number of delinquent loans has declined from the COVID-19 peak in the second quarter of 2020 as forbearance exits continue and new forbearances declined.

The increase in persistency was primarily driven by a decline in the percentage of our in-force policies with mortgage rates above current mortgage rates.

Elevated persistency has continued to offset the decline in new insurance written, leading to an increase in primary insurance in-force of $14.7 billion or 6% since December 31, 2022.

Net earned premiums increased in 2023 compared to 2022 primarily as a result of insurance in-force growth, partially offset by the lapse of older, higher priced policies and a decrease in single premium cancellations.

The total number of delinquent loans has declined from the COVID-19 peak in the second quarter of 2020 as forbearance exits continue and new forbearances decline.

During this time and consistent with prior years, servicers continued the practice of remitting premiums during the early stages of default, and we refund the post-delinquent premiums to the insured party if the delinquent loan goes to claim.

We record a liability and a reduction to net earned premiums for the post-delinquent premiums we expect to refund.

The post-delinquent premium liability recorded since the beginning of COVID-19 in the second quarter of 2020 through the fourth quarter of 2022 was not significant to the change in earned premiums for those periods as a result of the high concentration of new delinquencies being subject to a servicer reported forbearance plan and the lower estimated rate at which delinquencies go to claim for these loans.

The post-delinquent premium liability recorded since the beginning of COVID-19 in the second quarter of 2020 through the fourth quarter of 2023 was not significant to the change in earned premiums for those periods.

Loss experience.

Our loss ratio for the year ended December 31, 2023, was 3% as compared to (10)% for the year ended December 31, 2022.

The decrease was largely from favorable reserve adjustments in 2022.

We released $314 million of reserves on delinquencies from prior years, primarily related to favorable cure performance on COVID-19 delinquencies from 2020 and 2021.

Both periods were impacted by favorable reserve adjustments.

In 2023, we released $241 million of reserves primarily on delinquencies from prior years, related to favorable cure performance on delinquencies from 2022 and earlier, including a portion of those as a result of COVID-19.

During the peak of COVID-19, we experienced elevated new delinquencies subject to forbearance plans.

Those delinquencies have continued to cure at levels above our reserve expectations, which led to the release of reserves in 2022.

Due to uncertainty in the current economic environment, we increased the expected claim rate on new delinquencies throughout 2022.

This contributed to reserve strengthening of $46 million on previous quarter delinquencies in 2022 and increased the amount of reserves on new delinquencies in the fourth quarter of 2022.

These 2022 reserve adjustments compare to reserve releases of $22 million in 2021 related primarily to pre-COVID-19 delinquencies.

Our loss reserves continue to be impacted by COVID-19 and remain subject to uncertainty.

Those delinquencies have continued to cure at levels above our reserve expectations.

Another component of the reserve release related to delinquencies from 2022, as uncertainty in the economic environment has not negatively impacted cure performance to the extent initially expected.

This compares to 2022, where we recorded $314 million of reserve release primarily related to cure performance of 2020 delinquencies.

Losses during 2022 were also impacted by $46 million of reserve strengthening related to current accident year delinquencies due to uncertainty in the economic environment.

Borrowers who have experienced a financial hardship including, but not limited to, the loss of income due to the closing of a business or the loss of a job, continue to take advantage of available loss mitigation options, including forbearance programs, payment deferral options and other modifications.

3 unchanged sentences

For loans insured on or after October 1, 2014, our mortgage insurance policies limit the number of months of unpaid interest and associated expenses that are included in the mortgage insurance claim amount to a maximum of 36 months.

New delinquencies in 2022 increased compared to 2021.

New delinquencies in 2023 increased compared to 2022 primarily due to the aging of large, new books of business.

Current period primary delinquencies of 41,617 contributed $265 million of loss expense in 2023.

We incurred $171 million of losses from 35,996 current period delinquencies in 2022.

In determining the loss expense estimate, considerations were given to forbearance and non-forbearance delinquencies, recent cure and claim experience, and the prevailing and prospective economic conditions.

In determining the loss expense estimate, considerations were given to recent cure and claim experience and the prevailing and prospective economic conditions.

Approximately 13% of our primary new delinquencies in 2023 were subject to a forbearance plan as compared to 21% in 2022.

Due to the declining number of new delinquencies in forbearance, we no longer differentiate the expected claim rates applied to new delinquencies in forbearance versus those not in forbearance.

Capital requirements and ratings.

EMICO’s risk-to-capital ratio under the current regulatory framework as established under North Carolina law and enforced by the NCDOI, EMICO’s domestic insurance regulator, was approximately 11.6:1 as of December 31, 2023 and 12.9:1 as of December 31, 2022.

1 unchanged sentence

North Carolina’s calculation of risk-to-capital excludes the risk-in-force for delinquent loans given the established loss reserves against all delinquencies.

EMICO’s ongoing risk-to-capital ratio will depend principally on the magnitude of future losses incurred by EMICO, the effectiveness of ongoing loss mitigation activities, new business volume and profitability, the amount of policy lapses and the amount of additional capital that is generated or distributed by the business.

EMICO’s ongoing risk-to-capital ratio will depend principally on the magnitude of future losses incurred by EMICO, the effectiveness of ongoing loss mitigation activities, new business volume and profitability, the impact of quota share reinsurance, the amount of policy lapses and the amount of additional capital that is generated or distributed by the business.

Under PMIERs, we are subject to operational and financial requirements that private mortgage insurers must meet in order to remain eligible to insure loans that are purchased by the GSEs.

Since 2020, the GSEs have issued several amendments to PMIERs, which implemented both permanent and temporary revisions.

For loans that became non-performing due to a COVID-19 hardship, PMIERs was temporarily 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 plans offered by the GSEs.

The risk-based required asset amount factor for the 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 was 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 dated June 30, 2021, further allows loans that enter a forbearance plan due to a COVID-19 hardship on or after April 1, 2021, to remain eligible for extended application of the reduced PMIERs capital factor for as long as the loan remains in forbearance.

In addition, the PMIERs amendment made permanent revisions to the risk-based required asset amount factor for non-performing loans for properties located in future Federal Emergency Management Agency Declared Major Disaster Areas eligible for individual assistance.

In September 2020, subsequent to the issuance of our senior notes due in 2025, the GSEs imposed certain restrictions (the “GSE Restrictions”) with respect to capital on our business.

In May 2021, in connection with their conditional approval of the then potential partial sale of EHI, the GSEs confirmed the GSE Restrictions will remain in effect until the following collective conditions (“GSE Conditions”) are met for two consecutive quarters:

(a) EMICO obtains “BBB+”/“Baa1” (or higher) rating from S&P, Moody’s or Fitch Ratings, Inc.

and (b) Genworth achieves certain financial metrics.

EHI maintained the requisite ratings for two consecutive quarters prior to the end of 2022.

As of December 31, 2022, Genworth believes that they achieved their financial metrics for the quarters ended September 30, 2022 and December 31, 2022.

Once confirmed by the GSEs, EHI will no longer be subject to GSE Restrictions and Conditions.

Prior to the satisfaction of the GSE Conditions, the GSE Restrictions require:

• EMICO to maintain 120% of PMIERs minimum required assets through 2022 and 125% thereafter;

• EHI to retain $300 million of net proceeds from the 2025 Senior Notes offering that can be drawn down exclusively for debt service of those notes or to contribute to EMICO to meet its regulatory capital needs including PMIERs;

• written approval must be received from the GSEs prior to any additional debt issuance by either EMICO or EHI.

Until the GSE Conditions imposed in connection with the GSE Restrictions are met, our liquidity must not fall below 13.5% of its outstanding debt.

In addition, Fannie Mae agreed to reconsider the GSE Restrictions if Genworth were to own 50% or less of EHI at any point prior to their expiration.

We understand that Genworth’s current plans do not include a potential sale in which Genworth owns less than 80% of EHI.

As of December 31, 2022, the balance of the 2025 Senior Notes proceeds required to be held by our holding company was approximately $203 million compared to $453 million of cash and invested assets held at EHI.

Additionally, in September 2020, subsequent to the issuance of our senior notes due in 2025, the GSEs imposed certain restrictions (the “GSE Restrictions”) with respect to capital on our business.

In May 2021, in connection with their conditional approval of the then potential partial sale of EHI, the GSEs confirmed the GSE Restrictions would remain in effect until certain conditions (“GSE Conditions”) were met.

These conditions were met as of December 31, 2022, and Enact is no longer subject to GSE Restrictions and Conditions.

As of December 31, 2023, we had estimated available assets of $5,006 million against $3,119 million net required assets under PMIERs compared to available assets of $5,206 million against $3,156 million net required assets as of December 31, 2022.

The sufficiency ratio as of December 31, 2022, was 165% or $2,050 million above the published PMIERs requirements, compared to 165% or $2,003 million above the published PMIERs requirements as of December 31, 2021.

PMIERs sufficiency is based on the published requirements applicable to private mortgage insurers and does not give effect to the GSE Restrictions imposed on our business.

Credit risk transfer transactions provided an aggregate of approximately $1,578 million of PMIERs capital credit as of December 31, 2022, compared to $1,404 million as of December 31, 2021.

Our PMIERs required assets as of December 31, 2022, 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.

This amount is gross of any incremental reinsurance benefit from the elimination of the 0.30 multiplier.

On July 21, 2022, Moody’s Investors Service upgraded the insurance financial strength rating of EMICO to Baa1 from Baa2.

The increase was driven by improvement in our overall credit profile, including market position, profitability, capital adequacy and financial flexibility.

Our continued

performance also led S&P Global Ratings to upgrade the financial rating of EMICO from BBB to BBB+ as of February 16, 2023.

On January 27, 2022, we executed an excess of loss reinsurance transaction with a panel of reinsurers, on a portion of current and expected new insurance written for the 2022 book year, effective January 1, 2022.

Based on actual 2022 NIW, this agreement provided up to $221 million of reinsurance coverage.

On March 24, 2022, we executed an excess of loss reinsurance transaction with a panel of reinsurers, which provides up to $325 million of reinsurance coverage on a portfolio of existing mortgage insurance policies written from July 1, 2021, through December 31, 2021, effective March 1, 2022.

On September 15, 2022, we executed an excess of loss reinsurance transaction with a panel of reinsurers, which provides up to $201 million of reinsurance coverage on a portfolio of existing mortgage insurance policies written from January 1, 2022, through June 30, 2022, effective September 1, 2022.

On June 30, 2022, we entered into a five-year, unsecured revolving credit facility (the “Facility”) with a syndicate of lenders in the initial aggregate principal amount of $200 million.

The Facility may be used 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 remains undrawn as of December 31, 2022.

On April 26, 2022, our Board of Directors approved the initiation of a dividend program under which the Company intends to pay a quarterly cash dividend.

We paid quarterly dividends of $0.14 per share in May, September and December of 2022.

The sufficiency ratio as of December 31, 2023, was 161% or $1,887 million above the PMIERs requirements, compared to 165% or $2,050 million above the published PMIERs requirements as of December 31, 2022.

Our PMIERs required assets benefited from the application of a 0.30 multiplier applied to the risk-based required asset amount factor for certain non-performing loans as defined under PMIERs.

The application of the 0.30 multiplier to all eligible delinquencies provided $73 million of benefit to our December 31, 2023, PMIERs required assets compared to $132 million of benefit as of December 31, 2022.

These amounts are gross of any incremental reinsurance benefit from the elimination of the 0.30 multiplier.

Our PMIERs required assets also benefited from a reinsurance credit of $1,714 million and $1,578 million related to third-party reinsurance as of December 31, 2023, and 2022, respectively.

On February 16, 2023, S&P Global Ratings upgraded the long-term financial strength and issuer credit ratings of EMICO from BBB to BBB+.

This rating was further upgraded to A- as of January 8, 2024.

Moody’s Investors Service also upgraded the insurance financial strength rating of EMICO from Baa1 to A3 on March 1, 2023.

On April 25, 2023, Fitch upgraded the insurance financial strength rating of EMICO

from BBB+ to A-.

These ratings reflect our continued strong performance including our credit profile, market position, profitability, capital adequacy and financial flexibility.

On August 1, 2023, A.M.

Best initiated public ratings of EMICO and Enact Re.

Both entities received A- ratings with stable outlooks.

Recent transactions.

In May 2023, we contributed $250 million into Enact Re, our wholly owned Bermuda-based subsidiary.

Through this contribution, Enact Re was able to participate in the assumption of excess-of-loss reinsurance relating to GSE credit risk transfer and reinsured EMICO’s new and existing insurance in-force under quota share reinsurance agreements.

We contributed an additional $250 million in November 2023 which will support an increase to the ceding percentage of our previously announced affiliate quota share agreements from 7.5% to 12.5%, along with assumed new insurance written and new business opportunities, including the continued execution of GSE credit risk transfer.

On March 8, 2023, we executed an excess-of-loss reinsurance transaction with a panel of reinsurers, which provides up to $180 million of reinsurance coverage on a portion of current and expected new insurance written for the 2023 book year, effective January 1, 2023.

On June 30, 2023, we executed a quota share reinsurance contract with a panel of reinsurers.

Following a 3% increase in our ceding percentage during the fourth quarter of 2023, we cede 16.125% of a portion of NIW written from January 1, 2023, through December 31, 2023.

On November 15, 2023, we obtained $248 million of fully collateralized excess-of-loss reinsurance coverage from Triangle Re 2023-1 Ltd.

on a portfolio of existing mortgage insurance policies written from July 1, 2022 through June 30, 2023.

Subsequent to year end, on January 3, 2024, we entered into a quota share reinsurance agreement with a panel of third-party reinsurers.

Under the agreement, Enact will cede approximately 21% of a portion of its new insurance written from January 1, 2024, though December 31, 2024.

Subsequent to year end, on January 30, 2024, we executed an excess-of-loss reinsurance transaction with a panel of reinsurers, which provides up to $255 million of reinsurance coverage on a portion of current and expected new insurance written for the 2024 book year, effective January 1, 2024.

Capital returns.

On April 26, 2022, our Board of Directors approved the initiation of a dividend program under which the Company intends to pay a quarterly cash dividend, subject to approval by our Board of Directors each quarter.

We paid quarterly dividends of $0.14 per share in March of 2023 and May, September and December of 2022.

On May 1, 2023, we announced an increase of our quarterly dividend to $0.16 per share which was paid in June, September and December 2023.

In February of 2024, we announced our first quarter dividend of $0.16 per share.

Future dividend payments are subject to quarterly review and approval by our Board of Directors and Genworth and will be targeted to be paid in the third month of each subsequent quarter.

In April and October of 2022, our primary mortgage insurance operating company, EMICO, completed distributions to EHI supporting our ability to pay cash dividends.

Future EMICO distributions will be used to fund the quarterly dividend as well as to bolster our financial flexibility and potentially return additional capital to shareholders.

Returning capital to shareholders, balanced with our growth and risk management priorities, remains a key commitment as we look to drive shareholder value through time.

We believe the initiation of a quarterly dividend in 2022 reflects meaningful progress towards that goal.

Further, we announced a special cash dividend of $183 million, or $1.12 per share, that was paid during the fourth quarter of 2022.

We also announced the initiation of a share repurchase program which authorized the repurchase of up to $75 million of the Company’s common stock.

Under the program, share repurchases may be made at the Company’s discretion from time to time in open market transactions, privately negotiated transactions, or by other means, including through Rule 10b5-1 trading plans.

In support, we have entered into an agreement with Genworth Holdings, Inc.

In April and November 2023, our primary mortgage insurance operating company, EMICO, completed distributions to EHI that supported our ability to pay dividends in 2023.

We intend to use these proceeds and future EMICO distributions to fund the quarterly dividend as well as to bolster our financial flexibility and potentially return additional capital to shareholders.

In December 2023, we paid a special cash dividend of $113 million, or $0.71 per share.

On August 1, 2023, we announced the authorization of a new share repurchase program which allows for the repurchase of up to an additional $100 million of EHI’s common stock.

Under the program, share repurchases may be made at our discretion from time to time in open market transactions, privately negotiated transactions, or by other means, including through Rule 10b5-1 trading plans.

In conjunction with this authorization, we have entered into an agreement with Genworth Holdings, Inc.

to repurchase its EHI shares on a pro rata basis as part of the program.

The share repurchase program is not expected to change Genworth’s ownership interest in EHI post-completion.

We began repurchases in the fourth quarter of 2022 which were immaterial.

We expect the timing and amount of any future share repurchases will be opportunistic and will depend on a variety of factors, including EHI’s share price, capital availability, business and market conditions, regulatory requirements, and debt covenant restrictions.

The share repurchase program is not expected to change Genworth’s ownership interest in Enact post-completion.

We expect the timing and amount of any

future share repurchases will be opportunistic and will depend on a variety of factors, including EHI’s share price, capital availability, business and market conditions, regulatory requirements, and debt covenant restrictions.

The program does not obligate EHI to acquire any amount of common stock, it may be suspended or terminated at any time at the Company’s discretion without prior notice, and it does not have a specified expiration date.

Returning capital to shareholders, balanced with our growth and risk management priorities, remains a key commitment as we look to drive shareholder value through time.

Future return of capital will be shaped by our capital prioritization framework:

28 unchanged sentences

23 % 25 % 25 %

Earned premium rate (3)

0.37 % 0.40 % 0.45 %

_______________

(1) Loss ratio is calculated by dividing losses incurred by net earned premiums.

(2) Expense ratio is calculated by dividing acquisition and operating expenses, net of deferrals, plus amortization of DAC and intangibles by net earned premiums.

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

Detailed discussions of our consolidated results of operations for the year ended December 31, 2021, including the year-over-year comparisons between 2022 and 2021, that are not included in this Annual Report on Form 10-K can be found in Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Premiums decreased mainly attributable to lapse of our in-force portfolio as older, higher priced policies lapsed combined with lower single premium cancellations and partially offset by higher IIF.

Premiums increased mainly attributable to higher average IIF.

This was partially offset by lapse of our in-force portfolio as older, higher priced policies lapsed, lower single premium cancellations and higher ceded premium.

Earned premium rate decreased as a result of this lapse of higher priced policies and lower single premium cancellations.

Net investment income increased primarily due to higher investment yields due to interest rate increases during 2023 coupled with higher average invested assets.

This was partially offset by lower income from bond calls.

Net investment losses in the current year were primarily driven by realized losses from the sale of fixed maturity securities.

Net investment losses in the prior year were largely from impairments and net realized losses from the sale of fixed maturity securities.

Other income decreased primarily due to lower contract underwriting revenue.

Other income includes underwriting fee revenue charged on a per-unit or per-diem basis, as defined in the underwriting agreement.

Underwriting volume was down due to a smaller mortgage insurance market.

Net investment losses during 2023 were primarily driven by the sale of fixed maturity securities as part of an investment strategy designed to optimize yield on our portfolio over time.

Net investment losses in the prior year were largely from net realized losses from the sale of fixed maturity securities.

Other income includes underwriting fee revenue, equity method investment income and other revenue.

Losses and expenses

Losses incurred decreased largely from favorable development related to cures exceeding expectations predominantly related to COVID-19 related delinquencies from 2020 and 2021.

Losses incurred in 2023 and 2022 were impacted by favorable reserve adjustments .

During 2023, we released reserves of $241 million primarily due to better than expected cure experience on delinquencies from 2022 and earlier, including a portion of those related to the emergence of COVID-19.

A component of the reserve release also related to delinquencies from 2022, as uncertainty in the economic environment has not negatively impacted cure performance to the extent initially expected.

During 2022, we recorded $314 million of reserve releases.

Due to uncertainty in the economic environment, we increased the expected claim rate on new delinquencies in 2022 which contributed to reserve strengthening of $46 million on previous quarter delinquencies in 2022.

New primary delinquencies were 41,617 in 2023 compared to 35,996 in 2022, resulting in $265 million and $171 million of losses, respectively.

During 2022, we recorded a $314 million reserve release primarily related to COVID-19 delinquencies from 2020 and 2021.

Due to uncertainty in the current economic environment, we increased the expected claim rate on new delinquencies throughout 2022.

This contributed to reserve strengthening of $46 million on previous quarter delinquencies in 2022 and increased the amount of reserves on new delinquencies in the fourth quarter of 2022.

In 2021 we recorded a $22 million reserve release related to pre-COVID-19 claim years.

The following table shows incurred losses related to current and prior accident years for the years ended December 31:

8 unchanged sentences

(1) Excludes run-off business.

Acquisition and operating expenses, net of deferrals, decreased primarily attributable to lower corporate overhead.

Acquisition and operating expenses, net of deferrals, decreased primarily attributable to the impact of our cost reduction initiatives, including the impact from our previously announced renegotiated shared services agreement with Genworth and our voluntary separation program executed in the fourth quarter of 2022.

Amortization of DAC and intangibles declined due to lower DAC amortization as a result of higher persistency, driven by rising mortgage rates.

The expense ratio remained flat due to similar percentage declines in premiums and expenses.

The expense ratio decreased due to a decline in expenses and premium growth.

Interest expense was relatively flat in the current year and related primarily to our 2025 Senior Notes issued in August 2020.

11 unchanged sentences

(i) Net investment gains (losses)—The recognition of realized investment gains or losses can vary significantly across periods as the activity is highly discretionary based on the timing of individual securities sales due to such factors as market opportunities or exposure management.

the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these realized gains and losses.

Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these realized gains and losses.

We do not view them to be indicative of our fundamental operating activities.

16 unchanged sentences

Adjusted operating income $ 676,485 $ 708,499 $ 550,531

We recorded a pre-tax expense of $3.5 million for the year ended December 31, 2022, related to restructuring costs as we evaluate and appropriately size our organizational needs and expenses.

Adjusted operating income increased in 2022 compared to 2021 due to larger favorable reserve adjustments in 2022 related to cure activity exceeding expectations predominantly from COVID-19 related delinquencies from 2020 and 2021.

This was partially offset by lower premiums in 2022.

We recorded a pre-tax expense of $3.5 million for the year ended December 31, 2022, related to restructuring costs as we evaluated and appropriately sized our organizational needs and expenses.

Adjusted operating income decreased in 2023 compared to 2022 due primarily due to the higher losses in 2023, including a larger reserve release in 2022, partially offset by higher revenues and lower operating expenses during 2023.

Management reviews the key metrics included within this section when analyzing the performance of our business.

The metrics provided in this section exclude activity related to our run-off business, which is immaterial to our consolidated results of operations.

The metrics provided in this section are on a direct basis and exclude activity related to our run-off business, which is immaterial to our consolidated results of operations.

The following table sets forth selected operating performance measures on a primary basis as of or for the years ended December 31:

6 unchanged sentences

Persistency rate 85 % 80 % 62 %

Policies in-force (count) 960,306 937,350 924,624

Primary policies in-force (count) 974,516 960,306 937,350

Delinquent loans (count) 20,432 19,943 24,820

3 unchanged sentences

New insurance written

NIW for the year ended December 31, 2022 decreased 31% compared to 2021 primarily due to a smaller estimated private mortgage insurance market as both refinancing and purchase originations were impacted by increasing mortgage rates.

NIW for the year ended December 31, 2023 decreased 20% compared to 2022 primarily due to a smaller private mortgage insurance market as both refinancing and purchase originations were impacted by elevated mortgage rates.

We manage the quality of new business through pricing and our underwriting guidelines, which we modify from time to time as circumstances warrant.

18 unchanged sentences

Total $ 53,081 100 % $ 66,485 100 % $ 97,004 100 %

We have seen a decline in NIW on single policies as a result of a reduction in the market for single policies driven by higher mortgage rates.

The following table presents primary NIW by FICO score for the years ended December 31:

29 unchanged sentences

Total $ 53,081 100 % $ 66,485 100 % $ 97,004 100 %

We have seen a higher concentration of loans with a DTI ratio of greater than 45% during 2022.

This is in line with market trends as rising mortgage rates and recent home price appreciation have put pressure on affordability.

We have continued to see a greater concentration of loans with higher DTI ratios.

This is in line with market trends as elevated mortgage rates and recent home price appreciation have put pressure on affordability.

We believe the levels are in line with our current risk appetite as we consider layered risk across multiple risk attributes, pricing and our portfolio credit mix.

155 unchanged sentences

(1) Direct primary case reserves exclude LAE, pool, IBNR and reinsurance reserves.

The following tables set forth primary delinquencies, direct case reserves and RIF by aged missed payment status as of the dates indicated:

The following tables set forth primary delinquencies, direct primary case reserves and RIF by aged missed payment status as of the dates indicated:

December 31, 2023

1 unchanged sentence

Delinquencies

Direct primary case

Reserves as % of risk in-force

7 unchanged sentences

Delinquencies

Direct primary case

Reserves as % of risk in-force

9 unchanged sentences

Delinquencies

Direct primary case

Reserves as % of risk in-force

6 unchanged sentences

(1) Direct primary case reserves exclude LAE, pool, IBNR and reinsurance reserves.

The total reserves as a percentage of RIF as of December 31, 2022, compared to December 31, 2021, remained relatively flat in 2022.

Delinquent RIF decreased mainly from lower total delinquencies as cures outpaced new delinquencies in 2022, while reserves decreased in the current year primarily from favorable reserve adjustments related to COVID-19 delinquencies from 2021 and 2020.

As of December 31, 2022, we have experienced a decrease in loans that are delinquent for 12 months or more.

This number was elevated in 2021 in large part to borrowers entering a forbearance plan driven by COVID-19 and we saw cure activity within these delinquencies during 2022.

Our current reserve estimate assumes that remaining COVID-19 delinquencies will have a higher likelihood of going to claim given the uncertainty around the lack of progression through the foreclosure process.

While we have seen significant cure activity in aged delinquencies, continued forbearance options exist, so we could continue to experience elevated delinquencies in this aged category.

Resolution of a delinquency in a forbearance plan, whether it ultimately results in a cure or a claim, is difficult to estimate and may not be known for several quarters, if not longer.

The total reserves as a percentage of RIF declined as of December 31, 2023, compared to December 31, 2022 as long-term delinquencies with higher reserves have continued to cure.

The number of loans that are delinquent for 12 months or more has decreased to be more in line with pre-COVID-19 levels.

Due to continued forbearance options, foreclosure moratoriums and the uncertainty around the lack of progression through the foreclosure process there is still uncertainty around the likelihood and timing of delinquencies going to claim.

The ratio of the claim paid to the current risk in-force for a loan is referred to as “claim severity.” The current risk in-force is equal to the unpaid principal amount multiplied by the coverage percentage.

14 unchanged sentences

Michigan 4 3 1.94 %

North Carolina 3 3 1.59 %

Georgia 3 3 2.23 %

North Carolina 3 2 1.56 %

Washington 3 2 1.77 %

9 unchanged sentences

Texas 8 7 2.12 %

Michigan 4 2 1.87 %

Arizona 4 2 1.78 %

Michigan 4 3 1.79 %

North Carolina 3 3 1.59 %

Pennsylvania (1)

Georgia 3 3 2.23 %

Washington 3 3 1.92 %

10 unchanged sentences

Michigan 4 2 1.87 %

Washington 4 3 5.37 %

Pennsylvania (1)

Arizona 4 2 2.31 %

North Carolina 3 2 2.18 %

Pennsylvania (1)

Washington 3 3 2.98 %

All other states (2)

3 unchanged sentences

(2) Includes the District of Columbia .

The table below sets forth our primary delinquency rates for the ten largest Metropolitan Statistical Areas (“MSA”) or Metro Divisions (“MD”) by our primary RIF as of December 31, 2022:

The table below sets forth our primary delinquency rates for the ten largest MSAs or MDs by our primary RIF as of December 31, 2023:

Percent of RIF

1 unchanged sentence

By MSA or MD:

Chicago-Naperville, IL MD 3 % 5 % 2.84 %

Phoenix, AZ MSA 3 % 2 % 2.01 %

New York, NY MD 3 8 3.75 %

Chicago-Naperville, IL MD 3 4 2.88 %

Atlanta, GA MSA 3 3 2.40 %

New York, NY MD 2 7 3.60 %

Washington-Arlington, DC MD 2 2 2.01 %

Houston, TX MSA 2 3 2.67 %

Riverside-San Bernardino CA MSA 2 2 2.89 %

Los Angeles-Long Beach, CA MD 2 2 2.39 %

Dallas, TX MD 2 2 1.92 %

Riverside-San Bernardino, CA MSA 2 3 2.83 %

Denver-Aurora-Lakewood, CO MSA 2 1 1.12 %

14 unchanged sentences

Dallas, TX MD 2 1 1.86 %

Nassau County, NY MD 2 4 5.55 %

Denver-Aurora-Lakewood, CO MSA 2 1 1.12 %

All Other MSAs/MDs 77 71 2.00 %

13 unchanged sentences

Dallas, TX MD 2 2 2.31 %

Seattle-Bellevue, WA MD 2 2 6.33 %

Nassau County, NY MD 2 4 5.55 %

All Other MSAs/MDs 77 67 2.44 %

10 unchanged sentences

2008 and prior 2 % 18 % 8.61 % 5.56 %

2009 to 2014 1 4 5.01 % 0.69 %

2009-2015 1 4 4.55 % 0.63 %

6 unchanged sentences

2022 22 16 1.57 % 1.46 %

2023 20 3 0.47 % 0.46 %

Total portfolio 100 % 100 % 2.10 % 4.19 %

4 unchanged sentences

2008 and prior 3 % 26 % 9.61 % 5.57 %

2009 to 2013 1 2 5.54 % 0.74 %

2009-2014 1 4 5.01 % 0.69 %

6 unchanged sentences

2021 32 14 1.20 % 1.06 %

2022 25 3 0.54 % 0.52 %

Total portfolio 100 % 100 % 2.08 % 4.26 %

4 unchanged sentences

2008 and prior 3 % 24 % 10.54 % 5.59 %

2009 to 2013 2 2 5.44 % 0.91 %

2009-2013 1 2 5.54 % 0.74 %

5 unchanged sentences

2019 10 19 3.89 % 1.68 %

2020 31 14 1.50 % 1.14 %

2021 40 2 0.37 % 0.36 %

Total portfolio 100 % 100 % 2.65 % 4.42 %

4 unchanged sentences

Although uncertainty remains with respect to the ultimate losses we will experience on these policy years, they have become a smaller percentage of our total mortgage insurance portfolio.

The largest portion of loss reserves has shifted to newer book years in line with changes in RIF.

Loss reserves have shifted to newer book years in line with changes in RIF.

As of December 31, 2023, our 2016 and newer policy years represented approximately 97% of our primary RIF and 78% of our total direct primary case reserves.

4 unchanged sentences

Our investment portfolio is an important component of our consolidated financial results and represents our primary source of claims paying resources.

Our investment portfolio primarily consists of a diverse mix of highly rated fixed income securities and is designed to achieve the following objectives:

Our investment portfolio primarily consists of a diverse mix of highly rated fixed maturity securities and is designed to achieve the following objectives:

• Meet policyholder obligations through maintenance of sufficient liquidity;

2 unchanged sentences

• Maximize statutory capital;

• Increase value to our Parent and its stockholders, among other objectives.

• Increase shareholder value, among other objectives.

To achieve our portfolio objectives, our investment strategy focuses primarily on:

• Our business outlook, current and expected future investment conditions;

• Our business outlook, including current and expected future investment conditions;

• Investments selection based on fundamental, research-driven strategies;

17 unchanged sentences

$ 5,266,141 100.0 % $ 4,884,760 100.0 % $ 5,266,339 100.0 %

Our investment portfolio did not include any direct residential real estate or whole mortgage loans as of December 31, 2022 or December 31, 2021 and December 31, 2020.

Our investment portfolio did not include any direct residential real estate or whole mortgage loans as of December 31, 2023, December 31, 2022 or December 31, 2021.

We have no derivative financial instruments in our investment portfolio.

As of December 31, 2022, December 31, 2021 and December 31, 2020, 98%, 97% and 98% of our investment portfolio was rated investment grade, respectively.

As of December 31, 2023, 2022 and 2021, 98%, 98% and 97% of our investment portfolio was rated investment grade, respectively.

The following table presents the security ratings of our fixed maturity securities as of the dates indicated:

20 unchanged sentences

Our most significant source of operating cash flows is from premiums received from our insurance policies, while our most significant uses of operating cash flows are generally for claims paid on our insured policies and our operating expenses.

Net cash from operating activities decreased largely due to lower premiums.

Cash flows from operations were also impacted by changes in reserves, changes in unearned premium, stock-based compensation expense and amortization of discounts and premiums on fixed maturity securities.

Net cash from operating activities increased largely due higher net investment income and lower expenses.

Cash flows from operations were also impacted by changes in unearned premiums, net investment losses and stock-based compensation expense.

Investing activities are primarily related to purchases, sales and maturities of our investment portfolio.

We had cash outflows from investing activities in 2022 and 2021 as a result of continued fixed maturity security purchases driven by premium growth and lower losses paid.

Outflows of cash in 2020 were primarily as a result of purchases of fixed maturity securities using the net proceeds from the December 2019 sale of our investment in Genworth Canada and our operating cash flows, partially offset by higher maturities and sales of our fixed maturity securities.

Financing activities in 2022 reflect dividends paid for the year including a regular quarterly dividend initiated in the second quarter of 2022 along with an additional special dividend paid in the fourth quarter of 2022.

We also began our share repurchase program in the fourth quarter of 2022.

Financing activities in 2021 included a $200 million dividend paid in the fourth quarter while 2020 includes $738 million net proceeds from the issuance of our 2025 Senior Notes, discussed below, partially offset by a $437 million dividend paid to our Parent from the net proceeds of the offering.

The amount and timing of future dividends will depend on the prevailing economic and business conditions, among other factors as described below.

We had cash outflows from investing activities as a result of continued fixed maturity security purchases driven by premium growth and lower losses paid.

Financing activities in 2023 included dividends paid of $213 million and share repurchases of $88 million.

The amount and timing of future dividends is discussed within “—Trends and Conditions” as well as below.

During 2022, our cash flows from financing activities included dividends paid of $251 million and share repurchases of $2 million.

Capital Resources and Financing Activities

4 unchanged sentences

The 2025 Senior Notes contain customary events of default, which subject to certain notice and cure conditions, can result in the acceleration of the principal and accrued interest on the outstanding 2025 Senior Notes if we breach the terms of the indenture.

Pursuant to the GSE Restrictions, we are required to retain $300 million of our holding company cash that can be drawn down exclusively for our debt service or to contribute to EMICO to meet its regulatory capital needs including PMIERs.

As of December 31, 2022, the balance of the 2025 Senior Notes proceeds required to be held by our holding company was approximately $203 million.

See “—Trends and Conditions” for additional information regarding the GSE Restrictions.

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.

1 unchanged sentence

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 with all covenants of the Facility and the Facility remained undrawn as of December 31, 2022.

We are in compliance with all covenants of the Facility and the Facility remained undrawn through December 31, 2023.

We continually evaluate opportunities based upon market conditions to further increase our financial flexibility including through raising additional capital, restructuring or refinancing some or all of our outstanding debt or pursuing other options such as reinsurance or credit risk transfer transactions.

There can be no guarantee that any such opportunities will be available on favorable terms or at all.

Restrictions on the Payment of Dividends

2 unchanged sentences

payments made from sources other than unassigned surplus, such as paid-in and contributed surplus, are categorized as distributions.

Notice of all dividends must be submitted to the Commissioner of the NCDOI (the “Commissioner”) within 5 business days after declaration of the dividend or distribution, and at least 30 days before payment thereof.

Notice of all dividends must be submitted to the Commissioner of the NCDOI (the “Commissioner”) within 5 business days after declaration of the dividend, and at least 30 days before payment thereof.

No dividend may be paid until 30 days after the Commissioner has received notice of the declaration thereof and (i) has not within that period disapproved the payment or (ii) has approved the payment within the 30-day period.

4 unchanged sentences

Prior to the satisfaction of the GSE Conditions, the GSE Restrictions also required EMICO to maintain 120% of PMIERs Minimum Required Assets through 2022, and 125% thereafter.

Beginning in 2023, we are no longer subject to the GSE Restrictions and Conditions.

In addition, under PMIERs, EMICO is subject to other operational and financial requirements that approved insurers must meet in order to remain eligible to insure loans purchased by the GSEs.

Refer to “—Trends and Conditions” for recent updates related to these requirements.

In addition, we review multiple other considerations in parallel to determine a prospective dividend strategy for our regulated insurance operating subsidiaries.

Given the regulatory focus on the

reasonableness of an insurer’s surplus in relation to its outstanding liabilities and the adequacy of its surplus relative to its financial needs for any dividend, our insurance subsidiaries consider the minimum amount of policyholder surplus after giving effect to any contemplated future dividends.

Given the regulatory focus on the reasonableness of an insurer’s surplus in relation to its outstanding liabilities and the adequacy of its surplus relative to its financial needs for any dividend, our insurance subsidiaries consider the minimum amount of policyholder surplus after giving effect to any contemplated future dividends.

Regulatory minimum policyholder surplus is not codified in North Carolina law and limitations may vary based on prevailing business conditions including, but not limited to, the prevailing and future macroeconomic conditions.

11 unchanged sentences

In either case, we do not have prescribed target or maximum thresholds, but we do evaluate the reasonableness of a potential dividend relative to the actual or estimated income generated in the proceeding or preceding calendar year after giving consideration to prevailing business conditions including, but not limited to the prevailing and future macroeconomic conditions.

In addition, the dividend strategies of our regulated operating subsidiaries are made in consultation with our Parent.

EMICO completed distributions of approximately $242 million to EHI in both April and October of 2022 that supported our ability to pay cash dividends.

In addition, the dividend strategies of our regulated operating subsidiaries are made in consultation with Genworth.

During 2023, EMICO completed distributions of approximately $158 million and $185 million in April and November, respectively, that supported our ability to pay cash dividends.

We intend to use future EMICO distributions to fund the quarterly dividend as well as to bolster our financial flexibility at EHI and return additional capital to shareholders.

7 unchanged sentences

and compliance with all applicable financial requirements under the Private Mortgage Insurer Eligibility Requirements published by the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association.

purposes of determining EHI’s compliance with the foregoing financial covenants, the consolidated net worth metric, total adjusted capital metric, debt-to-capitalization ratio and liquidity metric (including, in each case, any component thereof) are each calculated as set forth in the credit agreement.

In addition to the restrictions described above, all dividends from EHI are subject to Parent consent and EHI Board of Directors approval.

For purposes of determining EHI’s compliance with the foregoing financial covenants, the consolidated net worth metric, total adjusted capital metric, debt-to-capitalization ratio and liquidity metric (including, in each case, any component thereof) are each calculated as set forth in the credit agreement.

In addition to the restrictions described above, all dividends from EHI are subject to Genworth consent and EHI Board of Directors approval.

Risk-to-Capital Ratio

2 unchanged sentences

Our net RIF represents RIF, net of reinsurance ceded, and excludes risk on policies that are currently delinquent and for which loss reserves have been established.

Statutory capital consists primarily of statutory policyholders’ surplus (which increases as a result of statutory net income and decreases as a result of statutory net loss and dividends paid), plus the statutory contingency reserve.

Statutory capital consists primarily of statutory policyholders’ surplus (which increases as a result of statutory net income and

decreases as a result of statutory net loss and dividends paid), plus the statutory contingency reserve.

The statutory contingency reserve is reported as a liability on the statutory balance sheet.

25 unchanged sentences

In accordance with NCDOI requirements, adjusted RIF excludes delinquent policies.

As of December 31, 2022, we maintained liquidity in the form of cash and cash equivalents of $514 million compared to $426 million as of December 31, 2021, and we also held significant levels of

investment-grade fixed maturity securities that can be monetized should our cash and cash equivalents be insufficient to meet our obligations.

On August 21, 2020, we issued the 2025 Senior Notes.

The GSE Restrictions require us to retain $300 million of the net proceeds in our holding company cash that can be drawn down exclusively for our debt service or to contribute to EMICO to meet its regulatory capital needs including PMIERs, until the GSE Conditions are satisfied.

We distributed $437 million of the net proceeds to Genworth Holdings at the closing of the offering of our 2025 Senior Notes.

The 2025 Senior Notes were issued to persons reasonably believed to be qualified institutional buyers in a private offering exempt from registration pursuant to Rule 144A under the Securities Act and to non-U.S.

persons outside of the United States in compliance with Regulation S under the Securities Act.

As of December 31, 2022, the balance of the 2025 Senior Notes proceeds required to be held by our holding company was approximately $203 million.

Additionally, on June 30, 2022, we entered into a five-year, unsecured revolving credit facility with a syndicate of lenders in the initial aggregate principal amount of $200 million.

As of December 31, 2023, we maintained liquidity in the form of cash and cash equivalents of $616 million compared to $514 million as of December 31, 2022, and we also held significant levels of investment-grade fixed maturity securities that can be monetized should our cash and cash equivalents be insufficient to meet our obligations.

On June 30, 2022, we entered into a five-year, unsecured revolving credit facility with a syndicate of lenders in the initial aggregate principal amount of $200 million.

The Facility matures in June 2027, but under certain conditions EHI may need to repay any outstanding amounts and terminate the Facility earlier than the maturity date.

The Facility may be used 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 remains undrawn as of December 31, 2022.

The Facility has remained undrawn through December 31, 2023.

The principal sources of liquidity in our business currently include insurance premiums, net investment income and cash flows from investment sales and maturities.

We believe that the operating cash flows generated by our mortgage insurance subsidiary will provide the funds necessary to satisfy our claim payments, operating expenses and taxes in both the short-term and long-term.

However, our subsidiaries are subject to regulatory and other capital restrictions with respect to the payment of dividends.

The net proceeds of the 2025 Senior Notes offering retained by EHI comprise substantially all of the cash and cash equivalents held directly by EHI and initially available to pay interest on the 2025 Senior Notes.

To the extent the net proceeds retained from the offering is used to provide capital support to EMICO, the GSEs and the NCDOI may seek to prevent EMICO from returning that capital to EHI in the form of a dividend, distribution or an intercompany loan.

We currently have no material financing commitments, such as drawn lines of credit or guarantees, that are expected to affect our liquidity over the next five years, other than the 2025 Senior Notes.

subsidiaries are subject to regulatory and other capital restrictions with respect to the payment of dividends.

We currently have no material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years, other than the 2025 Senior Notes and the Facility.

Financial Strength Ratings

4 unchanged sentences

We cannot predict with any certainty the impact to us from any future disruptions in the credit markets or downgrades by one or more of the rating agencies of the financial strength ratings of our insurance company subsidiaries and/or the credit ratings of our holding company as a result of the impact of the COVID-19 pandemic, the ensuing economic uncertainty or otherwise.

We also cannot predict the impact on our ratings or future ratings of actions taken with respect to our Parent.

We also cannot predict the impact on our ratings or future ratings of actions taken with respect to Genworth.

The following EMICO financial strength ratings have been independently assigned by third-party rating organizations and represent our current ratings, which are subject to change.

1 unchanged sentence

Moody’s Investor Service, Inc.

Baa1 Stable Upgrade July 21, 2022

A3 Stable Upgrade March 1, 2023

Fitch Ratings, Inc.

BBB+ Stable Affirmed April 27, 2022

S&P Global Ratings BBB+ Stable Upgrade February 16, 2023

A- Stable Upgrade April 25, 2023

S&P Global Ratings A- Stable Upgrade January 8, 2024

Best A- Stable Initial August 1, 2023

Contractual Obligations and Commitments

12 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis