2012 Mortgage Guaranty Insurance Report

Residential mortgage guaranty insurance provides protection to lenders against default by borrowers who initially have less than 20 percent equity interest in the mortgaged property.  This form of insurance is designed to stimulate home ownership by giving consumers with lower down payments access to credit. Generally, lenders require mortgage guaranty insurance for loans exceeding 80 percent of the value of a home.  

2012 Mortgage Guaranty Report

  • This year’s residential mortgage guaranty report reveals that the impact of the housing crisis on residential mortgage insurers continued into 2012, with incurred losses again exceeding premium. Insurers paid out over $93 million in 2012, the third largest annual payments since the DIFP began collecting such data over 30 years ago. However, much of this amount represents payments for losses that occurred in prior years. The amount of incurred losses, or the amount that insurers expect to eventually pay out on claims that occurred in a year, increased between 2011 and 2012.
  • Paid losses in Missouri declined slightly over the prior year, but were still at the third highest level in over 30 years since the DIFP began collecting data. In 2012, insurers paid out over $93 million to cover residential loan defaults. Nationally, these same insurers paid losses totaling $6.9 billion, an amount that excludes payments from insurers that do not operate in Missouri.
  • Mortgage guaranty insurers incurred net losses for the sixth year in a row. In 2008, insurers incurred losses of $173.1 million, equal to 152.2 percent of premium earned in that year. This percentage declined to 145.7 percent in 2009, 107.7 percent in 2010, but increased to 123.5 percent in 2011. In 2012, this percentage again declined to 102.3 percent. Incurred losses in part represent insurers expectations of how much they will eventually pay out on claims incurred during a year. The amount of claim reserves, or money insurers set aside to cover such claims, declined by $22 million from the prior year. National loss ratios for these insurers declined from 228.7 percent in 2008 to 142.7 percent in 2012.
  • Industrywide in 2008, contingency reserves were reduced for the first time since 1983. Such reserves declined again in both 2009 and 2010, but increased in 2011. In 2012, the contingency reserves once again declined. Contingency reserves are special reserves that mortgage guaranty insurers are required to maintain by statute. They are equal to 50 percent of premium, and must be maintained for 10 years, but may be used to cover losses in excess of 35 percent of premium in a given year. Contingency reserves covering Missouri losses in 2008 declined by a modest $29.1 million, but more substantially in 2009 ($67.2 million) and 2010 ($55.6 million). In 2011, contingency reserves increased by almost 3 million. In 2012, contingency reserves declined by $7.7 million.
  • The housing crisis has also contracted the market for mortgage guaranty insurance, as evidenced by premium. In 2008, mortgage guarantee premiums peaked at $113.6 million, but declined to $70 million in 2012.

This report was compiled using information submitted by the insurance companies. While every effort is made to ensure accurate data, the accuracy of this report is dependent on each company’s data. Any questions about this report should be directed to the Statistics Section, Missouri DIFP, P.O. Box 690, Jefferson City, MO 65102-0690.

Additional copies of this report can be received by sending a written request, with payment of $35 per copy, to this same address.