"The firm's projections for incurred losses in the fourth quarter of 2007 and paid losses in 2008 were significantly above our expectations," S&P said in a statement.
MGIC issued the warning after the market closed on Tuesday, saying the performance of the mortgages it insures is deteriorating.
The company had $211.7 billion of insurance in force at the end of 2007. At the end of the fourth quarter, 107,120 loans were delinquent, up 16,000 from the end of the third quarter.
"The unfavorable variance reflects management's use of more conservative assumptions regarding the portion of defaults that will become claims for mortgage insurance as well as the severity of individual claims," S&P added.
"These pessimistic assumptions coupled with greater concerns about the health of the U.S. economy suggest there is greater uncertainty about when MGIC will return to profitability," S&P said.
MGIC currently has a counterparty credit rating of "A-minus," the seventh-highest investment grade and its insurance arm Mortgage Guaranty Insurance Corp has a rating of "AA-minus," the fourth-highest investment grade.
S&P also said that the likelihood of a downgrade based on the review is less likely than typical, making an affirmation of the rating a strong possibility.