Mortgage insurers face worse-than-expected H2-S&P

NEW YORK, May 27 (Reuters) - U.S. mortgage insurers remain on track for a difficult second half with operating results across the sector likely to be a lot weaker than expected, Standard & Poor's said on Wednesday.

The agency downgraded the sector in April, cutting some companies' ratings by several notches, citing an expected spike in the jobless rate and rise in delinquent loans.

With delinquencies running at a higher-than-expected rate, "we now expect companies' operating results through 2011 to be significantly weaker than we previously expected," credit analyst James Brender said in a note.

The majority of U.S. mortgage insurers are expected to post losses in the near term, which will hurt their capitalization and competitive positions, he said.

"Meanwhile, mortgage insurers' claims-paying ability, as measured by statutory capital plus loss reserves, falls far short of our base estimate of future net paid losses," said Brender.

The longer-term outlook is more promising, however. While smaller companies may find it harder to write new business, reinsurance and rescissions -- the unwinding of contracts -- may offset the impact of the weak economy.

Uncertainty about the ultimate claim rates for loans insured in the period from 2005 to 2008 may allow mortgage insurers to post stronger-than-expected operating results in 2011, said the analyst.

Among the insurers to be downgraded in April are United Guaranty Residential Insurance, Radian Guaranty RDN.N, PMI Mortgage Insurance Co PMI.N, Genworth Mortgage Insurance Corp GNW.N, Republic Mortgage Insurance Co and Mortgage Guaranty Insurance Corp. (Reporting by Ciara Linnane, Editing by Chizu Nomiyama)