2018 Mortgage Guaranty Insurance Report

2018 Mortgage Guaranty 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.  

  • The loss ratio, or the amount of incurred losses divided by premium, decreased from 8.7 percent to 5.8 percent. Paid losses in Missouri have declined over the prior year.  In 2018, insurers paid out over $11 million to cover residential loan defaults.  Nationally, these same insurers paid losses totaling $912 million, an amount that excludes payments from insurers that do not operate in Missouri.  
  • Mortgage guaranty insurers incurred net losses for six straight years from 2007 - 2012.  In 2010, insurers incurred losses of $99.2 million, equal to 107.7 percent of premium earned in that year.  This percentage increased to 123.5 percent in 2011, decreased to 102.3 percent in 2012.  In 2018, this percentage again declined to 5.8.  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 $5.4 million from the prior year. National loss ratios for these insurers declined from 228.7 percent in 2008 to 4.9 percent in 2018. 
  • Industry wide in 2008, contingency reserves were reduced for the first time since 1988.  Such reserves declined again in 2009 - 2012, but have increased since.  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 ($54.6 million).  In 2011, contingency reserves increased by almost 3 million and continued to increase through 2016.  For 2017, contingency reserve decreased to 23 million, increased to 27 million in 2018. 
  • 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 $89.5 million in 2018.

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.