Press Release - FEBRUARY 28, 2018

A.M. Best Releases New Criteria Procedure: Evaluating Mortgage Insurance

 Emmanuel Modu
Managing Director,
Insurance-Linked Securities
+1 908 439 2200, ext. 5356

Maura McGuigan
Associate Director
Credit Rating Criteria, Research
& Analytics
+1 908 439 2200, ext. 5317
Christopher Sharkey
Manager, Public Relations
(908) 439 2200, ext. 5159

Jim Peavy
Director, Public Relations
(908) 439 2200, ext. 5644


A.M. Best today announced the publication of a new criteria procedure, “Evaluating Mortgage Insurance.” With this publication, the criteria procedure is effective immediately.

A.M. Best published its first request for comment related to this criteria procedure on March 17, 2017. Subsequently, A.M. Best published two additional requests for comment on Aug. 24, 2017 and Dec. 01, 2017.

The criteria procedure focuses on A.M. Best’s approach to: 1) rating mortgage insurers and 2) assessing the risk charge associated with insurance-based credit risk transfer initiatives by the two government-sponsored enterprises (GSEs), Freddie Mac and Fannie Mae.

Mortgage insurance protects mortgage lenders by ceding a portion of the mortgage risk from lenders to insurers, thus providing an added layer of credit protection should the homeowner default. The criteria procedure provides insight into the information requirements, key rating considerations, risk modeling and surveillance activities that generally will be applied by A.M. Best when rating mortgage insurers within the Best’s Credit Rating Methodology framework.

In the risk-sharing programs discussed in this criteria procedure, the GSEs compensate (re)insurance companies for sharing in the mortgage credit risk undertaken by the GSEs. Specifically, these programs are designed to transfer a portion of the credit risk associated with a reference pool of mortgage loans from the GSEs to the (re)insurance market. The criteria procedure outlines the process by which A.M. Best will evaluate this risk within the framework of A.M. Best’s capital model, Best’s Capital Adequacy Ratio (BCAR).

One significant change was made to the draft criteria procedure since the call for comment on Dec. 1, 2017. The adopted version of the criteria procedure includes a factor of 70% within the formula for calculating the Net Loss and LAE Reserves Risk associated with business origination over the next year to reflect that in a stress scenario, future origination volume is expected to substantively decrease. The 70% factor is applied to the difference of the Net Discounted Losses and the Non-Refundable Single Premiums Credit associated with the most recent calendar year’s origination volume.

The release of this new criteria procedure is not expected to result in any changes to A.M. Best’s outstanding ratings.

A.M. Best is publishing 13 comments received during the three public consultation periods. A.M. Best would like to thank all the respondents that participated in the consultation periods. The results of the comment periods are published here: .

This criteria procedure is available at .

For a video interview with Emmanuel Modu, managing director, insurance-linked securities, about the new criteria procedure, please visit .

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