And so it begins: Triad Guaranty Insurance (TGIC), one of the smaller private mortgage insurance providers in the US, is going into run-off mode.
Triad’s parent company had been in negotiations with a private equity group – Lightyear Capital – as part of an attempt to raise up to $400m to form a new, better capitalised mortgage insurer. Those talks broke down, Triad said in a statement released today, as did an appeal to Freddie Mac to lift its ban on Triad-insured mortgages.
Freddie, which had suspended Triad from its approved mortgage insurer list in May, will only buy mortgages with Triad insurance until July 15.
As result,
Triad Guaranty Insurance Corporation, will cease issuing commitments for mortgage insurance effective July 15, 2008 and will work with its customers, the Illinois Division of Insurance and each of the GSEs to assure an orderly transition of its business to run-off
Triad said while it would continue to work with its financial adviser, Goldman Sachs to explore whether other strategic alternatives are available, it was “not optimistic that any opportunities will surface.”
The insurer expects to be able to meet “all legitimate policyholder claims”, while management will dedicate themselves to the success of the run-off plan as their “number one objective.”
But Fitch, which downgraded the insurer back in May, is not entirely convinced that Triad will be able to retain the necessary operating staff to manage the runoff, or to meet its claims:
Fitch believes that Triad’s margin of safety to meet policyholder obligations could become pressured if delinquency and loss development continue at a sustained pace. Additionally, Fitch notes that the 2007 vintage, a significant portion of which was made up of loans with loan-to-value ratios (LTVs) of 95 per cent or greater, is currently exhibiting delinquency trends that are materially higher than the troubled 2006 vintage for Triad and the rest of the U.S. mortgage insurers.
Fitch believes higher claim rates will possibly be offset by the probability that many potential claims on mortgage insurance policies may be determined to be ineligible for coverage, leading to high rescission and claim denial activity, especially within the 2007 vintage and to a lesser degree, the 2006 vintage.
Fitch expects that the levels of rescissions related to these vintages will be significantly higher than historical experience for the mortgage insurance industry in general, particularly within the Alt-A sector, thus reducing the amount of losses that will be incurred by Triad and the mortgage insurance industry.
Moreover, Fitch believes that Triad may have greater willingness to rescind claims given its future runoff status. Triad is also expected to receive material capital benefit from lender captive mortgage reinsurance company arrangements.
Fitch will continue to monitor Triad’s ability to execute an orderly runoff as well as loss developments within the insured portfolio and the extent to which captive reinsurance and rescission activity offset these losses.
With less than 30 minutes to go before the closing bell in New York, Triad’s shares were off about 55 per cent at $0.92.
This entry was posted by Stacy-Marie Ishmael on Thursday, June 19th, 2008 at 20:38 and is filed under Capital markets. Tagged with triad guaranty.
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