The structure of the mortgage insurance market would be improved if there was greater alignment between the interests of lenders and insurers, and also between lenders and borrowers. These recommendations were among suggestions made in a study of the mortgage insurance market released this week.The study is the work of a joint forum that includes the Basel Committee on Banking Supervision, the International Organisation of Securities Commissions and the International Association of Insurance Supervisors.The report says policymakers should consider requiring that mortgage originators and mortgage insurers align their interests so that they share the financial consequences of a transaction. One way of doing this would be through partial risk retention. The interests of the lender and borrower could be aligned by requiring that premium payments are drawn from the borrower's own resources.Among its other recommendations, the paper calls on regulators to maintain underwriting standards and recommends that they require mortgage insurers to build long-term capital buffers and reserves during the good times.The report said: "Mortgage insurance tends to have a relatively consistent level of risk for many years and then is subject to extreme tail events creating much worse loss experience."The events of the past few years indicate that mortgage insurance is subject to significant stress in the worst tail events. Failure of a mortgage insurer would result in some of the worst tail risk reverting to the lender at the very time the insurance would be most needed."The report noted that, at June 30, 2012, Australia's six mortgage insurers had total assets of A$7.5 billion and total liabilities of $3.3 billion. The majority of the liabilities were insurance liabilities, which were worth $1.7 billion.The Australian Prudential Regulation Authority's capital base for lenders' mortgage insurance is $4.8 billion, compared with a minimum capital requirement of $3.2 billion, resulting in a solvency coverage ratio of 149 per cent.LMI gross earned premium reported for the 12 months to June 30 was $851 million, and gross claims expenses were $400 million for the same period.