The success of MGIC Investment Corp.’s recent
S&P has raised its ratings on the parent company to B- from CCC+ and its insurer financial strength ratings on Mortgage Guaranty Insurance Corp. and MGIC Indemnity Corp., the two underwriting units, to B from B-. The outlook is stable.
The combined equity and debt sales could bring in $1.2 billion of additional capital to MGIC if the overallotments are exercised, and S&P said it believes much of that will be downstreamed to the underwriting units to help bring their combined risk-to-capital ratio below 25-to-1. As of the end of last year, Mortgage Guaranty Insurance Corp. had a ratio of over 44-to-1.
In its report, S&P notes that without the charges related to its settlement with Freddie Mac and potential settlement with Countrywide, MGIC would have “approached breakeven results” instead of
“At this time, we remain sensitive to the risk of adverse reserve development, our expectation for ongoing operating losses in 2013, and the potential for the economy to experience either a reversal or less improvement in conditions that would lead to a further lengthening of the loss cycle into 2014.
“Economic growth continues to be slow and the U.S. budget sequestration may slow growth further, possibly increasing unemployment. This in turn could lead to more new notices of delinquency. Nevertheless, the extent of the capital raise allows MGIC and its operating companies to absorb a significant amount of additional financial stress that these circumstances might cause,” S&P declared.
