Fitch Ratings has upgraded
Additionally, Fitch has upgraded Enact's senior debt ratings to 'BBB-' from 'BB+'. The Rating Outlook is Stable.
The upgrades reflect improving financial flexibility and debt service capabilities along with strong capitalization, financial performance and risk management. In upgrading the ratings, Fitch expects that in a period of ongoing high economic inflation, rising interest rates and a likely
Key Rating Drivers
Moderate Company Profile:
Financial Flexibility Improves: The restrictions and conditions that had previously been imposed by
Strong Capital Position:
Financial Performance: The GAAP combined ratio of 15.4% in 2022 compared with 38.1% in 2021. The improvement reflects increased favorable reserve development of 33.4 points in 2022, up from 1.6 points in 2021, primarily related to pandemic related delinquencies from 2020 and 2021 curing at levels above original reserve expectations. The percentage of loans in default on primary mortgage insurance declined to 2.08% at
Favorable Risk Management: Enact employs a multi-tier, risk-based pricing approach and uses credit risk transfer (CRT) in the form of traditional reinsurance and mortgage insurance-linked notes (MILNs) to manage its potential exposure in a severe economic downturn. Enact reported a modest level of operating leverage compared with peers, as reflected in the ratio of PMIERs capital credit from CRT divided by gross PMIERs minimum required assets.
Parent Considerations: Enact's standalone IFS assessment is 'a-', with a Stable Outlook. Enact's ultimate parent,
Fitch believes the partial IPO; commitments to an independent board, capital committee and chairperson; and commitment to strong PMIERs compliance, represent a substantial decoupling of Enact from
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A decline in company profile score to below 'bbb+';
A decline in capital strength, such as a decline in the reported PMIERs coverage ratio to consistently below 130%, or an indication that holding company capital is not available to support the insurance entities;
Due to its monoline nature, any strongly negative event for the mortgage insurance industry;
Adverse actions taken by
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An improvement in company profile score to 'a-';
Consistently maintaining PMIERs coverage ratio above 150%;
Due to its monoline nature, any strongly positive event for the mortgage insurance industry.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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