A.M. Best Requests Comments on Updated Draft Criteria: Evaluating Mortgage Insurance

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FOR IMMEDIATE RELEASE

OLDWICK - DECEMBER 01, 2017 03:40 PM (EST)
A.M. Best is requesting comments from interested parties on the updated draft of a new criteria procedure, “Evaluating Mortgage Insurance.” The updated draft criteria procedure is available in the methodology section of A.M. Best’s website. Written comments should be submitted by e-mail to methodology.commentary@ambest.com by no later than Jan. 8, 2018.

The updated draft criteria procedure continues to focus on A.M. Best’s approach to: 1) rating mortgage insurers and 2) assessing the capital charges associated with the insurance-based credit risk transfer initiatives of the two government-sponsored enterprises (GSEs), Freddie Mac and Fannie Mae. In this revision, A.M. Best has refined the proposed draft criteria procedure to further increase transparency and to respond to industry feedback, as well as to reflect ongoing internal review and analysis.

The draft criteria procedure was last released for a comment period on Aug. 24, 2017. Significant changes to the draft criteria procedure since that call for comment include the following:

• Inclusion of premium credits associated with mortgage insurers for the entire term of the portfolio, as opposed to including just three years of premium credit, while also explicitly adjusting premiums for expenses and uncertainty surrounding such premiums;


• Consistency in the treatment of nonrefundable single premiums and periodic premiums;


• Creation of three new variables within Net Loss and LAE Reserves Risk to provide more granularity and to differentiate between the reserves for current mortgage business, future mortgage business over the next year and non-mortgage-related business;


• Assumption of 100% correlation between mortgage-related Net Loss and LAE Reserves Risk and mortgage-related Net Premiums Written Risk;


• Reconstruction of the Stressed Ultimate Loss Matrix (SUL Matrix) for evaluating the risk of mortgages with maturities less than or equal to 20 years; and


• Addition of an example on how to calculate Adjusted Capital, Net Required Capital and Best’s Capital Adequacy Ratio (BCAR) for a hypothetical primary mortgage insurer.

When submitting comments to the methodology in-box, commenters have the option of requesting anonymity, but not confidentiality. All comments received through the methodology in-box will generally be published in their entirety, with attribution to the author/sender at the time of implementation of the criteria procedure, unless there is a request for anonymous treatment.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source.