Fitch Ratings downgraded the financial-strength ratings of the U.S. mortgage insurance businesses at MGIC Investment Corp. and PMI Group to A-plus from 'AA', saying that 2007, "a year of rapid growth for a number of key" players, "will likely prove to be one of the worst underwriting years in the modern history of the U.S. mortgage industry."

The move last week came after Standard and Poor's April downgrades of the two insurers to below the 'AA' level that had been considered necessary to take on new business because of requirements by the government-sponsored enterprises that have recently been relaxed.

Fitch said the mortgage insurance industry "aggressively courted new business throughout 2007" and is "now heavily concentrated" in loans made that year.

"Meaningful changes to underwriting standards, from both a risk and pricing perspective, have only recently been instituted," Fitch said.

Its analysis took into account "some degree of reduced losses" because "many potential claims on mortgage insurance policies may be determined to be ineligible to be paid."
Fitch said the new ratings also reflected the more than $800 million that Milwaukee-based MGIC raised in March capital offerings and the options available to Walnut Creek, Calif.-based PMI to improve its capital position.

The agency said it "does not anticipate existing players' returning to healthy levels of profitability before late 2009 but more likely 2010." Its ratings for MGIC and PMI remain on review for possible further downgrading.

PMI said it "has significant financial resources to pay insurance claims on defaulted loans" and that it "continues to work closely with each of the ratings agencies to communicate its financial strength, capital plan, and value proposition."

Fitch also placed its 'AA' mortgage insurance rating for Genworth Financial in Richmond, Va., on watch for downgrading and cut its mortgage insurance rating for Old Republic International Corp. in Chicago to AA-minus, from 'AA', and placed it on watch for downgrading.

The ratings agency said it considered the support those two get from parent companies that have business lines other than mortgage insurance.

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