The announcement by Genworth Financial that it recently strengthened reserves at its U.S. mortgage insurance unit by $300 million "provides another reminder that the debate over ultimate reserve levels at MI companies is far from over," according to a new report from FBR Capital Markets.
Genworth expects a $250 million to $255 million second quarter operating loss at its MI division because of the reserve strengthening and the unit's performance.
The additional reserves prompted Genworth to predict that it will lose between $92 million and $112 million during the second quarter.
Genworth is providing capital support to its MI business by using a portion of its stock holdings in Genworth MI Canada Inc., which has an estimated market value of $375 million.
Even with the additional capital, the U.S. MI subsidiary is expected to have a risk-to-capital ratio of between 25-to-1 and 26-to-1. There are 16 states that require MI companies to maintain a risk-to-capital ratio of under 25-to-1 to be able to write new business. Many of those states have granted waivers, but in areas where waivers have not been given some private mortgage insurers have established subsidiaries to write new policies.
Genworth said its MI business is experiencing reduced cure rates due, in part, to lower levels of loan modifications outside of government programs.
