Canada’s Private Mortgage Insurers Re-Emerge

Canadian-Mortgage-Default-Insurers Just over a year ago, Canada was caught up in a global credit panic. The perceived riskiness of private mortgage default insurers caused their combined market share to plunge an estimated 50% from the summer of 2007 to mid-2009.

Some in the media were going as far as calling private insurers “unsustainable.”

That sort of short-sightedness has since blown over.

Canada’s two private insurers, Genworth Canada and Canada Guaranty, are doing quite well by most accounts. Genworth just reported $85 million in profit and a 71% increase (year-to-date) in new insurance written.

Of the two privates, however, Canada Guaranty (formerly AIG United Guaranty), has had to make the biggest relative comeback. That’s thanks to the colossal liquidity crisis at its old U.S. parent, AIG.

Canada Guaranty has since been acquired by the Ontario Teachers’ Pension Plan (OTPP). That’s helped it make steady progress in adding new lender partners and re-asserting itself as Canada’s #3 insurer. The OTPP acquisition was brilliant in that it added considerable counter-party strength as well as Canadian ownership, both of which lenders find appealing.

As of today, Canada Guaranty’s approved lenders include Street Capital (just added this past Tuesday), First National (the biggest non-bank lender), Home Trust, AGF, and Bridgewater Bank. We also hear whisperings that some major banks will be on board in the not-too-distant future.

From a lender’s standpoint, there’s an incentive to allocate a portion of their insurance business to private insurers. For one, it keeps CMHC further from monopoly status. In addition, having multiple insurers gives lenders options when a file doesn’t meet one insurer’s guidelines.

Canada Guaranty is not an mortal threat to CMHC at the moment. As time progresses, however, it should certainly acquire a fatter slice of the market.

  1. CG’s Rental Advantage program will mean more choice for rental investors, regardless of the number of owned properties.
    Now, if we could just get Genworth back in the rental market….

  2. Marc:
    How is this good for investors? CMHC has the exact same program and more lenders use CMHC. I’ve taken a look at the CG Rental program and it looks exactly the same as the CMHC program – most importantly, reguires 20% down and implements a 50% rental addback vs. the old 80% offset.
    This will make it virtually impossible to get past 3 or 4 properties as noted by Don Campbell and on this site in the best.
    On another note, does anybody know if CG HAS to follow those new April 19th rules? My understanding was they only applied to CMHC, which means CG could pick up some serious market share if they become a little looser.

  3. CG often considers deals that CMHC declines because of stupid little technicalities. That is the benefit.
    It is easy to acquire more than 3-4 rental mortgages as long as you take them to the right lenders in the right order and don’t insure them all. I’m not sure what Don Campbell is talking about.

  4. Hi Sudip,
    The insurers don’t put out market share numbers so analysts have to deduce the numbers. I haven’t see any figures lately but my best pure guess (and I stress the word “guess”) would be:
    CMHC: 65-70%
    Genworth: 25-30%
    Canada Guarantee: 1-4%

  5. Hi Marc:
    Thanks for the reply! Are you a broker or can you recommend the broker that told you all this info?
    My broker doesn’t seem to know this information. Thanks!

  6. @David: If your intention is to build an income property portfolio then you need a broker who specializes in rental mortgages. The rule changes in April require that investors spend much more time on long-term planning. Marc’s advice about choosing lenders in a specific order could not be more true IMO.

  7. Hi Marc,
    Yes, in general CG must follow similar guidelines to CMHC on its rental program. This is necessary to keep its government guarantee. However, CG (like Genworth) is able to make small modifications and exceptions to certain guidelines.

  8. I am curious to learn more about this. Why would you choose lenders in a specific order. Would you just not disclose other properties you may have?

  9. Any recommendations for these specialized brokers? I’m in SW ontario, but have worked with brokers mainly in Toronto. I’ve also searched online and everybody seems the same… i.e. push home buyers in general with only a small blurb or word on investment financing.

  10. Hi Rob,
    So CG (and Genworth for that matter) do have to follow the government guidelines? I could be mistaken but I thought they were private companies which guarantee their loans through private money (not taxpayers money). Plus, I didn’t think those April 19th rules were written into legislation which would be the only way to regulate a private company.
    Just to clarify: Is CG and Genworth bound to follow DOF guidelines or do they do so just to appease the government (and CMHC).
    If they have to follow these rules, doesn’t that essentially go against the principle of free enterprise and competition which result in no cheaper alternatives to the consumer?

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