New York — Standard & Poor's Ratings Services placed its ratings on five major U.S. mortgage insurers and their core and dependent foreign subsidiaries on CreditWatch with negative implications. These groups are Old Republic, PMI, MGIC, Radian and Genworth.
Standard & Poor's also placed its ratings on Radian Asset Assurance Inc. on CreditWatch. Standard & Poor's is still evaluating the impact of this CreditWatch on obligations Radian Asset guarantees. The ratings on some securities could be placed on CreditWatch negative, but Standard & Poor's will not lower any of them.
The CreditWatch placements reflect greater deterioration in the employment and housing markets than Standard & Poor's had anticipated when it last conducted an extensive review of the mortgage insurance sector in late August. Standard & Poor's also has concerns that mortgage insurers' poor operating results—coupled with the disruptions in the capital markets—will prevent them from obtaining additional capital needed to refinance debt maturities, remain compliant with covenants and maintain appropriate capitalization to remain going concerns.
Standard & Poor's will resolve the CreditWatch status of the ratings in two stages. First, it will re-evaluate its estimate of mortgage insurers' net loss costs for their insured loan portfolios based on deterioration in macroeconomic conditions, partially offset by greater anticipated benefits of reinsurance. Standard & Poor’s expects to complete this assessment within the next couple of weeks. The second stage will be a thorough sector-wide review that incorporates operating results for the fourth quarter and developments in macroeconomic conditions. The rating agency anticipates completing this review in mid-March, but might accelerate the resolution of a CreditWatch placement if a company reports operating results that compare unfavorably with its expectations.
As a result of today's CreditWatches, Standard & Poor's expects most mortgage insurers will ultimately be downgraded, and some of the downgrades will be more than one notch. It will only affirm a rating on a mortgage insurer if it believes all of the following:
- The mortgage insurer's results will be appropriate for the rating category despite the ultimate operating loss during the current downturn.
- The mortgage insurer has appropriate capitalization for the rating, and will not encounter regulatory constraints on writing new business.
- The group's holding company has the resources to avoid any liquidity strains related to debt maturities or covenants.
Source: Standard & Poor’s
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