AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “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. The outlook of these Credit Ratings (ratings) is stable.

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).

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

MGIC’s operating performance is assessed as strong based on solid underwriting and earnings trends over the past five years. Underwriting results have been strong with very low loss ratios reflecting favorable credit performance of loans being insured. Underwriting gains were supplemented by investment income, which has favorably contributed to overall earnings over the past three years.

The business profile is assessed as limited because the company is focused on U.S. single family mortgage risk. A high degree of product risk is considered to be in the limited business profile assessment as the performance of the mortgage insurance industry is linked to the macroeconomic environment and the standards set by the government-sponsored enterprises: Fannie Mae and Freddie Mac. However, this risk is mitigated by the various reinsurance programs that MGIC utilizes. As one of the six private mortgage insurers in the United States, MGIC faces strong competition from the other private mortgage insurers and governmental agencies (e.g., Federal Housing Administration and Veterans Affairs) providing mortgage insurance.

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

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