NU Online News Service, March 5, 3:24 p.m.EST

The mortgage-insurance sector is expected to continue to reportoperating losses well into 2013, as losses on legacy books ofbusiness will likely outweigh the profitability generated from morerecent business written since 2008, according to Standard &Poor's.

S&P says that continued economy-related struggles caused themortgage-insurance sector to report operating losses in 2011. “Lastyear, we believed mortgage insurers had the potential to beginreporting operating profits by the end of 2012,” S&P says.“However, the lackluster economic recovery, highlighted by sluggishpayroll employment growth and the poor housing market, led toongoing high levels of new notices of delinquencies (NODs) whilepreventing greater improvement in cure activity.”

The ratings agency says there have been some improvementsin the economy on the employment front, but adds that the U.S.housing market remains under significant pressure.

S&P also says that mortgage insurers are subject toregulations requiring that they hold a certain amount of capital.“Most of the mortgage insurers have violated these requirements andcured them with capital infusions, establishing newly capitalizedsubsidiaries to allow them to continue writing new business, andseeking regulatory forbearance through capital waivers.”

But the ratings agency says that as the likelihood forbreak-even results by the end of 2013 declines, “we believe theongoing regulatory forbearance will also decline.”

Litigation could also put pressure on mortgage insurers as theyramp up rescission and claim-denial activity, S&P says. “Whilewe believe it will take time for these issues to be resolved incourts, the sector's capital position is generally unable towithstand any significant adverse judgments that may come,”according to S&P.

The ratings agency notes that PMI Group has been taken over bythe Arizona Department of Insurance, and RMIC has received an Orderof Supervision from the North Carolina Department of Insurance.While S&P expects to see signs clarifying the potential forbreak-even in 2013 by mid-2012, “we believe the absence of thosesigns will not only point to an extension of the mortgage insurers'loss cycle, it may also indicate more mortgage insurers have runout of time.”