A Firm Foundation: How Insurance Supports the Economy

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 of the home price. Reflecting the economic downturn and the subsequent rise in mortgage defaults, the industry’s combined ratio (a measure of profitability) for mortgage guaranty insurance deteriorated (i.e., rose) significantly in 2007 and 2008, and remained at high levels through 2012. The combined ratio began falling in 2012 and by 2018 had fallen to 29.2, the lowest since S&P Global Market Intelligence began collecting data on mortgage guaranty insurance in 1996.

Mortgage Guaranty Insurance, 2011-2020

($000)

Year Net premiums
written (1)
Annual percent
change
Combined
ratio (2)
Annual point
change (3)
2011 $4,242,340 -0.2% 219.0 20.7 pts.
2012 3,965,896 -6.5 189.7 -29.4
2013 4,329,947 9.2 98.0 -91.7
2014 4,180,006 -3.5 70.2 -27.7
2015 4,681,917 12.0 58.1 -12.1
2016 4,410,832 -5.8 49.9 -8.1
2017 4,376,797 -0.8 40.4 -9.5
2018 4,693,844 7.2 29.2 -11.2
2019 4,862,954 3.6 32.8 3.6
2020 4,765,345 -2.0 62.8 30.0

(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 numbers.

Source: NAIC data, sourced from S&P Global Market Intelligence, Insurance Information Institute.

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