Illinois Knocks Down Triad's Cash Payments by 40%

WINSTON-SALEM, N.C., Apr 03, 2009 (A. M. Best via COMTEX) -- TGIC | Quote | Chart | News | PowerRating -- A year after mortgage insurer Triad Guaranty Inc. was placed into runoff, the mortgage insurer will begin paying out just 60% of claim values in cash starting June 1, under an order signed by Illinois Director of Insurance Michael T. McRaith.

Under the order, 40% of all valid claims lodged against the company in the future will be withheld as deferred payment obligations, granted separate entries in Triad's financial statements and will accrue carrying charges based on the investment yields based on how the company's investment portfolio fares. McRaith would have to sign off on future payment of both the DPOs and the carrying charges.

The order impacts all future paid claims ? whether on loans that are already delinquent or loans that default in the future -- under policies written by the company's two insurance operating companies Triad Guaranty Insurance Corp. and Triad Guaranty Assurance Corp.

According to Triad, the company currently has roughly $17 billion of risk in-force, with more than half of it written for mortgages currently held by Fannie Mae and Freddie Mac. The company estimates its current claims-paying resources, represented by its invested assets, capital supporting reinsurance contracts and expected future premiums, to be more than $2 billion.

"Government-led initiatives, including the loan modification and refinancing initiatives announced this month by Fannie Mae and Freddie Mac, are unprecedented in scope and could have a significant, stabilizing impact on the key variables that typically drive the level of our future premiums and losses," Chief Executive Officer Ken Jones said in a statement. "While Triad continues to believe that it has sufficient resources to pay all current and future valid claims, there is more uncertainty today than when we entered runoff in July 2008."

As part of its 10-K annual report filing last month with the U.S. Securities and Exchange Commission, Triad noted its current assumption project the company "will report a deficiency in policyholders' surplus as calculated in accordance with (statutory accounting principles) as early as March 31, 2009 and continuing at least through 2011," and that the company was working on a corrective action plan with McRaith to resolve the issue.

"If we are unable to gain approval from the division for a revised corrective plan that addresses this issue, the division could place TGIC into receivership proceedings, which could force us to seek protection from creditors through a voluntary bankruptcy proceeding and we would likely be unable to continue as a going concern," the company said.

After consecutive months of topping a record 100,000, defaults on privately insured mortgages dropped to 89,722 in February, according to monthly data compiled by the Mortgage Insurance Companies of America.

With 67,767 cures ? nonperforming insured mortgage loans brought back into good standing ? the cure rate jumped to 75.5%, the industry's best total in nearly a year. The industry reported 106,484 defaults and 51,093 cures in January, for a 48.0% cure rate, and 105,110 defaults and 49,749 cures in December 2008, for a 47.3% rate, the lowest since MICA has been keeping data.

December was the first month to include data from Radian Guaranty, the second-largest mortgage insurer, which recently rejoined the trade group. Other MICA members reporting data include AIG United Guaranty, Genworth Mortgage Insurance Corp., Mortgage Guaranty Insurance Corp., PMI Mortgage Insurance Co. and Republic Mortgage Insurance Co. The group?s data no longer include figures from Triad.

The top five writers of mortgage guaranty insurance in the United States, according to A.M. Best Co. state/line product information based on direct premiums written, are: Mortgage Guaranty Group, with a 24.7% market share; Radian Group, with 17%; PMI Mortgage Group, with 16.1%; American International Group Inc., with 13.1%; and Genworth PC Group, with 11.6%.

(By R.J. Lehmann, Washington bureau manager: raymond.lehmann@ambest.com)