Freddie Mac 2015 Annual Report Download - page 134

Management's Discussion and Analysis Risk Management | Institutional Credit Risk
Freddie Mac 2015 Form 10-K 132
December 31, 2015
UPB Coverage
(in millions) Credit Rating(1)
Credit
Rating
Outlook(1) Primary MI Pool Insurance Primary MI Pool Insurance
United Guaranty Residential Insurance
Company (United Guaranty) BBB+ Watch Negative $56,931 $ 19 $ 14,675 $ 12
Radian Guaranty Inc. (Radian) BB+ Stable 55,170 1,905 14,125 623
Mortgage Guaranty Insurance
Corporation (MGIC) BB+ Stable 54,505 148 14,034 2
Genworth Mortgage Insurance
Corporation BB+ Stable 36,589 24 9,387 23
Essent Guaranty, Inc. BBB Stable 22,696 —5,824 —
PMI Mortgage Insurance Co. (PMI) Not Rated N/A 9,489 91 2,360 62
Republic Mortgage Insurance Company
(RMIC) Not Rated N/A 7,335 55 1,831 26
Arch Mortgage Insurance Company BBB+ Stable 5,301 —1,308 —
Triad Guaranty Insurance Corporation
(Triad) Not Rated N/A 3,564 20 896 5
Others N/A N/A 5,483 —1,320 —
Total $ 257,063 $ 2,262 $65,760 $753
(1) Ratings and outlooks are for the corporate entity to which we have the greatest exposure. Coverage amounts may include
coverage provided by consolidated affiliates and subsidiaries of the counterparty. Latest rating available as of February 4,
2016. Represents the lower of S&P and Moody’s credit ratings and outlooks stated in terms of the S&P equivalent.
The majority of our mortgage insurance exposure is concentrated with four mortgage insurers, certain of
which have been under financial stress during the last several years. Although the financial condition of
our mortgage insurers has improved in recent years, there is still a risk that some of these counterparties
may fail to fully meet their obligations under a stress economic scenario since they are monoline entities
primarily exposed to mortgage credit risk.
On January 26, 2016, as part of its strategic plan update, American International Group, Inc., announced
the planned initial public offering of up to a 19.9% stake in its mortgage insurance subsidiary, United
Guaranty. Because United Guaranty is an approved mortgage insurer, we will evaluate the impact to
United Guaranty's financial strength as part of approving the planned offering.
PMI and Triad are both in rehabilitation and no longer issue new insurance. Both of these insurers pay a
substantial portion of their claims as deferred payment obligations. RMIC is under regulatory supervision
and is no longer issuing new insurance; however, it continues to pay its claims in cash.
If, as we currently expect, PMI and Triad do not pay the full amount of their deferred payment obligations
in cash, we would lose a portion of the coverage from these insurers shown in the table above. As of
December 31, 2015, we had cumulative unpaid deferred payment obligations of $0.5 billion from these
insurers, although we are fully reserved for all of these unpaid amounts as collectability is uncertain.
Except for those insurers in rehabilitation or under regulatory supervision, which no longer issue new
coverage, we continue to acquire new loans with mortgage insurance from the mortgage insurers shown
in the table above, many of which have credit ratings below investment grade.
The table below summarizes our exposure to bond insurers as of December 31, 2015. In the event a
bond insurer fails to perform, the coverage outstanding represents our maximum principal exposure to
credit losses related to such a failure.