Enact - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered stable results: GAAP diluted EPS $1.08 and adjusted diluted EPS $1.10 on total revenues of $306.8M; net premiums earned were $245M and ROE was 13.1% (adjusted ROE 13.4%).
• Capital return accelerated: dividend raised 14% to $0.21 and new $350M buyback authorization; PMIERs sufficiency at 165% (~$2.0B above requirements) supports flexibility.
• Credit quality remained sound but reserve releases moderated ($47M vs $56M in Q4), pushing the loss ratio up to 12% (from 10%); delinquency rate improved sequentially to 2.34%.
• NIW of ~$10B fell 26% QoQ on seasonality and was down 7% YoY on lower estimated market share; persistency increased to 84% aiding IIF stability at $268B.
• Management reiterated 2025 expense guidance ($220–$225M) and expects 2025 capital returns similar to 2024 (~$350M), with pricing “constructive” and Rate360 underwriting technology cited as an advantage.

What Went Well and What Went Wrong

What Went Well

• Strong capital actions: new $350M buyback and dividend hike to $0.21 per share underscore confidence and balance sheet strength.
• Pricing/underwriting discipline supported portfolio quality; Rate360 leverages proprietary data and machine learning for competitive, risk‑adjusted pricing.
• Investment income resilient: $63M, supported by rising portfolio book yield (4.1%); management selectively rotated assets to recoup realized losses via higher future income.

Selected quote:

• “We had a strong start to 2025… well positioned to navigate an uncertain economic backdrop…” — Rohit Gupta, CEO.

What Went Wrong

• Reserve releases moderated to $47M (vs $56M in Q4), lifting loss ratio to 12% and losses incurred to $31M; YoY increase driven by lower release and incremental new delinquencies.
• NIW down 26% QoQ due to seasonality and 7% YoY on lower estimated market share; sequential slowdown in origination limited IIF growth.
• Expense ratio improvement, though solid at 21%, reflects ongoing inflationary pressures and reorganization costs (~$1M) noted in the quarter.

Transcript

Operator (participant)

Hello, and welcome to Enact's first quarter earnings call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Daniel Kohl, Vice President of Investor Relations. You may begin.

Daniel Kohl (VP of Investor Relations)

Thank you, and good morning. Welcome to our first quarter earnings call. Joining me today are Rohit Gupta, President and Chief Executive Officer, and Dean Mitchell, Chief Financial Officer and Treasurer. Rohit will provide an overview of our business performance and progress against our strategy. Dean will then discuss the details of our quarterly results before turning the call back to Rohit for closing remarks. We will then take your questions. The earnings materials we issued after market close yesterday contain our financial results for the quarter, along with a comprehensive set of financial and operational metrics. These are available on the Investor Relations section of our website. Today's call is being recorded and will include the use of forward-looking statements. These statements are based on current assumptions, estimates, expectations, and projections as of today's date.

Additionally, they are subject to risks and uncertainties, which may cause actual results to be materially different, and we undertake no obligation to update or revise such statements as a result of new information. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release, as well as in our filings with the SEC, which will be available on our website. Please keep in mind the earnings materials and management's prepared remarks today include certain non-GAAP measures. Reconciliations of these measures to the most relevant GAAP metrics can be found in the press release, our earnings presentation, and our upcoming SEC filing on our website. With that, I'll turn the call over to Rohit.

Rohit Gupta (President and CEO)

Thank you, Daniel. Good morning, everyone. Enact delivered very strong financial and operational results in the first quarter of 2025. This was driven by continued execution against our strategic priorities, robust credit performance, and our commitment to creating long-term value for shareholders. In addition, we delivered on our capital allocation priorities, highlighted by a new share repurchase authorization and a meaningful dividend increase, which we'll discuss in detail later. During the quarter, we reported adjusted operating income of $169 million, up 2% year-over-year. Adjusted earnings per share was $1.10, up 6% year-over-year. Adjusted return on equity was 13.4%, and insurance in force was $268 billion, which was up 2% year-over-year. Housing market conditions in the first quarter were similar to prior recent periods and supported our strong performance. Housing inventory stayed tight, which sustained elevated home prices despite high borrowing costs.

While affordability remains challenged, there is potential for improvement if mortgage rates decline. Additionally, the consumer and labor market continued to be stable, with wage growth moderating slightly and a moderate rise in inflation. Looking ahead, we continue to operate in a dynamic and complex environment driven by shifting economic policies and elevated geopolitical uncertainty. However, over the longer term, we believe the drivers of the housing market are intact, given the pent-up demand in first-time homebuyer population as more Americans reach the average first-time homebuyer age. Overall, we believe that mortgage insurance will continue to be a crucial resource to both buyers and lenders alike. Against this backdrop, our capital position and credit performance remain key strengths. Our PMIERs sufficiency ratio stood at a robust 165%, highlighting our strong capital foundation.

Our credit and underwriting quality remains strong and is further supported by the significant embedded equity within our portfolio. At the end of the first quarter, approximately 8% of our insurance in force had mortgage rates at least 50 basis points above March's average mortgage rate of 6.7%, and the credit quality of our insured portfolio remained strong. Additionally, the risk-weighted average FICO score of the portfolio was 745, the risk-weighted average loan-to-value ratio was 93%, and layered risk was 1.3% of risk in force.

Pricing was again constructive in the quarter, and we maintained our commitment to prudent underwriting standards. Our pricing engine, which we have recently branded as Rate360, allows us to deliver competitive pricing on a risk-adjusted basis, and we continue to underwrite and select risk prudently while generating attractive returns. We saw favorable delinquency and cure performance during the quarter that followed typical seasonal sequential trends.

Total delinquencies improved and were down 5% sequentially, with new delinquencies also decreasing by 11%. We are now past the peak of new delinquencies from the recent hurricanes, and as expected, we are seeing favorable cure trends from those events. Additionally, a significant portion of our portfolio continues to have a considerable amount of embedded equity, and when combined with our loss mitigation efforts, drove a cure rate of 56%, which aligns with the strength of cure rate trends in the first quarter of each year. This strong cure rate drove a reserve release of $47 million during the quarter, and our resulting loss ratio was 12%. We continue to see strong credit performance and remain well-reserved for a range of scenarios. Dean will have more to say on this shortly.

The strength of our capital position and cash flows enabled us to consistently deliver on our capital allocation priorities, which are to support existing policyholders by maintaining a strong balance sheet, invest in our business to drive organic growth and efficiencies, fund attractive new business opportunities to diversify our platform, and return excess capital to shareholders. As it relates to diversifying our platform, Enact Re continues to perform well, maintaining a strong underwriting and attractive return profile. During the quarter, we continued to participate in GSE CRT transactions that came to market in both the single-family and multifamily markets. Enact Re continues to be a long-term growth vehicle for our company. We continue to maintain a disciplined approach to expense management while investing in technologies and processes that improve the customer experience and our business operations.

As I mentioned earlier, we deployed our latest generation of our comprehensive rate engine, Rate360, which leverages our proprietary data combined with market information, advanced analytical models, and machine learning capabilities. Rate360 enables us to deliver competitive, risk-adjusted pricing to our lender partners and consumers while enabling prudent risk selection and generating attractive returns. Rate360 enhances our ability to serve our customers and drive profitable growth by enabling us to adjust pricing more effectively and quickly in a rapidly evolving, increasingly complex market and represents our ongoing commitment to innovation and leadership in our industry. During the quarter, our expenses improved with a 9% reduction sequentially and were down 1% from the same period in 2024, despite the ongoing inflationary environment. We are pleased with this performance and are reaffirming our 2025 expense guidance range of $220 million-$225 million.

We continue to prioritize maintaining our strong financial foundation and flexibility, and our robust balance sheet positions us to prudently manage risk and generate long-term shareholder value. We again delivered on our commitment to return capital to our shareholders in the first quarter by returning over $94 million through share buybacks and our quarterly dividend. We issued a press release last night announcing that our Board of Directors authorized a new $350 million share repurchase program and approved a 14% increase to our dividend from $0.1850 to $0.21 per share. We continue to expect to deliver capital returns in 2025, similar to 2024 levels. Before I turn the call over to Dean, I would like to comment on how we are positioned for an uncertain macroeconomic backdrop. We have had a good start to 2025, and we continue to operate from a position of strength.

We are closely monitoring developments and remain prepared to navigate a range of scenarios. The MI industry has fundamentally transformed since the global financial crisis. Specifically, in regards to Enact, our business fundamentals remain solid. We are supported by our large, diverse pool of insurance in force, our commitment to underwriting and pricing discipline, embedded home price appreciation across our book, our prudent approach to reserves, and a resilient investment portfolio. Our insurance in force and our 2025 and 2026 books have meaningful coverage via our CRT program. We also maintain strong financial flexibility with our robust PMIERs sufficiency, well above our regulatory requirements, and a very strong statutory capital position. Overall, we believe we are operating from a point of strength, and we remain committed to executing against all aspects of our strategy and creating value for all our stakeholders.

In closing, I want to thank our entire Enact team for their unwavering commitment and outstanding performance. As we look ahead, we are encouraged by the constructive and collaborative dialogue we have had to date with the new administration and look forward to continued constructive engagement. We remain confident in our strategy and our ability to deliver continued value for our customers, employees, and shareholders in 2025 and beyond. With that, I will now turn the call over to Dean.

Dean Mitchell (CFO and Treasurer)

Thanks, Rohit. Good morning, everyone. We delivered another set of very strong results in the first quarter of 2025. GAAP net income was $166 million, or $1.08 per diluted share, compared to $1.01 per diluted share in the same period last year and $1.05 per diluted share in the fourth quarter of 2024. Return on equity was 13.1%. Adjusted operating income was $169 million, or $1.10 per diluted share, compared to $1.04 per diluted share in the same period last year and $1.09 per diluted share in the fourth quarter of 2024. Adjusted operating return on equity was 13.4%. Turning to revenue drivers, new insurance written was $10 billion, down 26% sequentially and down 7% year-over-year. Purchase originations were seasonally lower, and mortgage activity remained muted as elevated mortgage rates and home prices pressured affordability.

Persistency was 84% in the first quarter, up 2 points sequentially and down 1 point year-over-year. Our portfolio remains resilient to mortgage rate volatility, with 8% of the mortgages in our portfolio having rates at least 50 basis points above March's average mortgage rate of 6.7%. Looking ahead, we anticipate that elevated persistency will continue to help offset any impact of higher mortgage rates that could reduce the size of the origination market. Given the combination of lower new insurance written and elevated persistency, primary insurance in force was $268 billion in the first quarter, relatively flat from $269 billion in the fourth quarter of 2024 and up $4 billion, or 2% year-over-year. Total net premiums earned were $245 million, down $1 million sequentially and up $4 million, or 2% year-over-year.

The decrease sequentially was driven by higher ceded premiums, while the year-over-year increase was primarily driven by premium growth from attractive adjacencies and the growth of our mortgage insurance portfolio, partially offset by higher ceded premiums. Turning to primary premiums, our base premium rate of 40.1 basis points was relatively flat sequentially, which aligned with our guidance that we expect our base premium rate in 2025 to stabilize around 2024 levels. As a reminder, our base premium rate is impacted by several factors and tends to modestly fluctuate from quarter to quarter. Our net earned premium rate was 35.3 basis points, down 0.2 basis points sequentially, driven primarily by higher ceded premiums and lower single premium cancellations. Investment income in the first quarter was $63 million, flat sequentially and up $6 million, or 11% year-over-year.

During the quarter, our new money investment yield continued to exceed 5%, lifting our overall portfolio book yield by 10 basis points to 4.1%. Our focus remains on investing in high-quality assets and maintaining a resilient, diversified, A-rated portfolio. As we have previously stated, while we typically hold investments to maturity, we may selectively pursue income enhancement opportunities. During the quarter, we sold certain assets that will allow us to recoup approximately $3 million of realized losses through future higher net investment income. We still view our investment portfolio's unrealized loss position as materially non-economic. Turning to credit performance, new delinquencies decreased sequentially to 12,200 in the quarter from 13,700 in the fourth quarter of 2024. After adjusting for the estimated 1,000 hurricane-related new delinquencies reported in the fourth quarter of 2024, the 5% sequential decrease in new delinquencies is in line with expected seasonal trends.

Our new delinquency rate remained consistent with pre-pandemic levels and for the quarter was 1.3%, a decrease of 20 basis points compared to the 1.5% in the fourth quarter of 2024 and 1.2% in the first quarter of 2024. We maintained our claim rate on new delinquencies at 9% for the quarter. There were no material hurricane-related delinquencies reported in the quarter, and consequently, we made no adjustments to our claim rates during the quarter. Total delinquencies in the first quarter decreased sequentially to 22,300 from 23,600 as cures outpaced news. The primary delinquency rate for the quarter was 2.3% compared to 2.4% in the fourth quarter of 2024 and 2% in the first quarter of 2024.

Losses in the first quarter of 2025 were $31 million, and the loss ratio was 12% compared to $24 million and 10% respectively in the fourth quarter of 2024 and $20 million and 8% respectively in the first quarter of 2024. The current quarter reserve release of $47 million from favorable cure performance and loss mitigation activities compares to a reserve release of $56 million and $54 million in the fourth quarter of 2024 and the first quarter of 2024 respectively. Our losses and loss ratio increased sequentially and year-over-year, primarily driven by a lower reserve release in the current quarter. The year-over-year increase was also driven by incremental new delinquencies, partially offset by a lower claim rate assumption.

Turning to operating expenses, operating expenses for the first quarter of 2025 were $53 million, and the expense ratio was 21% compared to $58 million and 24% respectively in the fourth quarter of 2024 and $53 million and 22% respectively in the first quarter of 2024. First quarter operating expenses include approximately $1 million of reorganization cost. For 2025 operating expenses, we continue to anticipate a range of $220 million-$225 million, excluding reorganization cost, as we continue to prudently manage our expense base while also investing in growth initiatives and modernization driving future efficiencies in addition to normal inflationary dynamics. We continue to operate from a strong capital and liquidity position, reinforced by our robust PMIERs sufficiency and the successful execution of our diversified Credit Risk Transfer program. Our PMIERs sufficiency was 165%, or $2 billion above PMI requirements at the end of the first quarter.

As of March 31, 2025, our third-party CRT program provides $1.9 billion of PMI capital credit. As a reminder, we have executed both forward quota share and forward excess of loss reinsurance transactions on our 2025 and 2026 book years, which we expect will provide meaningful PMI credit over time and loss protection on these book years as they age through an uncertain macroeconomic backdrop. Let me now turn to capital allocation. During the quarter, we paid out $28 million, or $18.50 per share, through our quarterly dividend and bought back 2 million shares at a weighted average share price of $33.38 for a total of approximately $66 million. Through April 25, we repurchased an additional 600,000 shares at a weighted average share price of $34.53 for a total of $21 million.

Yesterday, we announced a 14% increase to our quarterly dividend from $0.1850 per share to $0.21 per share, and the board approved a new share repurchase authorization of $350 million. In support of the new share repurchase authorization, Enact has entered into an agreement with Genworth to repurchase its Enact shares as part of the program to maintain Genworth's current ownership interest in Enact. Combining this new authorization with our remaining $6 million capacity under our May 2024 authorization, we have a total buyback authorization of $356 million available as of April 25, 2025. Both the increased dividend and new share repurchase authorization actions reflect the continued strength of our financial position and confidence in our business. As Rohit mentioned earlier, our 2025 total capital return guidance remains unchanged at $350 million.

As in the past, the final amount and form of capital return to shareholders will ultimately depend on business performance, market conditions, and regulatory approvals. Overall, we're pleased with our strong start to 2025 and remain focused on prudently managing risk, maintaining a strong balance sheet, and driving solid returns for our shareholders. With that, let me turn the call back to Rohit.

Rohit Gupta (President and CEO)

Thanks, Dean. Looking ahead, we believe our strong balance sheet, prudent risk management, and focus on long-term fundamentals position us to navigate this dynamic macro environment. Our strategy remains grounded in our mission of helping people responsibly achieve the dream of homeownership, and we remain committed to creating long-term sustainable value for all our stakeholders. Operator, we are now ready for Q&A.

Operator (participant)

Thank you. If you'd like to ask a question, please press star one one. If your question has been answered and you'd like to remove yourself from the queue, please press star one one again. Our first question comes from Mihir Bhatia with Bank of America. Your line is open.

Mihir Bhatia (Analyst)

Hi, good morning. Thank you for taking my question. I wanted to just start with something you mentioned, Rohit, about just being prepared for uncertainty and specifically around maybe underwriting and pricing. I know you reiterated the outlook for base premium rates to be relatively stable, but that's obviously at a portfolio level. I was curious what you're seeing in the market or if you've taken actions in April, right? Just given all the macro noise, the uncertainty increasing in April, how has the industry or Enact, however you're comfortable answering that, reacted to that? Or have you all so far, because the data hasn't changed, you've maintained the pricing and underwriting standards or not really tightened and changed? I'm just curious how you're reacting to that uncertainty increasing from an underwriting perspective.

Rohit Gupta (President and CEO)

Yeah, good morning, Mihir. Thank you for your question. I would say, given the evolving dialogue that we are seeing on tariffs, it's difficult to predict the exact magnitude and breadth of economic impact. What I can tell you is we are doing diligent monitoring of the economic impact, whether it's across the country or specific economic sectors or specific geography. That continues to be an ongoing process right now. I would also tell you that we are maintaining prudent guidelines and underwriting and are leveraging our strong capital base, as I said in my prepared remarks, to help well-qualified borrowers get into homes.

Now, when it comes to April and most recent kind of actions and what we have observed in the market, I would say we continue to find pricing constructive in the marketplace, and we have used our Rate360 capabilities, especially with the most recent iteration, to adjust our pricing to reflect the current level of uncertainty. It's too early to say what the rest of the market is doing just because we are just wrapping up the month of April and don't have the indications from the market, but I would say our own posture has been to strengthen our pricing in reaction to that market uncertainty that all of us are observing.

Mihir Bhatia (Analyst)

Excellent. Thank you. Just one other question again on government policy, and I know it's evolving. Has there been any on-the-ground impact of any of the changes we've heard about so far and any changes in particular? I'm curious about on the loss mitigation side because I know there's been obviously post-COVID loss mitigations were basically made, were extended, and were continuous, and they've been a pretty big beneficiary of cures. Have you seen any impact from any of those changes? Thank you.

Rohit Gupta (President and CEO)

Yeah, thanks, Mihir. We have had constructive engagement with the new FHFA Director, and in a market where we have lower affordability, we continue to work very constructively with FHFA and GSEs to make sure that we are serving our role well in putting first-time homebuyers in homes and putting our capital in front of taxpayers. As far as loss mitigation changes that we have observed, most of those have been on the FHA and VA side. We actually have seen continued strength in GSE loss mitigation, whether we call it waterfalls or consumer loss mitigation options. Those continue to stand strong. I agree with your point that post-COVID, the best practices from COVID and the best experiences with COVID were carried forward into new loss mitigation programs.

We are actually very optimistic about those loss mitigation programs actually giving us more options for consumers in the event the consumer actually goes delinquent on a loan and helping them get them back on their feet.

Mihir Bhatia (Analyst)

Okay. Thank you for taking my questions. I'll get back in queue.

Rohit Gupta (President and CEO)

Thanks, Mihir.

Operator (participant)

Thank you. Our next question comes from Doug Harter with UBS. Your line is open.

Doug Harter (Analyst)

Thanks. Yeah, I guess along the lines of pricing, in the last couple of quarters, we have seen some shifts in market share from other players. Just hoping you could talk more about the pricing dynamics and kind of what you see that leads to market share changes and just how sensitive the market is to price.

Rohit Gupta (President and CEO)

Yeah, good morning, Doug, and thank you for your question. It's tough for us to comment on other companies' market share and trajectories or volatility. What I would say is our market participation has been relatively stable, I would say, over the last four to five quarters. I would also say that when we think about market share, it's not exactly a target for us. It's much more dependent on our alignment on risk and return in the market and what we see in terms of the quality of the business and what we are getting paid. We have been very happy with our market participation. We've been very happy with about $10 billion of NIW we wrote in the first quarter. Obviously, market share is not known yet for first quarter completely because not all companies have reported.

I would say some of the changes can be caused by pricing, but they can also be caused by just the lenders you specifically do business with. If you do business with a specific lender who has a big quarter in terms of origination activity, or they have a big focus on purchase versus refinance, and the market composition changes between those segments, that can create movements in market share. Those would be just in addition to pricing and guidelines. Those could be additional levers. Those could be additional movements that cause changes in market share for any company in our industry. Hope that helps.

Doug Harter (Analyst)

It does. Thank you.

Rohit Gupta (President and CEO)

Thank you.

Operator (participant)

Thank you. Our next question comes from Rick Shane with JPMorgan. Your line is open.

Rick Shane (Analyst)

Good morning, guys. Thanks for taking my question. As we sit today at the end of the first quarter of 2025, if we total up the insurance in force from 2023, 2024 and the first quarter, it represents about 38% of your book. If we did the same exercise at the end of the first quarter of 2022, it would have been 74% of your book. The book was almost twice as concentrated three years ago in recent cohorts as it is today. Obviously, that's a function of what's happened with rates, with purchase activity. We all understand the dynamics. I'm curious, as you guys look at a portfolio that was three years ago very unusual in historical context, a portfolio today that's very unusual in historical context, what you think are sort of the best-case scenarios of how this evolves and what are the biggest risks?

Because this industry is facing a different profile. I would not even say challenges. It is just characterized differently today than it has been before.

Dean Mitchell (CFO and Treasurer)

Yeah. Rick, hey it's Dean. Thanks for the question. A couple of different ways, I think, your question can go. The first would be something that we started talking about a couple of quarters ago, and it's really the seasoning of the portfolio and the impact that seasoning has on new delinquency development. As you mentioned, you go back a couple of years, our portfolio was much younger, much less mature, and it was moving up the normal delinquency curve pattern. I think we saw some of that impact last year when you think about year-over-year increases in new delinquencies coming in in the kind of mid-teens range over the course of 2024. What we've talked about now in 2025, as that book year continues to season, I think the average age of our book is now 3.9 years season.

That's up a tick from last quarter, and it's up meaningfully from several years ago. It continues to progress towards closer to the peak of that normal delinquency development curve. That happens around years three and four, and thereafter it plateaus kind of out 12-18 months thereafter. I think what that means is we should see the increase in new delinquency development slow compared to last year's increase. In fact, when you look at this Q1 performance, I think it reflects that slowing. It was roughly a 7% year-over-year increase relative to last year. At the same time, we saw something akin to a 19% increase. That's obviously the impact on the aging of the portfolio that I think your question gets at.

Any discussion on credit performance needs to have the caveat that delinquency development is certainly going to be subject to the macroeconomic environment that books are aging through. More recently, we've seen some natural disaster impacts and other credit-related drivers. That would be the first, I think, tentacle of your question. I think the second piece of that would be just vintage performance. First of all, let me start with, from a performance perspective, we haven't seen any book year performance vary relative to our expectations across any book year. That doesn't mean that book years don't differ. It just simply means that we're seeing good alignment between our expectations when we onboard that book, at pricing that book, and the actual performance that we've seen to date. Book year performance does differ based on a couple of factors.

New vintages are certainly being originated in a more purchase-heavy market and consequently tend to have higher LTVs, higher DTIs, and modestly higher FICOs. The good news there is we assess and price the riskiness across all that attribute. It is part of the right price for the right risk equation that Rohit referenced in his last answer. The second part, new vintages have lower embedded equity as the pace of home price appreciation has kind of slowed more recently. The good news here is we also price applying the prospective view of the macroeconomic environment, including our view of future home prices.

What I would say, kind of if I boil that up and kind of summarize, we're not seeing any variance to our pricing expectations for any book year, and our risk-based pricing approach ensures that we have the right price for the right risk for the risk attributes and the economic assumption differences across book years, including future home prices.

Rohit Gupta (President and CEO)

Yeah, Rick, just to add to Dean's point, I agree with everything Dean said. Just lifting up, I would also say we would love to have a bigger market. I think if mortgage rates were lower and affordability was better, we would have a bigger market size. We've talked about the origination units being significantly down over the last few years just given lack of affordability. I would say maybe the silver lining here is if you think about the age of our book, there are more consumers in our book who are more experienced in managing their debt. You combine that with the embedded equity aspect that Dean talked about, we have a more resilient book right now than we would have had in 2022, a comparison of 38% versus 74% from the last few book years.

If there is uncertainty in the market or any negative news in the market, we are going into this environment with a more resilient book from a consumer performance perspective and embedded equity perspective. We see that as also a resilience point and a silver lining in terms of age of our book at this point.

Rick Shane (Analyst)

Got it. I definitely agree with that. If I can ask one follow-up. The older cohorts have benefited immensely from HPA. They were not underwritten with any expectation that that was going to happen. That would have been imprudent, and that was a windfall for the industry. You had alluded to your underlying assumptions. Do you, as you're writing policies today, have a more conservative assumption on HPA going forward than you were applying three years ago because of the sharp run-up in home prices? Or do you assume a kind of consistent HPA, but now just off a higher base?

Dean Mitchell (CFO and Treasurer)

Yeah. Thanks, Rick. I think that ties into Rohit's response to a prior question, which is we absolutely take into account the prospective view, our prospective view of the macroeconomic environment. That certainly includes home prices. Yeah, today, we would have, given the slower rate of home price appreciation, we would embed that into our pricing, and that would certainly impact price up from our perspective, all things held equal in current pricing vis-à-vis prior environments.

Rohit Gupta (President and CEO)

Yeah. I think you saw the example of that back during COVID. Every single MI company in the industry talked about their price increases in the second quarter of 2020, and all of that happened in a very short time frame. The moment all of us basically saw unemployment rates going up or the possibility of unemployment rates going up, everybody adjusted their conditional scenarios with their internal views and then raised prices. Rick, that's very aligned with how we run the business because our books age based on that prospective view, and the loans are going to be with us for four or five years, maybe even longer, and we want to make sure that we are pricing appropriately for that risk.

Rick Shane (Analyst)

Got it. Okay. Terrific. Thanks, guys. Thank you very much.

Rohit Gupta (President and CEO)

Thank you.

Dean Mitchell (CFO and Treasurer)

Thanks, Rick.

Operator (participant)

Thank you. As a reminder, to ask a question, please press star one one. Our next question comes from Bose George with KBW. Your line is open.

Bose George (Analyst)

Hey, everyone. Good morning. Have you all seen any signs of cancellation rates increasing? Obviously, these books, the persistency rates remain high, and with the higher for longer, that could continue. Just any thoughts there?

Dean Mitchell (CFO and Treasurer)

Yeah. We've monitored that post through time over the last several years. We really haven't seen any change in behavior or the change in the level of activity as it relates to borrower-initiated cancellation. The vast majority of our lapses or cancellations really occur from refinancing activity, loans that are paid in full, and HOPA auto cancellations or loans that amortize down to 78% LTV. That continues to hold true through the first quarter. Again, just borrower-initiated cancellation hasn't been that big of a driver for us over time and through today.

Bose George (Analyst)

Okay. Thanks. Actually, the other income line, I guess, is that mainly the reinsurance income? Also, is that just premiums, or is there kind of a mark-to-market component that goes through there as well?

Dean Mitchell (CFO and Treasurer)

Yeah. The other income line includes our contract services, the fees associated with our contract services underwriting. It has several components, not just premiums, those.

Bose George (Analyst)

Okay. The run rate this quarter is kind of a reasonable number?

Dean Mitchell (CFO and Treasurer)

Yeah. I mean, that number varies, as you can see in our QFS disclosure. It's still pretty small at $2 million, but you've seen it range from $1 million to, I guess, $2 million-$3 million.

Bose George (Analyst)

Okay. Okay. Great. Thanks.

Dean Mitchell (CFO and Treasurer)

The one thing I would say, we do have some arrangements in Q1 related to our reinsurance contract that probably are not in a normal run rate. It might be inflated by $1 million. I would probably point you to closer to $1 million as a normal run rate vis-à-vis $2 million. You can see through time that it ranges in that general range.

Bose George (Analyst)

Okay. Great. Thanks.

Operator (participant)

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Rohit Gupta for any closing remarks.

Rohit Gupta (President and CEO)

Thank you, Michelle. Thank you, everyone. We appreciate your interest in Enact, and I look forward to seeing many of you in New York at BTIG's Housing Ecosystem Conference on May 8th. Thank you.

Operator (participant)

Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.