OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has assigned a Financial Strength Rating of A (Excellent) and a Long-Term Issuer Credit Rating of “a” to the operating subsidiaries of Essent Group Ltd., which are Essent Guaranty, Inc., Essent Guaranty of PA, Inc. (both domiciled in Radnor, PA) and Essent Reinsurance Ltd. (Bermuda) (collectively referred to as Essent). The outlooks assigned to these Credit Ratings (ratings) are stable.
The ratings reflect Essent’s balance sheet strength, which A.M. Best categorizes as strongest, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
Essent’s risk-adjusted capital, as measured by the Best Capital Adequacy Ratio (BCAR), is currently at the strongest level on a stressed and unstressed basis. Shareholders’ equity at Essent has increased in the past five years, and A.M. Best expects further increases in the near term. The company’s strong liquidity position, conservative investment portfolio and financial flexibility, as well as Essent’s compliance with the Private Mortgage Insurer Eligibility Requirements (PMIERs) financial requirements, support the balance sheet assessment of strongest.
Essent’s operating performance is assessed as strong based on positive underwriting performance results as reflected in loss and combined ratios over the past five years. Since Essent is a relatively new company, its mortgage portfolio is unencumbered by the legacy business that has hampered other mortgage insurers in operation prior to the most-recent credit crisis. The company’s expense ratio has significantly declined over the past two years as it continues to scale up its production and achieve economy of scale. Essent’s overall operating performance from its formation through the present time has been fueled by favorable macroeconomic conditions that greatly impact the quality of mortgage originations and the credit profile of borrowers.
Essent’s business profile is assessed as limited, as the company is a monoline (re)insurer. Furthermore, it faces 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 government-sponsored enterprises (i.e., Fannie Mae and Freddie Mac).
Essent’s overall ERM assessment is appropriate, as the company employs a robust ERM framework and infrastructure embedded across the company. Essent’s ERM framework is commensurate with the size, nature and complexity of its mortgage insurance business. A.M. Best considers Essent’s risk assessment capabilities to be aligned appropriately with its risk profile.
This press release relates to Credit Ratings that have been published on A.M. 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 A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
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