Two MI Firms Cutting Back On Captive Reinsurance Deals

Two more mortgage insurance companies are cutting back on captive reinsurance arrangements where they share premium revenue with their lender-customers.

The MIs cutting back on captives are GE Mortgage Insurance, Raleigh, N.C., and United Guaranty Inc., Greensboro, N.C., the nation's fourth and fifth largest MI firms, respectively, in terms of "policies in force."

A source familiar with the matter said Radian Guaranty, Philadelphia, and PMI Group, San Francisco, may do the same eventually, but for now both companies have a policy of not talking about their captive reinsurance arrangements.

Captive reinsurance units of commercial banks (most of the top lenders have captives) share MI risk with one of the seven established MIs.

GEMI currently will share up to 40% of the MI premium with a captive reinsurance unit but come year-end that practice will stop. GE is working on a new product that it calls "30 Loss Ratio" which it will unveil shortly.

"We're phasing out deep cede structures," said a GEMI spokesman. "It just doesn't offer the returns for us that make economic sense."

A spokeswoman for UGI said her company is cutting back on deep cede coverage but could not offer any details on how much and when.

"We will look at renegotiating with our lender customers," she said.

Most of the MIs that have been hurt by deep cede coverage were offering up to 40% of the premium revenue to a captive.

About a year ago, MGIC, Milwaukee, the nation's largest MI, said it could cap premium sharing on captive deals at 25%. The policy went into effect this past March.

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