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S&P lowers ratings on three mortgage insurers

Standard & Poor’s lowered its ratings on Mortgage Guaranty Insurance Corp., Radian Group (RDN) and Genworth Financial (GNW).

Analysts lowered ratings on MGIC to B from B+ after noting high losses in the mortgage insurance line of business. The ratings agency downgraded ratings on MGIC’s parent company, MGIC Investment Corp. (MTG), to CCC from CCC+.

S&P said its outlook on both the parent and mortgage insurance segment remains negative, and the ratings firm expects losses to continue through 2013.

MGIC narrowed its fourth-quarter loss by 37% from the year earlier, but the firm still suffers from mortgage defaults that occurred in recent periods.

The Milwaukee-based insurer posted a loss of $135.3 million, or 67 cents a share, for the three months ending Dec. 31. That compares to a loss of $186.7 million, or 93 cents a share, a year before.

The loss for the full year hit $485.9 million, which is much wider than the $363.7 million loss recorded in 2010.

S&P says operating losses for 2011 hit $560 million, excluding realized capital gains of $143 million. This amount far exceeds S&P’s operating loss estimate of $370 million for MGIC’s 2011 fiscal year.

Even though MGIC’s default notices fell 17% year-over-year, S&P says cures on troubled insured loans fell by 18%, leading to increased losses in the fourth quarter when compared to a year earlier.

Radian also saw S&P move its insurer financial strength rating from B+ to B, while the ratings giant cut its issuer credit rating on Radian Group from CCC+ to CCC. S&P said Radian Asset Assurance and Radian’s bond insurance subsidiary remain unaffected by this ratings action.

S&P describes Radian as having weak financial security characteristics because of the high level of losses currently impacting the mortgage insurance segment and ongoing troubles in the housing market.

“Our rating action reflects the company’s operating performance failing to meet our expectations through third-quarter 2011,” Radian said. “The company’s loan delinquency inventory, while improving throughout 2011, remained high, and notices of default have not declined rapidly enough to support a recovery of earnings.”

Genworth Mortgage Insurance Corp. also saw its rating lowered from BB- to B and its outlook shifted to negative. S&P said operating losses at Genworth based on the company’s current trajectory could impair the insurer’s financial position and ability to pay claims in the future.

“The high level of losses in the mortgage insurance sector are occurring in an economy that is struggling to recover and that continues to exhibit significant weakness in the job and housing markets,” Genworth said. “The lack of significant improvement in payroll employment data contributed to high levels of new notices of delinquency.”

Write to Kerri Panchuk.

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