Fitch Ratings said today it maintains a negative outlook on theprivate mortgage insurance industry's insurer financial strengthand debt ratings as big losses continue.

The company said the negative outlook reflects a challengingbusiness environment for the residential mortgage market, whichwill continue for the industry's risk-adjusted capitalization overthe intermediate term.

This year the rating firm said it expects continued lossdevelopment as "at risk" insured exposures move through their lossdevelopment cycles, U.S. home prices continue to fall, and theoverall U.S. economy weathers a recession.

Constrained capital levels, Fitch said, are the most acute issuefacing the mortgage sector this year, and the risk of breachingregulatory and and/or debt-based risk-to-capital limits is high andcrimping insurers' ability to originate new more profitablebusiness.

The company said that mortgages generated in 2007 with weakunderwriting along with home price declines are expected to drivelosses for the industry this year.

According to the Fitch analysis, mortgage insurers have beenimproving pricing and underwriting and future business should showbetter risk/return characteristics. However it said this will beoutweighed by continued insured portfolio deterioration.

Also as a positive Fitch noted that insurers have ramped upinvestigations as to whether banks properly described thecharacteristics of their loans and have discovered "a significantpercentage" of loans "were not underwritten in accordance with themortgage insurers' underwriting guidelines or were subjected tofraud.

It said this has led to an "unprecedented" amount of claimrescission activity allowing insurers "to avoid a significantamount of losses over the course of 2008 and has served as apartial offset to the overall increase in incurred losses."