Created: Sep 22, 2022 10:36
Essent Group: credit ratings of operating subsidiaries confirmed by AM Best
AM Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a” (Excellent) of the operating subsidiaries of Essent Group Ltd, the Bermuda-based mortgage reinsurer.
Subsidiaries are Island-based Essent Reinsurance Ltd – and Essent Guaranty Inc and Essent Guaranty of PA Inc, both domiciled in Radnor, Pennsylvania.
The outlook for these credit ratings is stable.
The ratings reflect Essent’s balance sheet strength, which AM Best rates as the strongest, as well as its strong operational performance, limited business profile and appropriate management of business risks.
Essent’s risk-adjusted capitalization, as measured by Best’s capital adequacy ratio, is highest in the base and stress scenarios.
The base case is analyzed based on the company’s financial statements as of June 30, which reflect the improvement in the housing market and the reduced impact of the Covid-19 pandemic.
The company’s compliance with private mortgage insurer eligibility requirements, the use of traditional reinsurance and mortgage insurance-linked securities to reduce its earnings and capital volatility in the face of a potentially adverse macroeconomic environment, a position strong liquidity and a conservative investment portfolio, as well as the financial flexibility to raise capital during the Covid-19 pandemic, support the balance sheet valuation of the strongest.
AM Best rates Essent’s operating performance as strong. Between 2015 and the first half of 2022, Essent recorded the lowest average combined ratio in the industry.
The strong performance in 2021 was fueled by favorable macroeconomic conditions, which positively impacted borrower originations and credit quality, as well as significant embedded capital in the existing business portfolio due to the house price growth since 2020.
Net profit has shown consistent growth over the past five years, except for a slight decline in 2020 due to the outbreak of Covid-19.
The company’s loss ratio, combined ratio and percentage of loans in default continued to decline in HY 2022. Loss and combined ratios in HY 2022 were negative due to the release of reserves after better turnaround activity than expected on Covid-19 flaws.
The company’s expense ratio has also dropped significantly over the past five years as the company has increased production.