Sagen MI Canada Inc.

The stable outlook reflects our view that the company will maintain its strong competitive position with a sizable market share along with excellent capitalization supported by improving earnings. Offsetting these strengths are the significant increase in the home price valuations that has resulted in a largely unaffordable housing market and continued high levels of Canadian household consumer debt leverage. We could lower our ratings in the next two years if: Mortgage delinquencies cause higher-than-anticipated losses, leading to a potential weakening of capitalization; Aggressive financial strategies policies under Brookfield Business Partners' ownership lead to a material change in the company's risk profile; or Financial leverage increases to more than 35% on a sustained basis. We are unlikely to upgrade Sagen in

...We expect Sagen to manage the risk of rising delinquencies within earnings, without weakening its capitalization. We expect mortgage delinquencies to increase in 2021 as the borrower payment deferral period ended, resulting in elevated loss ratios. The fiscal and monetary measures the Canadian government has undertaken, along with its policy framework, have assisted the country's labor market, which, in our view, is on a sturdier recovery path. According to S&P Global Economics, 80% of jobs lost in Canada have been recovered, and we expect the unemployment rate will drop to 7.6% in 2021 and reach its pre-pandemic levels by early 2023. This, in our view, will support the company's performance through 2023. The company's capitalization is excellent, but with its acquisition by Brookfield Business Partners L.P., its appetite for debt and hybrid capital has increased significantly, which has weakened quality of capital. Sagen MI Canada Inc. and its operating subsidiary (collectively, Sagen)...

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