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 from roughly 40% in the summer of 2007 to an estimated 20% in 2009.
Some in the media were going as far as calling private insurers “unsustainable.”
That type of short-sightedness has since blown over.
Canada’s two private insurers (Genworth Canada and Canada Guaranty) are doing quite well by most accounts. Of the two, Canada Guaranty (formerly AIG United Guaranty) has had to make the biggest relative comeback.
Since Canada Guaranty was acquired by the Ontario Teachers’ Pension Plan (OTPP), it’s made steady progress in adding new lenders and re-asserting itself as Canada’s #3 insurer. OTPP has 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 rumours that other major banks will be on board in the not-too-distant future.
Lenders have an incentive to allocate some 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.
While Canada Guaranty isn’t an mortal threat to CMHC, as time goes on Canada Guarantee will undoubtedly (in our view) acquire a bigger share of the market.
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