AIG May Wind Down Mortgage Insurance Unit

May 1, 2009 No Comments »

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Troubled insurance giant AIG may wind down its mortgage insurance unit United Guaranty after failing to turn the company around, according to a Bloomberg report.

The company, which was the fifth largest private mortgage insurer based on 2008 sales, has posted more than $2.8 billion in operating losses since 2007, struggling like most others in the sector.

United Guaranty has been unprofitable for seven straight quarters and warned in October that it would be difficult to find a buyer for the ailing unit given the circumstances.

If the business is winded down, it would likely enter “runoff,” a situation where the company continues to pay claims and manage existing policies, but ceases offering new coverage.

Greensboro, North Carolina-based United Guaranty currently employs about 950 employees worldwide and had generated $2.8 billion in operating income and $600 million in dividends for parent AIG in the eight years preceding the mortgage crisis.

Last summer, Triad Guaranty went into runoff after negotiations with private equity firm Lightyear fell through; the company planned to start a new private mortgage insurance unit after the previous business crumbled amid record delinquencies.

Earlier this week, leading mortgage insurer MGIC said it may need additional capital to continue writing new mortgage insurance policies after reporting a first quarter net loss of $184.6 million.

Private mortgage insurance companies have been scaling back their offerings for some time now, lowering loan-to-value ratios, upping documentation and credit score requirements, and eliminating riskier mortgage brokeroriginated loans.

(photo: notacrime)

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