Moody’s Downgrades Mortgage Insurer RMIC

NU Online News Service, Nov. 17, 3:12 p.m. EDT

Moody's Investors Service has downgraded Republic Mortgage Insurance company’s (RMIC) insurance financial strength rating to Caa2 from B1, citing continued deterioration at the troubled company.

Moody’s also downgraded the senior debt of RMIC’s parent company, Old Republic (ORI), to Baa2 from Baa1 due to the potential financial strain at ORI, “particularly if a regulatory takeover of the mortgage-insurance operation triggers a technical default and early redemption of ORI’s senior debt.”

Regarding RMIC, Moody's says the downgrade reflects the firm's weakened credit profile and lack of parental support. “The rating agency believes that RMIC is likely to breach the North Carolina $1.25 million minimum regulatory capital requirement over the coming quarters and that continued high claims are threatening its liquidity position,” Moody’s says.

According to Moody’s, RMIC had $100 million of surplus and $1.25 billion in liquid assets at Sept. 30, 2011, and has been paying about $215 million of claims per quarter for the last year.

“Such deterioration is expected to result in the implementation of a runoff plan that would involve the settlement of claims with both a cash and a deferred component to preserve liquidity,” the rating agency says.

Moody's believes RMIC should be able to ultimately cover all claims out of its current resources and projected premium income, but says “substantial uncertainty and downside risks remain due, in part, to the continued weakness in the housing sector.”

In August, Moody’s noted that ORI stated it would not contribute additional capital to help RMIC, and that RMIC’s two major counterparties—Fannie Mae and Freddie Mac—said the company is no longer an approved insurer. Moody’s also said at the time that the company’s regulator is unwilling to allow it to write new business.

In an Aug. 3 notice on its website, RMIC says, “We wish to inform you that Republic Mortgage Insurance Company will discontinue writing new commitments for insurance effective Aug. 31, 2011. RMIC has been operating pursuant to a waiver of minimum state risk to capital ratio requirements which expire at the end of August.”

Moody’s said in August that troubles at RMIC and at PMI Mortgage Insurance Copmay could present opportunities for better-capitalized competitors if they could demonstrate the ability to maintain regulatory compliance.

Later in August, Fitch Ratings affirmed ORI’s ‘A’ insurer financial strength ratings, stating that it “views the potential capital impact of a runoff of Republic Mortgage Insurance Company as limited to RMIC’s $445.1 million capital base, given management’s assertion that it would be managed within those constraints.”

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