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AIG United Guaranty – Update

AIG-United-Guaranty-Canada With all the AIG news lately, many in our industry have wondered about the effects on AIG United Guaranty Canada, Canada’s #3 mortgage default insurer.

To that end, we have just received more information from the company and would like to pass it along.

First off, AIG United Guaranty Mortgage Insurance Company Canada (“AIG Mortgage Insurance”) is owned by the Commercial Insurance Group of companies (CIG), an AIG subsidiary.  According to the company, CIG is highly profitable ($1 billion Q2 operating income), its capital is protected by regulators, and its capital position has not diminished as a result of AIG Inc.’s financial challenges.

AIG Mortgage Insurance further ensured in a statement today that:

  • It is is backstopped by a Government of Canada 90% guarantee consistent with all private mortgage insurers (i.e.  similar to Genworth Financial).  The government guarantee provides additional protection to its lending partners in the unlikely event of insolvency.
  • The Office of the Superintendent of Financial Institutions for Canada (“OSFI”) regulates Canadian insurance companies for regulatory compliance and financial solvency. AIG Mortgage Insurance is subject to minimum capital adequacy requirements and as at June 30, 2008, was in a surplus capital position.
  • AIG Mortgage Insurance maintains assets and capital which meet all OSFI requirements. These assets are located in Canada and are dedicated to supporting the Canadian mortgage insurance business. As at June 30, 2008, AIG Mortgage Insurance has more than CDN $176 million in bonds rated AA or better.
  • It has more than CDN $110 million of unearned premiums as of August 31, 2008 which represents a future earnings stream for the company.
  • It has not made any investments in U.S. sub-prime mortgage assets which have contributed to the credit crisis, nor any investments in Canadian Commercial Asset Backed Paper.

In sum, Andrew Charles, AIG Mortgage Insurance CEO, says the company has “the capital, resources and commitment to operate effectively in the Canadian market.”  As always, we’ll report back with any updates.