AM Best has affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” (Excellent) of Bermudian-based Enact Re Ltd.

ERL is a Class 3A Bermuda insurer and reinsurer and a direct subsidiary of North Carolina-based Enact Mortgage Insurance Corporation and provides quota share reinsurance to EMIC.

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 enterprise risk management. The ratings also reflect rating enhancement from EMIC.

The agency said ERL’s risk-adjusted capitalisation, as measured by Best’s capital adequacy ratio, is 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 favourable performance of that business. ERL’s expansion into other forms of insurance and reinsurance will be monitored to understand its impact on operating performance.

AM Best said it assesses ERL’s business profile as limited because of its concentration in US single-family mortgage reinsurance risk.

The agency said ERL is exploring other opportunities beyond US single-family mortgage reinsurance risk. Like US 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.

The agency said: “ERL’s ratings reflect rating enhancement from ERL’s close relationship with EMIC. ERL 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.

“ERL 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 other forms of risk that cannot be written by the Enact US-domiciled companies.”