S&P Downgrades MGIC on Q309 Losses
On the heels of Mortgage Guaranty Insurance Corp.’s (MGIC) Q309 weak earnings results, Standard & Poor’s lowered MGIC’s financial strength rating to single-B plus from double-B. Private mortgage insurer MGIC posted a $517.8m net loss for the quarter as delinquencies continued to increase. "The company reported a loss ratio of 331%, compared with a loss ratio of 222% in the second quarter of 2009. A sharp increase in the delinquent loan inventory resulted, in part, from a transition of delinquencies into prime loans," said Ron Joas, S&P’s credit analyst. Subprime delinquencies continued to rise, which combined with prime loan delinquencies for $971m in incurred losses for MGIC – compared to $778m in Q308, according to S&P. “Claims payments remain below our expectations, which is reflective of the backlog of foreclosures and the moratoria that had been implemented earlier in the year,” according to S&P. The rating cut also comes as S&P anticipates the high probability of MGIC breaching the risk-to-capital regulatory requirement. As of Sept. 30, 2009, MGIC’s risk-to-capital increased from its reported ratio in June. If MGIC breeches the risk-to-capital level, regulators can prevent the company from writing new business, and the firm will be placed into runoff – which means added stress on the firm’s existing capital, according to S&P. S&P revised its outlook on MGIC’s parent company, MGIC Investment Corp. (MTG), to negative from stable. MGIC Investment Corp. proposed a restructuring plan for MGIC to contribute $200m of capital to MGIC Indemnity Co., a subsidiary of MGIC. S&P stated that the downstreaming of capital wouldn’t affect the risk-to-capital ratio, but it will reduce the liquid claims-paying resources available at MGIC. “We continue to believe there would be both benefits and drawbacks to the restructuring plan,” according to S&P. But, S&P stated that it does not believe MGIC Investment Corp.will be able to repay the outstanding balance of senior notes that mature in September 2011 unless conditions in the capital markets improve. Write to Jon Prior.