Fitch Ratings is likely to cut the insurer financial strength rating of Republic Mortgage Insurance Co. to junk status following a detailed review of the insurer’s performance. Fitch put RMIC on Rating Watch Negative status; it also downgraded the parent company Old Republic International as well as ORI's title insurance subsidiary.
RMIC's IFS is currently "BBB-", but Fitch states that it could cut the rating to "BB" after the review. It sees additional pressure on the company's capital because of the likelihood of continued elevated levels of claims payments.
Right now RMIC's risk-to-capital ratio is 28.4:1, above the 25:1 level some states require for private mortgage insurers. However, RMIC has a waiver with its primary regulator in North Carolina and some other states and so it is continuing to write new business.
Fitch said it would view additional capital contributions from ORI to RMIC positively, but "management has not indicated a willingness to provide the level of support necessary for an investment grade rating, in Fitch's opinion."
ORI's issuer default rating was cut from "BBB+" one notch down to "BBB" while the title insurance and property/casualty subsidiaries' IFS was dropped one notch from "A+" down to "A".
"Specifically, losses in mortgage guaranty and the consumer credit indemnity product within ORI's property/casualty segment will continue to drain resources, while a tepid mortgage market will suppress title insurance earnings," the rating agency said.
The CCI product is credit protection for pools of prime second-lien mortgages. Paid losses for this product have totaled $773 million over the past three years and there is the potential for substantially more losses in the future.
While operating losses have moderated at ORI, Fitch said the company's performance would continue to lag its peer group and it anticipates continued challenges in the future.
