The two largest remaining private mortgage insurers took actions that at least give them a chance at a future, while for a third company its dim outlook for staying in this business got even darker.
That last company is Old Republic International Corp., Chicago, which had been publicly harboring dreams of returning to the private mortgage insurance business, but had been unable to obtain a waiver from its regulator in North Carolina nor agreements with Fannie Mae and Freddie Mac. Its lead subsidiary, Republic Mortgage Insurance Co., in runoff since September, has received a supervisory order from the North Carolina Department of Insurance.
RMIC can now only pay $0.50 on each dollar of claims it receives. The remaining 50% is to be included in RMIC's statutory capital to be paid at a future date as and when funds are available.
Rob Smith, vice president and head of mortgage analytics at zIngenuity, a boutique consulting firm for lenders regarding mortgage and mortgage insurance issues, commented, “Under the order of supervision the activities of RMIC are greatly restricted to focusing on maximizing payouts to policyholders, and highly controlled by the supervisor that was appointed by the NCDOI.
“This in and of itself will restrict ORI's access to the infrastructure necessary to operate a new mortgage insurer (e.g., computer systems, personnel). Additionally, in runoff RMIC will be reducing/eliminating any functions not necessary for servicing claims, such as any functions related to generating new business, if they have not already done so.
“Thus, unless ORI is willing to add capital to RMIC in order to correct its capital shortfall, the operations of RMIC are not going to provide a platform for ORI to start up a new mortgage insurer, and they will essentially be starting from scratch.”
But ORI is not willing to put more money into RMIC, its fourth-quarter earnings release stated. It said its losses are limited to its $40.5 million investment in the unit as of Dec. 31, 2011.
ORI said any possibility of getting back into the business were dependent on the future structure of the secondary market and “the establishment of industrywide risk management disciplines that address the long term catastrophe exposures of those financial guarantees.”
RMIC lost $163 million for the fourth quarter and $678 million for the year, 48% worse and 160% worse than the same periods one year ago, as claims costs intensified throughout the year.
As for the companies which have made moves aimed at survival, MGIC Investment Corp., Milwaukee, said it has been successful in obtaining a waiver and approvals from the Commissioner of Insurance for Wisconsin, Fannie Mae and Freddie Mac that will allow it to continue writing new business through Mortgage Guaranty Insurance Corp., or a separately capitalized subsidiary, MGIC Indemnity Corp.
The waiver now expires on Dec. 31, 2013. MGIC is also required to contribute $200 million in capital to MIC by the end of this month as part of the waiver.
At the end of December, the parent company contributed $200 million in capital to the mortgage insurance subsidiary, which brought it into compliance with Wisconsin's minimum policyholder position standards. At that time, while the company said there was no need to use MIC or the waiver to write new business, it expected MGIC's capital to diminish in 2012 and thereafter.
MGIC's risk to capital ratio as of Dec. 31, 2011 was 20.3-to-1 and its policyholder position exceeded the minimum required by $185 million.
The company made the announcement in its yearend earnings release, where it revealed it lost $135 million for the fourth quarter and $486 million for the full year 2011, compared with losses of $187 million and $364 million for the same period one year earlier.
Radian Group Inc., Philadelphia, has entered into a series of transactions with Assured Guaranty Ltd., Hamilton, Bermuda, which will eventually add $100 million to its mortgage insurance subsidiary's statutory capital.
The deal includes Radian Asset Assurance ceding back nearly $13 million of risk to Assured Guaranty, for which Radian will pay Assured $86 million.
Assured will also reinsure for RAA almost $2 billion of public finance business for a payment of $22 million.
Finally, the parties entered into an agreement for Radian Group to sell Municipal and Infrastructure Assurance Corp. to Assured for $91 million. MIAC is a financial guaranty shell that Radian purchased in June 2011 for $82 million.
The transactions are expected to increase RAA's, and thus Radian Guaranty's, statutory capital by $100 million.
