New York-based Moody's Investors Service downgraded the insurance financial strength rating of Milwaukee, Wis.-based Mortgage Guaranty Insurance Company (MGIC) citing the impact of mortgage defaults on the company.
The rating service lowered the mortgage guaranty insurer to "A1″ from "Aa2″ and the insurance financial strength rating of MGIC Australia Pty Ltd (MGIC Australia) from "Aa2″ to "A2." The rating outlook for both companies is negative.
However, Moody's affirmed the "A1″ insurance financial strength rating of MGIC Indemnity Corporation and changed the outlook to negative.
According to Highline Data, MGIC is the largest U.S. mortgage guaranty insurer with $1.35 billion in net premiums written in 2007. Highline Data is a Summit Business Media Company, which also owns National Underwriter.
Moody's said the action concluded its review for possible downgrade initiated in late January.
The action reflects MGIC's weakened credit profile and deterioration in medium-term profitability prospects resulting from historically high mortgage defaults and uncertainty about ultimate losses, Moody's said.
In MGIC's favor is its position to take advantage of new business opportunities given its strong capitalization and its reinsurance agreement with an affiliate of HCC Insurance Holdings Inc. covering business written after the first quarter of this year.
During April 2008, the holding company raised approximately $840 million in capital from the issuance of common stock and hybrid junior subordinate debt, of which $600 million was used to bolster the capital position of MGIC.
Despite heightened losses, MGIC's risk-adjusted capital adequacy is considered to be consistent with its rating level, and the company is well within regulatory limits, the rating service said.
The downgrade of MGIC Australia reflects Moody's view that, despite being well capitalized for the modest amounts of risk written by MGIC Australia, the company's business prospects are uncertain and its strategic importance to the group has diminished in light of the deterioration in the credit profile of the main operating company.
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