OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has affirmed 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 of the Credit Ratings (ratings) is stable. All companies are domiciled in Milwaukee, WI.
The ratings reflect MGIC’s balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating 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 strongest level on base and stress scenarios. The base scenario is analyzed based on the company’s financial statements as of June 30, 2021, which already included some of the impact from the COVID-19 pandemic.
The company’s compliance with Private Mortgage Insurer Eligibility Requirements (PMIERs 2.0), utilization of traditional reinsurance and mortgage insurance-linked securities to reduce its earnings and capital volatility against an unfavorable housing environment, strong liquidity position and conservative investment portfolio, as well as the financial flexibility to raise capital during COVID-19 pandemic, support the balance sheet assessment of strongest.
MGIC’s operating performance is assessed as adequate despite the COVID-19 pandemic. The company’s loss ratio, combined ratio and percentage of loans in default decreased in the first half of 2021 compared with year-end 2020. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), American Rescue Plan, forbearance programs and foreclosure moratorium has helped to 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 underwriting profitability. MGIC’s historical loss and combined ratios, which spiked significantly during the financial crisis, had declined meaningfully over the past several years until the COVID-19 pandemic became apparent in 2020. Additionally, in first half of 2021, loss and combined ratios and percentage of loans in default declined. MGIC’s expense ratio remains one of the lowest in the mortgage insurance industry. The company’s credit profile has been improving over the past several years, mainly driven by its improved underwriting standards as well as the effect of the risk-based capital charges established by the PMIERs 2.0.
AM Best assesses MGIC’s business profile as limited, as the company is a monoline (re)insurer. Furthermore, it faces stiff competition from other private mortgage insurers and governmental agencies (e.g., Federal Housing Administration and Veterans Affairs) providing mortgage insurance. In addition, product risk is considered high because the performance of the mortgage insurance industry is linked to the macroeconomic environment and the standards set by the government-sponsored enterprises: Fannie Mae and Freddie Mac.
MGIC’s overall ERM assessment is appropriate, as the company employs a robust ERM framework and infrastructure that is embedded across the company. MGIC’s ERM framework is commensurate with the size, nature and complexity of its mortgage insurance business. AM Best considers MGIC’s risk assessment capabilities to be aligned appropriately with its risk profile.
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