According to A.M. Best, the operating environment for US Private Mortgage Insurers (PMIs) is favourable, driven by continued decline in the loss, expense, and combined ratios, assisted by the increased ceding of risk to the reinsurance sector.
The international financial services ratings agency’s outlook for US PMIs is stable, with the operating landscape continuing to be favourable for PMIs and the U.S. mortgage industry as a whole. A.M. Best says that macroeconomic conditions are positive, which includes a low unemployment rate and a core inflation rate that remains in check.
Over the last few years, the industry’s combined ratio has improved, with these favourable results anticipated to continue into 2019. The ratings agency expects loss ratios to be in the single digits, expense ratios in the mid-twenties, and combined ratios in the mid-thirties.
“The continued decline in the loss, expense, and combined ratios reflect the favorable operating environment of the PMIs,” says the ratings agency.
In an effort to reduce potential losses, A.M. Best notes that PMIs have also continued to cede more of their risk to the global reinsurance market, via quota-share and excess-of-loss programmes. The ratings agency notes that the transfer of risk to the reinsurance sector has persisted since the introduction of the Private Mortgage Insurer Eligibility Requirements (PMIERs).
“AM Best anticipates that the PMI industry will continue to cede more risk to capital market participants through the issuance of Mortgage Insurance-Linked Securities.”
As shown by our sister site Artemis’ Deal Directory, which tracks the issuance of insurance-linked securities (ILS) and catastrophe bond transactions, mortgage ILS deals have become a larger share of the market in recent times.
“Overall, the mortgage insurance industry is expected to continue its slight upward trajectory as the favorable market conditions continue, but this may be hampered by future macroeconomic risk of a slowdown or recession, and premium rate decreases as competition continues to increase among the PMIs,” concludes A.M. Best.
