Private Mortgage Insurance

MORTGAGE GUARANTY INSURANCE

Private mortgage insurance (PMI), also known as mortgage guaranty insurance, guarantees that, in the event of a default, the insurer will pay the mortgage lender for any loss resulting from a property foreclosure, up to a specific amount. PMI, which is purchased by the borrower but protects the lender, is sometimes confused with mortgage life insurance, a life insurance product that pays off the mortgage if the borrower dies before the loan is repaid. Banks generally require PMI for all borrowers with down payments of less than 20 percent. The industry’s combined ratio, a measure of profitability, deteriorated (i.e., rose) significantly in 2007 and 2008, reflecting the economic downturn and the subsequent rise in mortgage defaults. The combined ratio improved in 2009 and 2010 as conditions began to ease, but remains at high levels.

MORTGAGE GUARANTY INSURANCE, 2003-2012

($000)

Year Net premiums written (1) Annual percent change Combined ratio (2) Annual point change (3)
2003 $4,285,447 7.5% 67.6 9.3 pts.
2004 4,323,071 0.9 75.6 8.0
2005 4,454,711 3.0 75.2 -0.4
2006 4,565,899 2.5 71.0 -4.2
2007 5,192,104 13.7 129.0 58.1
2008 5,371,878 3.5 219.8 90.8
2009 4,564,406 -15.0 201.9 -17.9
2010 4,248,798 -6.9 198.4 -3.6
2011 4,242,340 -0.2 219.0 20.7
2012 3,965,896 -6.5 189.7 -29.4

(1) After reinsurance transactions, excludes state funds.
(2) After dividends to policyholders. A drop in the combined ratio represents an improvement; an increase represents a deterioration.
(3) Calculated from unrounded data.

Source: SNL Financial LC.

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