Last week, rating agency Fitch withdrew its long-term issuer rating “B-“ of MGIC Investment Corp. (MTG) along with withdrawing the “BB-“ insurer financial strength rating of its subsidiary, Mortgage Guaranty Investment Corp. The rating agency also pulled back the rating on MGIC’s senior notes and convertible junior subordinated debentures.
Back in July, Fitch had downgraded MGIC’s rating following the company’s announcement of its business restructuring. After suffering terribly from the rising delinquencies due to the housing crisis, MGIC announced in July to capitalize its subsidiary Mortgage Guaranty Indemnity which would write new mortgage insurance policies.
However, the rating agency considers twin effects of the restructuring. Although the process will drain the parent company’s capital levels rendering it restricted to pay claims, it will enable the newly funded company to write new business leading to increased profitability and additional sources of liquidity for MGIC.
During Oct. 2009, following MGIC’s poor third quarter results, Standard and Poor’s lowered ratings on Mortgage Guaranty Insurance Corp., a unit of MGIC Investment Corp., by two notches to “B+” from “BB.”
MGIC Investment’s restructuring initiative of shifting its new business to its subsidiary MGIC Indemnity Corporation has received consent from Fannie Mae (FNM), but it still needs approval from the state regulators and Freddie Mac (FRE). Management is working very closely with the regulators to get the approval, which we expect to be forthcoming.
Following this restructuring, management expects earnings from new business written under tighter guidelines to be capital accretive and beneficial to policyholders in the long run.
Read the full analyst report on “MTG”
Read the full analyst report on “FNM”
Read the full analyst report on “FRE”
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