AM Best has affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” (Excellent) of the following operating subsidiaries of Enact Holdings, Inc. (EHI) (Delaware) [Nasdaq: ACT]: Enact Mortgage Insurance Corporation (EMIC) and Enact Mortgage Insurance Corporation of North Carolina (EMIC-NC) (collectively referred to as the Enact US-domiciled companies). Both operating companies are domiciled in Raleigh, N.C. In addition, AM Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” (Excellent) of Enact Re Ltd. (ERL) (Bermuda). Lastly, AM Best has affirmed the Long-Term ICR of “bbb-” (Good) of EHI. The outlook of these Credit Ratings (ratings) is stable.

EMIC is the flagship operating company and is an approved mortgage insurer by Fannie Mae and Freddie Mac, the government sponsored enterprises (GSEs), and is therefore subject to the GSEs’ Private Mortgage Insurer Eligibility Requirements (PMIERs). EMIC-NC is an operating company that insures mortgages that are not intended to be sold to the GSEs. ERL is a class 3A Bermuda (re)insurer and a direct subsidiary of EMIC and provides quota share reinsurance to EMIC.

The ratings of the Enact US-domiciled companies reflect their balance sheet strength, which AM Best assesses as very strong, as well as their strong operating performance, limited business profile and appropriate enterprise risk management (ERM).

The Enact US-domiciled companies’ balance sheet strength assessment of very strong is supported by risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), at the strongest level on a stressed and unstressed basis and the companies’ programmatic use of reinsurance, and compliance with PMIERs. The marginal credit profile of the ultimate parent of the Enact entities, Genworth Financial, Inc. (GFI) [NYSE: GNW], poses risk to the Enact US-domiciled companies’ balance sheet strength, even though there is meaningful separation between GFI’s credit profile and the credit profile of EHI and there have been further improvements to the governance framework. GFI still retains an ownership stake of approximately 81.6% in EHI and ultimate control over it.

AM Best assesses the Enact US-domiciled companies’ operating performance as strong based on favorable underwriting results as reflected in loss and combined ratios over the past five years. In particular, the assessment reflects the diminished significance of the legacy book of mortgage insurance on loans originated in 2008 and prior. The legacy book risk in force has declined significantly and the mark-to-market loan-to-value ratios for the legacy book also have declined given home price appreciation since the loans were originated, especially in the past few years.

AM Best assesses the Enact US-domiciled companies’ business profile as limited because the companies are monoline mortgage insurers, covering U.S. single-family mortgage loans. Furthermore, they face stiff competition, not only from other private mortgage insurers, and governmental agencies (i.e., Federal Housing Administration and Veterans Affairs) providing mortgage insurance, but also from products that effectively reduce the demand for private mortgage insurance. In addition, the product risk is considered high because the performance of the mortgage insurance industry is linked to the macroeconomic environment and the policies of the GSEs.

The overall ERM assessment is appropriate because the Enact US-domiciled companies employ a robust ERM framework and infrastructure embedded across the companies. The companies’ ERM framework is commensurate with the size, nature and complexity of its mortgage insurance business.

The ratings of ERL reflect its balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate ERM. The ratings also reflect rating enhancement from EMIC.

ERL’s risk-adjusted capitalization, as measured by the BCAR, is currently at the strongest level on a stressed and unstressed basis and is estimated to stay at the very strong level for the rest of the initial five-year horizon.

AM Best assesses ERL’s operating performance as adequate. ERL assumes mortgage insurance risk from EMIC and benefits from the favorable performance of that business. ERL’s expansion into other forms of (re)insurance will be monitored to understand its impact on operating performance.

AM Best assesses ERL’s business profile as limited because of its concentration in U.S. single-family mortgage reinsurance risk. ERL is exploring other opportunities beyond U.S. single-family mortgage reinsurance risk. Like U.S. mortgage insurance risk, the prospective lines may be correlated with the performance of the broader macroeconomy.

AM Best assesses ERL’s ERM as appropriate because ERL is subject to the same ERM framework as EMIC.

ERL’s ratings reflect rating enhancement from ERL’s close relationship with EMIC. ERL is integrated within the rest of the Enact organization by having the same management and using the same key functions such as finance, claims, underwriting and actuarial. ERL is a meaningful addition to the broader Enact organization because it provides capital flexibility due to its quota share agreement with EMIC and provides a way for the organization to get exposure to other forms of risk that cannot be written by the Enact US-domiciled companies.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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