AM Best has revised its market segment outlook on the U.S. private mortgage insurance (PMI) industry to stable from negative on improving economic and housing market conditions; however, the risk of slowdowns remain due to current and potential COVID-19 variants.
The Best’s Marker Segment Report, “Market Segment Outlook: U.S. Private Mortgage Insurers,” notes that the housing market has remained strong, with record levels of home price growth. Low mortgage rates and high demand for housing, especially in less densely populated areas, coupled with a tight supply of homes for sale, have fueled the surge in home prices. These factors have lessened the likelihood of private mortgage insurers having to cover losses given that borrowers are in a much stronger equity position. Delinquency and forbearance numbers also have improved since spiking in May 2020. The majority of COVID-19-related forbearance plans ended in September 2021 and AM Best expects that loss mitigation options should help minimize forbearance-related foreclosures.
The capital position of the private mortgage insurers remains strong, with new insurance written amounting to $306.7 billion, and insurance in force totaling $1.3 trillion in the second quarter of 2021. PMI new insurance written is expected to reach the highest annual total since the record-setting level of approximately $600 billion in 2020. Insurance in force is up just 3.4% from year-end 2020 due to lower persistency caused by an increase in refinance activity.
According to the report, the average loss ratio declined to 10.9% as of the first half of 2021, from 34.4% as of year-end 2020, while the combined ratio improved to 34.3% from 57.2%. Private mortgage insurers continue to transfer risk to traditional reinsurance market, and the mortgage insurance-linked securities market remains robust. Through Sept. 21, 2021, approximately $4.5 billion of risk was transferred to the capital market via mortgage insurance-linked securities, approaching the $4.6 billion recorded in 2019 and $4.7 billion in 2020.
Overall, the PMI industry remains in a position to withstand potential increases in credit losses due to the COVID-19 pandemic.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=313348.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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