Standard & Poor's Ratings Services said it raised its financial strength and long-term counterparty credit ratings on Mortgage Guaranty Insurance Corp. (MGIC) and MGIC Indemnity Co. (MIC) to BB-plus from BB.
At the same time, it raised its unsolicited senior unsecured debt issue and counterparty credit rating on MGIC Investment Corp. to B-plus and its junior subordinated debt rating on MGIC Investment to B-minus. The outlook is stable.
"The upgrade is based on our view that MGIC will continue to benefit from improving earnings and sustain its competitive profile versus peers with higher profitability based on its insurance premium offering," said Standard & Poor's credit analyst Marc Cohen. Our positive view of MGIC's capital adequacy based on our analysis of its performing portfolio characteristics and its reinsurance coverage also supports the rating actions.
The current rating reflects the positive view of MGIC's prospective operating earnings based on fewer new notices of delinquency, a lower delinquency inventory, and the significant decline in its overall delinquency-to-claim performance ratio to less than 15% (i.e., higher cure rates on new and previous delinquencies).
The improved insured mortgage portfolio and cure performance characteristics have helped sustained generally accepted accounting principles (GAAP) net earnings generation in each fiscal quarter since second-quarter 2013.
The current estimation of MGIC's future operating performance is focused on an expected decline in incurred losses in 2014 and 2015 with relatively stable new insurance written (NIW) and premium yield profiles. Macro growth in the private mortgage insurance market and MGIC's ability to maintain market share despite the entrance of new players would suggest higher operating income and internal capital generation capabilities.
The stable outlook reflects the potential growth in NIW and its sustained market share position, continued improving operating performance, and improving capital adequacy based on retained earnings and legacy insured amortization.
The agency said it could upgrade MGIC based on continued non-volatile positive earnings, an increase to its capital position based on retained earnings and other external capital-accretive initiatives, and progress toward a more conservative level of leverage.
It could downgrade MGIC if it is unable to address its Private Mortgage Insurer Eligibility Requirements capital constraints; its operating performance significantly diverges from the trend toward stronger earnings that would support the rebuilding of capital; or the company experiences material reserve strengthening. S&P views this possibility as remote.
