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Old Republic Decides to 'Pull Plug' on Mortgage Insurer (Again)

MAR 21, 2014 10:49am ET
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Lenders won't be getting an eighth active mortgage insurance underwriter to choose from after all. But they may get repaid faster on claims from a carrier in runoff.

Old Republic International Corp. for a second time has abandoned plans to turn to outside sources to recapitalize its mortgage insurance subsidiary. The Chicago-based holding company instead will inject its own funds into the company for the purposes of eliminating its deferred payment obligation plan and paying 100% on all claims from now on. Republic Mortgage Insurance Co. will remain in run-off status and not return to writing new business, as Old Republic had previously announced.

The company decided to "pull the plug" because it could not attract capital markets funding under the terms and conditions it was seeking, Chairman and Chief Executive Al Zucaro said during a conference call.

In response to a question, he shot back that the company's press release gave "all the reasons needed to explain why we cancelled it. We don't need to go into the whys and wherefores."

If the plan had been successful, RMIC would have returned to being an active underwriter of mortgage insurance.

The unit has been in run-off since August 2011 and is operating under a supervisory order from the North Carolina Department of Insurance, its primary regulator. As part of the order, RMIC has been restricted to paying out 50% of every dollar of claims made against policies. The remaining 50% goes into the deferred payment plan, where it counts as statutory capital for RMIC.

A 2012 attempt to spin out RMIC (along with another Old Republic subsidiary in run-off) failed because of shareholder opposition.

Old Republic plans to put holding company capital into RMIC so it would meet North Carolina's risk-to-capital ratio requirements for private mortgage insurers. When this happens, the deferred payment obligation will be eliminated and the funds paid to claimholders with interest.

From here on out, "we think this book can produce positive operating results in the aggregate over an extended run-off period," Zucaro said. This approach "is the most sensible" for keeping the RMIC franchise viable and attractive to potential investors in the future.

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