MILWAUKEE, July 16 /PRNewswire-FirstCall/ -- Mortgage Guaranty Insurance Corporation ("MGIC") today announced that the Office of the Commissioner of Insurance for the State of Wisconsin ("OCI") will allow a reactivation plan under which MGIC will contribute up to $1 billion to MGIC Indemnity Corporation ("MIC"), a wholly owned MGIC subsidiary, to enable MIC to write new mortgage guaranty insurance. MGIC will continue to write new business in each jurisdiction in which it currently operates until MIC begins operations there. Before MIC can begin writing new business, the OCI must specifically authorize MIC to do so and MIC must obtain licenses in the states where it will transact business. MIC is currently seeking Fannie Mae's and Freddie Mac's approval to be an eligible mortgage insurer for loans purchased by those GSEs. Assuming MIC is approved as an eligible mortgage insurer, MIC plans to begin writing new business as of January 1, 2010.
MIC's additional capital will be provided in two $500 million installments, the first of which is to be made by July 31, 2009, and the second within five business days after January 1, 2011 if MIC is then writing new business and the contribution is not disapproved by the OCI. To comply with the requirements of certain states, MIC will reinsure a portion of its new business in those states with another wholly owned subsidiary of MGIC. MGIC will capitalize this subsidiary by contributing $7.5 million in two equal installments at the same time as MGIC's contributions to MIC are made.
MGIC will provide human resources, risk management, information systems and technology, finance and accounting and other business infrastructure to MIC.
Curt S. Culver, CEO and Chairman of the Board of MGIC and its parent MGIC Investment Corporation (NYSE: MTG), said the reactivation plan's implementation through MIC's writing new business would allow MTG's subsidiaries to continue to support the U.S. housing market by providing mortgage insurance on low down payment loans on an uninterrupted basis. Since MIC is a wholly owned subsidiary of MGIC, MGIC will benefit from the mortgage insurance business conducted by MIC. MGIC's policyholders should also take comfort from the fact that the allowance of the reactivation plan by the OCI follows months of discussion and third party analysis of MGIC's claims paying resources remaining after the capitalization of MIC. Culver further added that he appreciates the hard work of the OCI on the reactivation plan and is hopeful that both Fannie Mae and Freddie Mac will approve MIC as an eligible insurer in the near future.
MIC is a wholly owned subsidiary of MGIC. When MIC begins to insure new loans, it will utilize substantially similar policy terms, conditions and pricing as then used by MGIC. It is expected that when MIC begins writing new business, MGIC will stop writing new business and that MIC will be renamed MGIC. MIC and MGIC will continue to be regulated by the OCI. Further details about the reactivation plan can be found in the Frequently Asked Questions section of this press release.
About MGIC
MGIC (www.mgic.com), the principal subsidiary of MGIC Investment Corporation, is the nation's leading provider of private mortgage insurance coverage with $220.1 billion primary insurance in force covering 1.4 million mortgages as of June 30, 2009. MGIC serves over 3,300 lenders with locations across the country, Puerto Rico, and other locations helping families achieve homeownership sooner by making affordable low-down-payment mortgages a reality.
Frequently Asked Questions
Q. How will the company be structured now?
A. MGIC Investment Corporation (NYSE: MTG) will remain the publicly traded parent company. MGIC Indemnity Corporation (MIC) is an existing, wholly owned subsidiary of Mortgage Guaranty Insurance Corporation (MGIC). MIC intends to begin new insurance writings on or about January 1, 2010, subject to specific authorization from the Office of the Commissioner of Insurance for the State of Wisconsin (OCI) and obtaining licenses in the states where it will transact business. To comply with the requirements of certain states, MIC will reinsure a portion of its new business in those states with another wholly owned subsidiary of MGIC.
Q. Why reactivate MIC?
A. Our company is navigating through the most severe housing correction since the Great Depression and the worst economy in a lifetime. We believe that MGIC has more than sufficient resources to honor expected claim obligations on our existing insurance in force. As such, our challenge has not been our ability to pay current and future claims; rather our challenge lies with increasing delinquencies and slow run-off of the existing insurance in force which has created the risk that MGIC may not meet the minimum regulatory capital required to insure new loans. In order to provide certainty that we would be able to continue writing new business on an uninterrupted basis, we needed to write new business in a company which has a lower risk to capital ratio.
Q. Where will the capital come from?
A. MGIC's capital contributions will come from its existing cash and investment portfolio. Subsequent to the capital contributions, MGIC believes that it will have adequate resources to honor all claim obligations on its existing in force policies. MTG has no plans to issue equity or debt in connection with the capitalization of MIC.
The capital will be contributed in two installments. $500 million will be contributed by MGIC to MIC by July 31, 2009 and $3.75 million will be contributed at that time by MGIC to another of its wholly owned subsidiaries that will reinsure certain MIC business.
