Fitch Ratings downgraded the insurer financial strength (IFS) rating of Mortgage Guaranty Insurance Corp. (MGIC) to triple-B minus from triple-B after the company reported a $339.8m loss for Q209.
The long-term debt and senior debt ratings of its parent company MGIC Investment Corp. landed on Fitch’s Rating Watch Negative, but the insurance giant down-streamed $500m of capital to a new subsidiary, MGIC Indemnity, with the goal of continuing to write mortgage insurance, according to a release from Fitch.
“The capital restructuring allows the company to continue to operate and seek to earn a higher return on a portion of its capital than would otherwise be the case,” according to the release.
The Wisconsin Office of the Commissioner of Insurance (WI OCI), MGIC’s main regulator, approved the restructuring as an alternative to ceasing operations, according to the release.
Curt Culver, the CEO of MGIC Investment Corp. said a corporate statement that “the company’s financial results continue to be adversely impacted by increased delinquencies, which are occurring due to a weakened economy, increased unemployment and lower home prices.”
According to Fitch’s report, the diversion of capital into MG Indemnity places “MGIC’s existing legacy book of business into de facto runoff.”
Fitch claimed that the MGIC group will need to perform on MGIC’s claims to protect MG Idemnity’s value. The restructuring is still pending approval from government-sponsored entities – the main beneficiaries of MGIC’s insurance.
“Positively, the restructuring allows the MGIC group to avoid a risk-to-capital driven cessation of operations, and to underwrite potentially high quality business at attractive rates,” according to Fitch’s release.