A rating agency is applying tougher standards to mortgage insurance companies.

The New York office of Fitch Ratings, New York, says the firm will increase default probability assumptions in its mortgage insurance assessment system by 20%.

Fitch also will be applying a 100% capital charge to illiquid equity investments held within the investment portfolios of mortgage insurance companies, on the assumption that the investments will be hard to sell when times are bad, the firm says.

The changes in the model could cause ratings of some U.S. mortgage insurers to drop by 1 notch, but most mortgage insurers have far more capital than they need to maintain their current ratings, Fitch says.