Credit ratings for Essent companies affirmed
AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Ratings of "a" (Excellent) of the operating subsidiaries of Bermuda-domiciled Essent Group Ltd.
It includes Essent Guaranty, Inc., Essent Guaranty of PA, Inc. (both domiciled in Radnor, PA) and Essent Reinsurance Ltd. (Bermuda).
The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Essent’s balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.
Essent’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio, is at the strongest level in base and stress scenarios. The base scenario is analysed based on the company’s financial statements as of June 30, which already included the impact from the COVID-19 pandemic.
The company’s compliance with Private Mortgage Insurer Eligibility Requirements, utilisation of traditional reinsurance and mortgage insurance-linked securities to reduce its earnings and capital volatility against an unfavourable housing environment, strong liquidity position and conservative investment portfolio, as well as the financial flexibility to raise capital during the Covid-19 pandemic, support the balance sheet assessment of strongest.
AM Best assesses Essent’s operating performance as strong despite the Covid-19 pandemic.
The company’s loss ratio, combined ratio and percentage of loans in default decreased in the first half of 2021 compared with year-end 2020.
The Coronavirus Aid, Relief, and Economic Security Act, American Rescue Plan, forbearance programmes and foreclosure moratorium have helped to mitigate the negative impact of the Covid-19 pandemic on Essent.
The company’s credit profile has been improving over the past several years, mainly driven by its improved underwriting standards and the effect of the risk-based capital charges established by PMIERs 2.0.
AM Best assesses Essent’s business profile as limited, as the company is a monoline re/insurer.
Furthermore, it faces stiff competition from other private mortgage insurers and governmental agencies (eg, Federal Housing Administration and Veterans Affairs) providing mortgage insurance. In addition, product risk is considered high because the performance of the mortgage insurance industry is linked to the macroeconomic environment and the standards set by the government-sponsored enterprises (ie, Fannie Mae and Freddie Mac).
Essent’s overall ERM assessment is appropriate, as the company employs a robust ERM framework and infrastructure that is embedded across the company.
Essent’s ERM framework is commensurate with the size, nature and complexity of its mortgage insurance business. AM Best considers Essent’s risk assessment capabilities to be aligned appropriately with its risk profile.