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26 Jan 2015
New York, January 26, 2015 -- Moody's Investors Service, ("Moody's") has
assigned an A3 insurance financial strength (IFS) rating to Arch Mortgage
Guaranty Company (AMG), a mortgage insurance subsidiary of Arch
Capital Group Ltd. (Nasdaq: AGCL, "Arch",
A3 senior debt). The outlook for the rating is stable.
RATINGS RATIONALE
AMG's A3 IFS rating reflects the Baa3 stand-alone credit
assessment of AMG, and three notches of uplift based on explicit
and implicit support from Arch and its affiliated entities. The
Baa3 standalone credit assessment reflects AMG's strong capitalization
relative to its current and expected net mortgage insurance exposures,
no exposure to pre-2009 mortgages and the market position and operational
capabilities it derives from its affiliation with Arch Mortgage Insurance
Company (Arch MI, Baa1 stable). Explicit support is provided
in the form of extensive quota-share reinsurance, from Arch
Reinsurance Ltd. (Arch Re Ltd., A1 stable) and Arch
Reinsurance Corporation (Arch Re Co., A1 stable).
In addition, Arch has contributed $41.5 million in
capital and surplus notes to AMG, increasing its qualified statutory
capital to approximately $50 million at year-end 2014.
Moody's stated that the mortgage line of business is of strategic
importance to Arch because it provides an attractive opportunity to add
diversification to its property and casualty focused portfolio.
However, Moody's does not consider the mortgage business to
be core to the Arch franchise at this stage.
AMG, formerly known as PMI Mortgage Assurance Co.,
is domiciled in the State of Wisconsin, and was acquired by Arch
on January 30, 2014. Prior to the acquisition by Arch,
the company was wholly owned by PMI Mortgage Insurance Co.,
in Rehabilitation (MIC). Prior to its acquisition, AMG had
transacted a limited amount of mortgage insurance in certain states.
As of year-end 2013, AMG had $20.1 million
of legacy risk-in-force, comprising prime, fully
documented mortgages originated in 2011. Along with the acquisition
of AMG, Arch purchased CMG Mortgage Insurance Company, now
Arch MI, and the PMI mortgage insurance operating platform from
PMI Mortgage Insurance Co. Arch MI is the leading private mortgage
insurer catering to the credit union lender channel, and is actively
working, together with AMG, on expanding its market share
beyond the credit union channel, to include banks and non-bank
mortgage originators.
AMG is not an approved mortgage insurer with Freddie Mac and Fannie Mae
(jointly, the GSEs), and is therefore not required to comply
with the private mortgage insurer eligibility requirements (PMIERs) as
currently drafted by the GSEs. Arch MI, its affiliate,
is a GSE-approved mortgage insurer and has stated that it is compliant
with the PMIERs as currently drafted.
The stable outlook reflects the appeal of AMG's franchise, as part
of Arch's suite of mortgage risk solutions, its integration
with Arch MI and its strong capitalization relative to net insured exposures,
moderated by meaningful uncertainty about prospects for origination of
non-conventional mortgages and market demand for insurance on such
mortgages.
Moody's stated that the following factors could lead to an upgrade
of AMG's rating: (1) establishment of a strong stand-alone
franchise in its target market, (2) improved absolute and risk-weighted
capitalization, or a greater degree of support from its parent,
Arch. Conversely, Moody's stated that the following
factors could lead to a downgrade of the company's rating:
(1) a protracted stalling of growth in non-conventional originations,
or AMG failing to grow market share and gain traction in growing non-conventional
mortgage market, (2) termination of the reinsurance agreements with
Arch, or (3) a downgrade of Arch or lower implicit support from
the group.
The following rating has been assigned with a stable outlook:
Arch Mortgage Guaranty Company -- insurance financial strength
at A3.
The principal methodology used in this rating was Moody's Global Methodology
for Rating Mortgage Insurers published in December 2012. Please
see the Credit Policy page on www.moodys.com for a copy
of this methodology.
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Brandan Holmes
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Stanislas F Rouyer
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Rates Arch Mortgage Guaranty Company A3 for Insurance Financial Strength
No Related Data.
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