Wide Bay Australia is to wind down its captive mortgage insurance business and source all its insurance from external providers. The Bundaberg-based building society disclosed the plan in an investor presentation lodged with the ASX yesterday.Formed more than 10 years ago, Mortgage Risk Management earned more than $2 million in net profit in four out of the past five years, or roughly one tenth of Wide Bay's total profit.Underwriting profits, however, were much lower. MRM earned $679,000 in underwriting profits in the year to June 2011, APRA data shows. (Mortgage Risk Management and Wide Bay do not report in any detail on the affairs of the insurance company.)For many years Wide Bay reinsured the risks for its captive insurance arm with US insurance group Radian Guaranty. However, Radian has wound down its international operations in the wake of the GFC and because of losses on unrelated credit insurance activities in Australia. Genworth Australia and QBE Lenders Mortgage Insurance (the two dominant providers in the market) took over as reinsurers three years ago.A restructure of Radian's business led to a loss of $2.4 million in business from MRM in 2009, while the insurer also adopted more conservative investment policies.In an investor presentation, Wide Bay said that a shift in APRA's capital rules (including Basel III) as well as the low credit rating of the insurer (BBB from Standard & Poor's, the same as for Wide Bay itself) had led to the decision to shift its approach to mortgage insurance.With no captive insurer in place Wide Bay will follow market practice and dispense with mortgage insurance over loans with loan-to-valuation ratios of less than 80 per cent.Wide Bay will, like all other lenders that require mortgage insurance, source cover from Genworth and QBE LMI.The net assets of Mortgage Risk Management were $20.5 million at June 2011, on Australian Prudential Regulation Authority data. As the risks in MRM run off (over around 10 years) Wide Bay will be able to recognise this capital in measures of its core capital ratio.