US private mortgage insurance provider, Enact has launched a new Bermuda-based reinsurer, Enact Re Ltd.
As a newly non-exclusive affiliate, it intends to operate primarily as a mortgage reinsurer but could eventually broaden its reach to write third-party business too.
Enact Re received its class 3A Bermuda (re)insurance licence in May 2023. Credit rating agency AM Best has recently assigned the reinsurer a Financial Strength Rating (FSR) of A- (Excellent) and a Long-Term Issuer Credit Ratings of “a-” (Excellent).
The reinsurer is a direct subsidiary of Enact Mortgage Insurance Corporation (EMIC) – he flagship operating company and is an approved mortgage insurer by Fannie Mae and Freddie Mac, the government sponsored enterprises (GSEs) – and has entered into a quota share reinsurance agreement to assume risk from EMIC.
According to the ratings agency, Enact Re’s ratings reflect its balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile, and appropriate enterprise risk management (ERM).
Additionally, Enact Re’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is currently at the strongest level on a stressed and unstressed basis in 2023, AM Best noted.
After 2023, the company’s BCAR is estimated to stay at the very strong level for the rest of the initial five-year horizon.
In the first few years, most of Enact Re’s business will be assumed from EMIC, therefore its operating performance will largely follow the net operating performance of EMIC. As a result, AM Best assesses Enact Re’s operating performance as adequate.
AM Best has also assessed the reinsurer’s business profile as limited because it is a mortgage reinsurer. The business plan calls for Enact Re to assume risk primarily via the quota share reinsurance agreements with EMIC and participate on GSE credit risk transfer (GSE CRT) and similar transactions.
The rating agency has assessed Enact Re ERM as appropriate because the reinsurer is subject to the same ERM framework as EMIC.
“[Enact Re’s] assigned ratings reflect rating enhancement from [its] close relationship with EMIC. [Enact Re] is integrated within the rest of the Enact organisation by having the same management and using the same key functions such as finance, claims, underwriting and actuarial,” AM Best stated.
Adding: “[The reinsurer] is a meaningful addition to the broader Enact organisation because it provides capital flexibility due to its quota share agreement with EMIC and provides a way for the organisation to get exposure to the GSE CRT business and other similar opportunities.”
