AM Best Comments on Credit Ratings of MGIC Investment Corporation’s Operating Subsidiaries Following COVID-19-Related Stress Testing

OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has commented that the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings of “a-” of the operating subsidiaries of MGIC Investment Corporation, each with a stable outlook, remained unchanged despite the COVID-19 pandemic. The operating subsidiaries are Mortgage Guaranty Insurance Corporation, MGIC Indemnity Corporation, MGIC Assurance Corporation and MGIC Reinsurance Corporation of Wisconsin (all companies domiciled in Milwaukee, WI), collectively referred to as MGIC.

AM Best revised its market segment outlook on the U.S. private mortgage insurance segment to negative from stable on April 7, 2020, owing to the expected increase in losses on mortgages due to higher unemployment and significant contraction in gross domestic product.

This public comment specifically considers MGIC’s current overall capitalization assessment in light of the economic impact of the COVID-19 pandemic under various stress scenarios. These scenarios include increases in realized losses, and other stress test components in the baseline stress test outlined in “Stress Testing Rated Companies for COVID-19,” published by AM Best on May 18, 2020.

The application of the COVID-19 stresses on MGIC’s book of business broadly follows the guidelines in AM Best’s criteria procedure, “Catastrophe Analysis in AM Best Ratings.” The most impactful stresses relate to the assumed claim rates, which range from 4-6% of MGIC’s current primary risk-in-force, which was $57.9 billion as of March 31, 2020. In these stress tests, AM Best assumes that MGIC realizes losses over a two-year period (while booking premiums in that timeframe), and that surplus is reduced by tax-affected losses after reinsurance.

After applying the various stresses to MGIC’s book of business, the company’s risk-adjusted capitalization, as determined by Best’s Capital Adequacy Ratio (BCAR), is at the strongest level.

MGIC’s level of capitalization is affected by a multitude of factors including: its level of surplus and contingency reserves; the assumed lag in realized losses, due to forbearance programs and foreclosure moratoriums; and its reinsurance programs through traditional reinsurance and mortgage insurance-linked securities (i.e., Home Re transactions).

Like all private mortgage insurers, MGIC’s fortunes are tied to the economy, which has been affected dramatically by the COVID-19 pandemic. Specifically, there remains great uncertainty as to the ultimate peak of the pandemic-induced unemployment rate and the pace of the economic recovery that should follow. AM Best will reassess its views of MGIC’s capitalization as it gets more visibility of the pandemic’s economic impact on mortgages.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media – Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2020 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

Contacts

Michelle Li
Senior Financial Analyst,
Insurance-Linked Securities
+1 908 439 2200, ext. 5307
michelle.li@ambest.com

Wai Tang
Senior Director,
Insurance-Linked Securities
+1 908 439 2200, ext. 5633
wai.tang@ambest.com

Christopher Sharkey
Manager, Public Relations
+1 908 439-2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Director, Public Relations
+1 908-439-2200, ext.5644
james.peavy@ambest.com