Moody's Investors Service downgraded the insurance financial strength rating of Mortgage Guaranty Insurance Co. to 'A1' from 'Aa2,' the insurance financial strength rating of MGIC Australia Pty Ltd to 'A2' from 'Aa2,' and the senior debt rating of their parent, MGIC Investment Corp., to 'Baa1' from 'A2.'

The rating outlook for these companies is negative.

Today's rating actions conclude reviews for possible downgrade that were initiated on Jan  31, and reflect MGIC's weakened credit profile and deterioration in medium-term profitability prospects resulting from historically high mortgage defaults and uncertainty about ultimate losses.

MGIC, based in Milwaukee, is the holding company for Mortgage Guaranty Insurance Co., one of the largest U.S. mortgage insurers with $221.4 billion of primary insurance in force as of March 31.

The rating agency added that the firm is well-positioned to take advantage of current new business opportunities given its strong capitalization and the execution of a quota share reinsurance agreement with an affiliate of HCC Insurance Holdings covering business written after the first quarter of this year.

Moody's said that franchise strength and the ability to withstand cyclical downturns are key factors in its analysis of a mortgage insurer's business and financial profile. Mortgage insurers derive a substantial portion of their franchise strength from the value that they provide to government-sponsored enterprises involved in residential mortgage finance by allowing them to participate in the high-loan-to-value portion of the mortgage market.

MGIC insures approximately 25% of the conforming loan market and is the largest mortgage insurance counterparty to the GSEs. Moody's said that MGIC and other mortgage insurers have benefited from the GSEs' increasing penetration of the mortgage origination market, resulting in higher new business volume, improving underwriting criteria and greater pricing power

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