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AIG Gets $65 billion Loan Top-off

The U.S government is raising the loan commitment it offered AIG to $150 billion, from $85 billion.  Not only that, they’re making the new loan terms much less punitive.

Here’s an article that summarizes the new bailout, as well as AIG’s situation at the moment.

AIG-United-Guaranty-CanadaSome are wondering how all of this this affects AIG’s Canadian mortgage default insurance business.  In a nutshell, not much has changed.

Here is what we know:

  • AIG says it has no plans to sell AIG’s foreign general insurance businesses, which includes United Guaranty Canada.
  • AIG United Guaranty Canada”s direct parent, the Commercial Insurance Group of companies (CIG), is very profitable, and very well capitalized.
  • The company has said these recent events have had no impact on AIG’s ability to service customers and pay claims.  “Our insurance companies remain in strong financial condition,” said John Doyle, chief executive
    officer of AIG Commercial Insurance.  He says the financial problems at AIG “were never about the insurance subsidiaries.”
  • AIG says its problems were all about liquidity, or a lack thereof, and these have been addressed by the U.S. government’s loan commitment.
  • AIG United Guaranty Canada maintains separate and independent capital from AIG Inc.
  • Its financial position is closely governed by regulators, including OSFI.

In short, it appears that AIG United Guaranty Canada’s business is fairly sound.  It’s biggest challenge may be similar to the one facing #2 insurer Genworth Financial:  public perception.

Despite having solid Canadian businesses, the market has concerns about each company’s U.S. parent, and the fact that AIG and Genworth mortgages have “only” a 90% government guarantee–whereas CMHC is 100% government backstopped.  Are these concerns rational?  Most likely not, but calling the market irrational can sometimes be risky in its own right.

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Last modified: April 26, 2017

Robert McLister is one of Canada’s best-known mortgage experts. A mortgage columnist for The Globe and Mail, interest rate analyst and editor of MortgageLogic.news, Rob has been covering Canada's mortgage market since 2007.