NEW YORK--(BUSINESS WIRE)--Fitch Ratings has placed Republic Mortgage Insurance Company's (RMIC) 'BBB-' Insurer Financial Strength (IFS) rating on Rating Watch Negative.
Today's rating action is driven primarily by the continued erosion of capital and reserve levels at RMIC, which has been caused by continued losses and elevated delinquency levels. Fitch believes there is a high probability that RMIC's IFS will fall into the 'BB' category upon the completion of a more detailed review of RMIC's recent performance, over the next several weeks. While Fitch recognizes that both reported losses and delinquent loan counts have improved over the past year, claim payments are likely to remain elevated for the foreseeable future, putting additional pressure on capital. The company's risk-to-capital ratio was 28.4:1 as of Dec. 31, 2010, up from 23.1:1 a year ago. This metric is currently the highest in the industry and is above the 25.0:1 level required by some state regulators. As such, RMIC has negotiated waivers with its primary regulator in North Carolina and a number of other states that have a risk-to-capital requirement and where the company continues to write new business.
While RMIC's portfolio has performed better than some of its peers, with delinquent risk-in-force representing 15.9% of the total at Dec. 31, 2010, its risk-to-capital position is one of the weakest in the industry. Many of the company's larger peers have contributed additional capital to their mortgage insurance subsidiaries in recent quarters. Additional capital contributions from Old Republic International Corp. (ORI), RMIC's parent, would be viewed positively. However, management has not indicated a willingness to provide the level of support necessary for an investment-grade rating, in Fitch's opinion.
The operating environment in the mortgage insurance industry remains highly uncertain. Most players are expected to continue reporting losses for the foreseeable future and the implications of broader housing reform are not yet clear. While RMIC continues to write new business, its market share declined in 2010, placing it last among its peers.
RMIC, domiciled in North Carolina, is the lead U.S. mortgage insurance operating company of ORI. As of Dec. 31, 2010, RMIC was the fifth-largest mortgage insurer in the U.S. with $18 billion of risk-in-force.
Fitch has placed the following rating on Rating Watch Negative:
Republic Mortgage Insurance Company
--IFS of 'BBB-'.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research
--'Insurance Rating Methodology' (Aug. 13, 2010);
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2010).
Applicable Criteria and Related Research:
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547766
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685
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