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Rating Action:

Moody's upgrades Enact’s and Genworth's ratings; outlook stable

21 July 2022


New York , July 21, 2022 – Moody's Investors Service, ("Moody's") has upgraded Enact Mortgage Insurance Corporation (EMICO) insurance financial strength (IFS) rating to Baa1 from Baa2, and Enact Holdings, Inc. (NASDAQ: ACT) (Enact) long term issuer rating and senior unsecured debt rating to Ba1 from Ba2. In addition, Moody's has upgraded Genworth Holdings, Inc. (Genworth Holdings) backed senior unsecured debt rating to Ba2 from B1. The outlook for the ratings is stable.

Please see below for a complete list of ratings.

RATINGS RATIONALE

Enact

The overall credit profile of the US mortgage insurance sector has shown continued improvement since the initial spike in delinquent mortgages due to the economic shutdowns from the coronavirus pandemic in Q2 2020. Strong house price appreciation and improving unemployment rates have provided a supportive macroeconomic environment for mortgage credit, and default rates among the mortgage insurers' portfolios have trended steadily lower over the past couple of years as delinquent loans in forbearance have cured. Firms in the sector have also reported strong net income returns on capital and very strong risk-adjusted capital adequacy metrics. The significant utilization of excess of loss reinsurance through insurance-linked notes (ILNs) and the traditional reinsurance market also bolsters the credit profiles of the US mortgage insurers. The $14.3 billion of current reinsurance limit available among firms in the sector dampens the potential for earnings and capital volatility that has historically impacted the mortgage insurance sector during adverse economic environments.

The upgrade of Enact's ratings also reflect improvements to the company's overall credit profile, including its market position, profitability, capital adequacy and financial flexibility. During Q1 2022, Enact's market share of the private mortgage insurance market was approximately 18%, up from 16.6% during 2021. Enact reported net income of $546.7 million and a combined ratio of 38% in 2021, and Moody's expects Enact's profitability to remain strong during the second half of 2022 and into 2023 as increasing persistency rates and higher interest rates boost revenues even as mortgage loan origination volumes are expected to trend lower.

Enact's Baa1 IFS rating also reflects the company's solid position in the US mortgage insurance market and good client diversification, and its consistent GSEs' PMIERs sufficiency ratio (approx. 176% at the end of Q1 2022). The firm's conservative investment portfolio, together with underwriting discipline aimed at improved profitability and market presence, and extensive reinsurance program also support the ratings. Moody's expects Enact's leverage ratios to be around 15% in the near term. These strengths are tempered by the commodity-like nature of the mortgage insurance product and the fact that the MI sector's fortunes are greatly influenced by lenders, the GSEs, public policy decisions, and other uncontrollable variables, including competition from government-sponsored mortgage insurers.

Since Q4 2019, Enact has transferred approximately $1.8 billion of risk to the capital markets through 5 Triangle Re ILN transactions, and has also sourced additional risk transfer protection through excess of loss and quota-share coverage in the traditional reinsurance market. Through these arrangements, Enact has reinsurance covering nearly all of its business written between January 2018 and Q2 2021, providing almost $1.1 billion of current reinsurance coverage to absorb losses during periods of elevated mortgage credit losses.

Genworth Holdings

The rating upgrade reflects the company's improved liquidity position and financial flexibility following the improvement in its debt ladder that includes the expected retirement of its 2024 senior debt in Q3 2022, and the upgrade of Enact's ratings. The rating action also reflects the expectation for continued dividends from its ownership in Enact (senior debt, Ba1 stable). The company's strengths are offset by the challenges to organically expand liquidity sources, and the pressure on financial flexibility from reduced dividends from Enact during a stressed scenario or economic downturn. Genworth Holdings' ratings also reflect the structural subordination of the holding company's liabilities to the liabilities of Enact and the risks associated with the dividend inflows from its insurance companies.

The stable outlook reflects the company's good liquidity and the expectation that Genworth Holdings will further increase liquidity with periodic dividends from Enact subject to its board approval and the continued emergence of cash tax payments from its subsidiaries as part of its tax sharing arrangements, albeit, lower over the next few years as compared to 2021.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Enact

According to Moody's, the following could lead to an upgrade of Enact's ratings: 1) Maintaining adjusted financial leverage (excl. AOCI) in the 20% range, or below; 2) Continued maintenance of comprehensive reinsurance program; and 3) Sustained PMIERSs sufficiency ratio around 140% or higher.

Conversely, the following factors could lead to a downgrade of Enact's ratings: 1) Non-compliance with PMIERs; 2) A material and consistent decline in shareholders' equity by more than 10% over a rolling twelve month period; 3) a significant deterioration in the firm's profitability metrics; or 4) Adjusted financial leverage (excl. AOCI) above 30%.

Genworth Holdings

The following factors could result in an upgrade of Genworth Holdings' ratings: 1) An improvement of financial flexibility including increased dividend capacity; 2) Further reduction in its debt ladder with financial leverage (excluding U.S. life business equity) that is around the 20% range; and 3) An upgrade of Enact's ratings

The following factors could lead to a downgrade in the company's rating: 1) A downgrade of Enact's ratings; 2) A deterioration in financial flexibility including decreased dividend capacity or higher leverage; or 3) A public policy decisions that significantly diminish the role of mortgage insurance in the US housing finance market

AFFECTED RATINGS:

The following ratings have been upgraded:

Enact Mortgage Insurance Corporation:

…Insurance Financial Strength to Baa1 from Baa2;

The rating outlook for EMICO is stable.

Enact Holdings, Inc.:

…Long-term issuer rating to Ba1 from Ba2;

…Senior unsecured to Ba1 from Ba2;

The rating outlook for Enact and its operating subsidiaries is stable.

Genworth Holdings, Inc.:

…Backed senior unsecured to Ba2 from B1;

…Backed senior unsecured shelf to (P)Ba2 from (P)B1;

…Backed junior subordinate to Ba3 (hyb) from B2 (hyb);

…Backed subordinate shelf to (P)Ba3 from (P)B2;

The rating outlook for Genworth Holdings is stable.

Genworth Holdings is the intermediate holding company of Genworth, an insurance and financial services holding company headquartered in Richmond, Virginia. Genworth Holdings also acts as a holding company for its respective life insurance subsidiaries. The company also maintains majority control of Enact which is traded on the Nasdaq. In addition, Genworth Holdings relies on the financial resources of Genworth including Enact to meet its obligations. As of March 31, 2022, Genworth reported total assets of $93.5 billion and shareholders' equity of $15.2 billion, and Enact reported total assets of $5.8 billion and shareholders' equity of $4.0 billion respectively.

The principal methodology used in these ratings was Mortgage Insurers Methodology published in November 2019 and available at https://ratings.moodys.com/api/rmc-documents/65531 . Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com .

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com .

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235 .

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com .

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com .

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Bob Garofalo
VP-Sr Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Scott Robinson, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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