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

Moody's Investors Service has downgraded Republic MortgageInsurance company's (RMIC) insurance financial strength rating toCaa2 from B1, citing continued deterioration at the troubledcompany.

Moody's also downgraded the senior debt of RMIC's parentcompany, Old Republic (ORI), to Baa2 from Baa1 due to the potentialfinancial strain at ORI, “particularly if a regulatory takeover ofthe mortgage-insurance operation triggers a technical default andearly redemption of ORI's senior debt.”

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

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

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

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

In August, Moody's noted that ORI stated it would not contributeadditional capital to help RMIC, and that RMIC's two majorcounterparties—Fannie Mae and Freddie Mac—said the company is nolonger an approved insurer. Moody's also said at the time that thecompany's regulator is unwilling to allow it to write newbusiness.

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

Moody's said in August that troubles at RMIC and at PMI MortgageInsurance Copmay could present opportunities for better-capitalizedcompetitors if they could demonstrate the ability to maintainregulatory compliance.

Later in August, Fitch Ratings affirmed ORI's 'A' insurer financial strength ratings, statingthat it “views the potential capital impact of a runoff of RepublicMortgage Insurance Company as limited to RMIC's $445.1 millioncapital base, given management's assertion that it would be managedwithin those constraints.”