AM Best confirms credit ratings of operating subsidiaries of MGIC Investment Corporation
OLDWICK, New Jersey – (COMMERCIAL THREAD) –AM Best confirmed the financial strength rating of A- (Excellent) and the long-term issuer credit ratings of “a-” (Excellent) of the operating subsidiaries of MGIC Investment Corporation. The operating subsidiaries are Mortgage Guaranty Insurance Corporation, MGIC Indemnity Corporation and MGIC Assurance Corporation (collectively referred to as MGIC). The outlook for credit ratings is stable. All of the companies are domiciled in Milwaukee, WI.
The ratings reflect the strength of MGIC’s balance sheet, which AM Best considers to be the strongest, as well as its adequate operational performance, limited business profile and appropriate enterprise risk management (ERM).
MGIC’s risk-adjusted capitalization, as measured by Best’s capital adequacy ratio (BCAR), is at the highest level under both baseline and stress scenarios. The baseline scenario is analyzed on the basis of the company’s financial statements as of June 30, 2021, which already included part of the impact of the COVID-19 pandemic.
The company’s compliance with the eligibility requirements of private mortgage insurers (PMIER 2.0), the use of traditional reinsurance and mortgage-related securities to reduce its profits and the volatility of its capital in the face of a market environment. unfavorable housing, a strong liquidity situation and a conservative investment portfolio, as well as the flexibility to raise capital during the COVID-19 pandemic, support the assessment of the strongest balance sheet.
MGIC’s operational performance is deemed adequate despite the COVID-19 pandemic. The loss ratio, the combined ratio and the percentage of loans in default decreased in the first half of 2021 compared to the end of 2020. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), American Rescue Plan Moratorium forbearance and foreclosure programs helped mitigate the negative impact of the COVID-19 pandemic on MGIC. MGIC’s average loss, expense and combined ratios from 2016 to June 2021 showed technical profitability. MGIC’s historic loss and combined ratios, which increased dramatically during the financial crisis, declined significantly in recent years until the COVID-19 pandemic became apparent in 2020. Additionally, in the first half of 2021 , loss ratios and combined and percentage of loans in default decreased. MGIC’s expense ratio remains one of the lowest in the mortgage insurance industry. The Company’s credit profile has improved over the past few years, primarily as a result of improved underwriting standards as well as the effect of risk-based capital requirements set by SMIER 2.0.
AM Best believes that MGIC’s business profile is limited as the company is a monoline (re) insurer. In addition, it faces stiff competition from other private mortgage insurers and government agencies (for example, the Federal Housing Administration and Veterans Affairs) that provide mortgage insurance. Additionally, product risk is considered high because the performance of the mortgage insurance industry is tied to the macroeconomic environment and standards set by government-funded companies: Fannie Mae and Freddie Mac.
MGIC’s overall ERM assessment is appropriate because the company uses a robust ERM framework and infrastructure integrated across the enterprise. MGIC’s ERM framework is commensurate with the size, nature and complexity of its mortgage insurance business. AM Best considers that MGIC’s risk assessment capabilities appropriately match its risk profile.
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