AM Best has upgraded the Financial Strength Rating to A (Excellent) from A- (Excellent) and the Long-Term Issuer Credit Rating to “a” (Excellent) from “a-” (Excellent) of the operating subsidiaries of MGIC Investment Corporation [NYSE: MTG]. The operating subsidiaries are Mortgage Guaranty Insurance Corporation, MGIC Indemnity Corporation, and MGIC Assurance Corporation (collectively referred to as MGIC). All companies are domiciled in Milwaukee, WI. In addition, AM Best has revised the Credit Rating (ratings) outlooks to stable from positive.

The ratings reflect MGIC’s balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).

The upgrade of the ratings reflects the diminished significance of the legacy book of mortgage insurance on loans originated in 2008 and prior. The potential for the legacy book to hinder operating performance materially is reduced because the risk in force of the legacy book has declined significantly. Furthermore, the mark-to-market loan-to-value ratios for the legacy book have declined partly because of home price appreciation since the loans were originated, especially the past few years.

MGIC’s balance sheet strength assessment of strongest is supported by its risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), at the strongest level in stressed and unstressed scenarios. The assessment of strongest is supported further by MGIC’s use of reinsurance and compliance with private mortgage insurer eligibility requirements.

AM Best assesses MGIC’s operating performance as strong based on favorable underwriting results as reflected in loss and combined ratios over the past five years, and the aforementioned reduction in the materiality of the legacy book of business.

AM Best assesses MGIC’s business profile as limited because the company is a monoline (re)insurer. Furthermore, it faces stiff competition from other private mortgage insurers and governmental agencies (e.g., Federal Housing Administration and Veterans Affairs) providing mortgage insurance. In addition, MGIC’s business profile is subject to a high degree of product risk because the performance of the mortgage insurance industry is linked highly to the macroeconomic environment and the standards set by the government-sponsored enterprises: Fannie Mae and Freddie Mac. However, this risk is mitigated somewhat by the various reinsurance programs that MGIC utilizes.

AM Best assesses MGIC’s overall ERM as appropriate, as the company employs a robust ERM framework and infrastructure that is embedded across the company. MGIC’s ERM framework is commensurate with the size, nature and complexity of its mortgage insurance business. AM Best considers MGIC’s risk assessment capabilities to be aligned appropriately with its risk profile.

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 use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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