ACT (ACT) Q1 2025: $350M Buyback and 14% Dividend Hike Signal Capital Confidence Amid Flat Originations
ACT’s first quarter showcased disciplined capital returns and resilient credit performance, even as new insurance written contracted on muted mortgage activity. Management’s focus on stable pricing, expense discipline, and technology-driven underwriting positions the business to weather macro uncertainty, while the board’s $350 million share repurchase and 14% dividend boost reinforce confidence in balance sheet strength. As the portfolio matures and industry dynamics shift, ACT’s risk-pricing rigor and capital allocation will remain central to its long-term value proposition.
Summary
- Capital Return Acceleration: Board authorized $350 million buyback and 14% dividend increase, underscoring surplus capital and stable outlook.
- Expense and Risk Discipline: Sequential operating expense decline and robust credit quality offset lower new insurance written.
- Portfolio Maturation Tailwind: Seasoned book and embedded equity support resilience as origination volumes remain subdued.
Performance Analysis
ACT delivered resilient financials despite a challenging mortgage origination landscape, with adjusted operating income rising modestly year-over-year and return on equity holding above 13%. New insurance written (NIW) dropped 26% sequentially and 7% year-over-year, reflecting persistent affordability headwinds and elevated mortgage rates that continue to suppress purchase activity. Persistency, the percentage of policies remaining in force, rose to 84%, helping offset origination weakness and stabilizing insurance in force at $268 billion, up 2% from the prior year.
Expense control was a standout, with operating expenses down 9% sequentially and 1% year-over-year, supporting margin stability. Credit performance remained strong: total delinquencies fell 5% sequentially, and the cure rate—loans returning to current from delinquency—hit 56%, driving a $47 million reserve release. The loss ratio rose to 12% on lower reserve releases, but remains well within historical norms. Investment income grew 11% year-over-year, aided by higher new money yields, while the net earned premium rate stabilized at 35.3 basis points, reflecting prudent pricing amid a competitive market.
- Origination Contraction: New insurance written fell sharply, underscoring persistent industry-wide volume pressure.
- Expense Management: Operating costs declined, helping offset top-line pressure and preserve profitability.
- Strong Credit Trends: Delinquency and cure rates reflect robust underwriting and embedded equity across the book.
Capital returns to shareholders exceeded $94 million in the quarter, and the new buyback and dividend actions further highlight ACT’s strong capital position and cash flow visibility.
Executive Commentary
"We are closely monitoring development 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 and 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."
Rohit Gupta, President and Chief Executive Officer
"Our PMIRES sufficiency was 165% or $2 billion above PMIRES requirements at the end of the first quarter. As of March 31, 2025, our third-party CRT program provides $1.9 billion of PMIRES capital credit. As a reminder, we have executed both forward quota share forward excess of loss reinsurance transactions on our 2025 and 2026 book years, which we expect will provide meaningful PMIRES credit over time and loss protection on these book years as they age through an uncertain macroeconomic backdrop."
Dean Mitchell, Chief Financial Officer and Treasurer
Strategic Positioning
1. Capital Allocation: Shareholder Returns and Balance Sheet Strength
ACT’s capital allocation strategy centers on returning excess capital while maintaining a robust regulatory buffer. The $350 million buyback authorization and 14% dividend increase signal management’s confidence in the balance sheet and future cash flows. With PMIRES (Private Mortgage Insurer Eligibility Requirements) sufficiency at 165%, or $2 billion above regulatory minimums, ACT is well-positioned to absorb macro shocks and support ongoing capital return.
2. Underwriting and Risk Selection: Technology-Driven Pricing Discipline
RAID 360, ACT’s proprietary pricing engine, leverages advanced analytics and machine learning to deliver risk-adjusted pricing and prudent risk selection. Management emphasized the ability to rapidly adjust pricing in response to market volatility, with April actions reflecting heightened macro uncertainty. This disciplined approach underpins both portfolio quality and profitability, as evidenced by high average FICO scores (745) and low layered risk (1.3% of risk-in-force).
3. Expense Control and Operational Efficiency
Expense discipline remains a core pillar, with sequential and year-over-year operating cost reductions achieved despite inflationary pressures. Management reaffirmed full-year expense guidance, reflecting investments in process automation and customer experience alongside ongoing cost vigilance. This efficiency focus supports margin resilience as top-line growth moderates.
4. Portfolio Resilience: Maturation and Embedded Equity
The portfolio’s average age increased to 3.9 years, with seasoned cohorts benefiting from substantial embedded equity due to past home price appreciation. This maturation reduces sensitivity to new delinquency formation and supports robust cure rates, providing a buffer against potential credit deterioration if macro conditions worsen.
5. Diversification and CRT (Credit Risk Transfer) Program
ACT continues to expand its CRT program, securing $1.9 billion in PMIRES capital credit and loss protection for recent book years. Participation in both single-family and multifamily GSE CRT transactions enhances risk diversification and capital efficiency, supporting long-term stability and growth prospects.
Key Considerations
ACT’s quarter reflects a business navigating a low-growth, high-persistency environment with a focus on risk-adjusted returns and capital discipline. Management’s posture is defensive but opportunistic, leveraging technology and capital strength to offset industry headwinds.
Key Considerations:
- Capital Return Visibility: New buyback and dividend actions reinforce management’s confidence in capital generation and regulatory flexibility.
- Pricing Power and Market Share: ACT’s risk-based pricing approach prioritizes return over market share, reducing exposure to aggressive pricing cycles.
- Portfolio Maturity Benefits: An older, seasoned book with high embedded equity enhances credit resilience as origination volumes stagnate.
- Expense Management Execution: Ongoing cost reductions and technology investments support margin stability amid revenue pressure.
- CRT Expansion: Continued CRT participation diversifies risk and supports regulatory capital efficiency.
Risks
ACT faces headwinds from persistent affordability challenges, elevated mortgage rates, and potential macro shocks that could drive higher delinquencies or slow cure rates. Regulatory shifts, competitive pricing pressure, and unforeseen credit events remain key uncertainties. Management’s reliance on embedded equity and CRT protection will be tested if home price appreciation stalls or reverses.
Forward Outlook
For Q2 2025, ACT guided to:
- Operating expenses in the $220 million to $225 million range for the full year
- Capital returns at 2024 levels, with a $350 million target for 2025
For full-year 2025, management reaffirmed guidance:
- Expense range unchanged, reflecting ongoing cost discipline
Management highlighted several factors that will influence results:
- Persistency expected to remain high, supporting insurance in force
- Pricing discipline and rapid adjustment via RAID 360 to navigate market volatility
Takeaways
ACT’s Q1 results underscore a conservative, disciplined approach to capital allocation and risk management as mortgage activity remains subdued.
- Capital Actions Stand Out: The $350 million buyback and 14% dividend hike are clear signals of surplus capital and management’s confidence in long-term cash generation, despite flat insurance growth.
- Portfolio Resilience: Maturation and embedded equity in the portfolio provide a buffer against credit deterioration and support strong cure rates, even as new origination volumes lag.
- Watch for Macro Shifts: Investors should monitor mortgage rate trends, home price dynamics, and regulatory developments that could impact credit performance, persistency, or capital requirements in coming quarters.
Conclusion
ACT’s first quarter reinforced its position as a disciplined underwriter and capital allocator in a low-growth mortgage environment. With a seasoned portfolio, prudent pricing, and robust capital returns, the company is well-equipped to navigate ongoing uncertainty, though top-line growth will likely remain constrained until affordability improves.
Industry Read-Through
ACT’s results reflect broader industry themes of subdued mortgage origination, high persistency, and a shift toward capital discipline over market share grabs. The emphasis on technology-driven pricing and CRT expansion is becoming table stakes for private mortgage insurers, while embedded equity and portfolio seasoning are emerging as key differentiators in credit resilience. For peers, the bar on capital returns and expense management has been raised, and investors should expect similar moves from well-capitalized competitors as the cycle matures.