Magazine article American Banker

Reinsurance Pact Seen Shoring Up MGIC Operations

Magazine article American Banker

Reinsurance Pact Seen Shoring Up MGIC Operations

Article excerpt

MGIC Investment Corp. said Monday that HCC Insurance Holdings Inc. of Houston has agreed to reinsure up to $50 billion of policies written annually by the Milwaukee mortgage insurer from April 1 of this year through 2010.

The deal is the second step in MGIC's effort to strengthen its capital position, which has been eroded by heavy claims costs. In March it raised more than $800 million by selling shares and convertible debt.

Thomas J. Abruzzo, a managing director for financial guaranty and mortgage insurance at Fitch Inc., said it is important to remember that the deal "does not protect in any way against the legacy risk" on policies written from 2005 to 2007.

However, without the reinsurance, "they might have to start turning business away," he said. "So this is giving them a little greater capacity to stay fully engaged in the new business market while they ... deal with their legacy troubles."

MGIC did not make an executive available for comment by press time.

PMI Group Inc. of Walnut Creek, Calif., and Radian Group Inc. of Philadelphia have said they are taking steps to improve their capital positions, but neither one has announced a reinsurance or fund-raising deal yet. Last month Triad Guaranty Inc. of Winston-Salem, N.C., said it was negotiating a runoff plan.

"Each company has got their own plan in place to deal with the current dilemma that they're facing, and they're all going about it at their own various speeds," Mr. Abruzzo said. The deal with HCC will not necessarily get MGIC "ahead of others, but was probably necessary for them given ... the volume they were hoping to do this year."

Mortgage insurance underwriting volume surged last year as low-down-payment alternatives, like piggyback loans, dried up. However, the underwriting retreated sharply in the first quarter as a result of tighter standards and capital constraints. …

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