Standard & Poor's Tuesday night cut to junk status the counterparty credit rating of Radian Group Inc., parent of bond insurer Radian Asset Assurance Inc., citing a more negative view of the mortgage insurance industry.
Radian Group has had its rating lowered to BB-plus from BBB, while its mortgage insurer subsidiary, Radian Guaranty Inc., had its insurer financial strength lowered to BBB-plus from A. Standard & Poor's took both ratings off CreditWatch negative and gave them negative outlooks. Standard & Poor’s also downgraded Radian Asset Assurance to BBB-plus with a negative outlook from A on a negative watch.
Standard & Poor's downgraded Radian Guaranty along with two other mortgage insurers. A worse-than-expected housing market and rising unemployment could drive further growth in claims, according to the rating agency. In addition, "U.S. mortgage insurers have limited opportunities for growth and diversification," Standard & Poor's said.
Although the newest issues will likely "generate a moderate underwriting profit for most mortgage insurers," industry conditions suggest "an underwriting loss is a real possibility." On 2008 vintage mortgages, the rating agency increased its expected claim rate to 7.0% from 6.5%.
Radian Group plans to transfer its investment in Radian Asset to Radian Guaranty during the third quarter. The bond insurer has a statutory surplus of $960 million, which the company expects will bolster the mortgage insurer as claims expire and capital can be released. Radian Asset has an A rating on negative watch from Standard & Poor's.
"We do not believe today's action by S&P reflects the significant progress we have made in developing our internally sourced capital plan and improving the quality of our mortgage insurance portfolio," S.A. Ibrahim, chief executive officer of Radian Group, said in a statement. "It is important to view our rating within the context of the mortgage insurance industry, which continues to face challenging macroeconomic conditions."