Sagen MI Canada Inc.

Nonetheless, Sagen's prudent underwriting standards along with significant accumulation of home equity built into its portfolio (because of house price appreciation) over the past two years could help limit losses within its earnings. We expect the combined ratio to be around 17%-22% in 2022, and then elevate to 35%-40% in 2023, and gradually improve thereafter. 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 home price valuations that resulted in a largely unaffordable housing market and continued high Canadian household consumer debt leverage. We could lower our ratings in the next two years

...Uncertainties in macro-economy could elevate near-term losses, though expected to remain within Sagen's earnings. Bank of Canada has raised its policy rates by 300 basis points (bps) since March 2022, to 3.25% to combat inflation. According to S&P Global economist, we expect the policy rates to increase further to 3.75% by year-end 2022, and the unemployment rate to increase in 2023-2024. The significant jump in mortgage rates in 2022 has contracted housing activity as borrowers find homebuying unaffordable. Home sales are down for six consecutive months, newly listed homes also fell materially in August and July, and home price appreciation has moderated considerably for the last five months. In addition, in the last two years, the vast majority of homebuyers have shifted to variable rate mortgages owing to widened spread between variable and fixed rate mortgages. Rising mortgage rates along with an increase in the unemployment rate could stress borrowers, and result in higher delinquencies,...

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