Early edition of your Friday Rating Actions (registration required):
New York, January 31, 2008 -- Moody's Investors Service has announced rating actions on a number of mortgage insurance companies due to continued US mortgage market stress and significant uncertainty about the amount of mortgage insurance claims that could emerge over the next several years. The following rating actions have been taken. The Aa2 insurance financial strength (IFS) ratings of the mortgage insurance subsidiaries of The PMI Group and the Aa3 IFS rating of Triad Guaranty Insurance Corporation were placed on review for possible downgrade. The Aa2 IFS ratings of the mortgage insurance subsidiaries of Genworth Financial and the Aa3 IFS rating of Republic Mortgage Insurance Company were affirmed, but the rating outlooks were changed to negative. The Aa2 IFS ratings of the mortgage insurance subsidiaries of United Guaranty Corporation (a wholly-owned subsidiary of American International Group, Inc.) were affirmed with a stable outlook. In the same rating action, Moody's placed the Prime-1 commercial paper rating of MGIC Investment Corp. on review for possible downgrade. The Aa2 IFS ratings on the main mortgage insurance subsidiaries of MGIC Investment Corp and the Aa3 IFS mortgage subsidiary ratings of Radian Group Inc. remain on review for possible downgrade.
These rating actions result from Moody's increased loss expectations for US residential mortgages and the potential adverse impact on mortgage insurer capitalization relative to previous assumptions. Moody's announced on January 30, 2008 that its projection for cumulative losses on 2006 vintage subprime mortgages is now in the 14-18% range and that it will update loss projections for other mortgage types over the next several weeks. While the majority of the mortgage insurers' exposure is to prime fixed-rate conforming mortgage loans, the industry does have material exposure to Alt-A and subprime mortgage loans.
Moody's stated that rating actions for specific mortgage insurers were influenced by Moody's views regarding the volatility in expected performance of the insured portfolio, as well as the existence of implicit and explicit forms of parental support for companies that are wholly-owned subsidiaries of larger diversified insurance holding companies. Moody's will, in the next several weeks, update its evaluation of capital adequacy of mortgage insurers based on updated information and incorporating revised expectations about performance across different loan types. Moody's will consider updated estimates of capital adequacy in the context of potential capital strengthening measures or other strategies that may be under consideration at these companies. Moody's will also be considering the changing risk and opportunities to the mortgage insurers as a result of shifting dynamics in the conforming mortgage market.