United Guaranty Insights
United Guaranty Transaction Opens Capital Markets for MI Industry
By Chip Compton, Executive Vice President and Chief Financial Officer
United Guaranty Corporation
Posted on August 25, 2015
Recently, United Guaranty diversified its capital sources through a transaction with Bellemeade Re that provided United Guaranty with $298.9 million indemnity reinsurance for a portfolio of mortgage insurance (MI) policies issued from 2009 through the first quarter of 2013. It's the first transaction of its kind in the MI industry in nearly a decade—and it will actually make our industry financially stronger by bringing the attention of the capital markets to it.
Over several years, our parent company, AIG, has used the insurance-linked securities (ILS) market to successfully transfer more than $3 billion of risk to the capital markets from its property portfolio, but this recent announcement expands AIG's use of ILS to mortgage insurance.
It's an important transaction for United Guaranty because it provides insights in how seasoned investors value our company's risk. The feedback we've received from investors thus far is that they paid a lot of attention to the things that set United Guaranty's risk apart from other mortgage insurers, including:
- Risk scoring and risk-based pricing: Our process weighs numerous predictive variables to give lenders pricing that matches each individual loan's risk profile. Investors told us this risk-scoring and risk-based model provides a far clearer risk picture than the MI industry's standard approach of using rate cards. With rate cards, all loans and borrowers are grouped into wide categories with little consideration of unique loan risks or the borrower's financial data.
- Full-file underwriting: We lead the industry in the number and percentage of loans lenders submit for full-file underwriting. Investors told us there's value in having the certainty of knowing our underwriters rigorously examine every full-file submission to make the best risk decision on each one.
What's also clear to investors is that the unique approach United Guaranty takes with risk-based pricing and our emphasis on full-file underwriting has won the confidence of mortgage lenders. United Guaranty has been the number one mortgage insurer in terms of New Insurance Written (NIW) for four consecutive years (2011–2014), and we're setting company records in the current year.
As the industry leader, it's important that United Guaranty leverage its advanced financial capabilities and strength to move the entire industry forward. The recent bond issuewas an important milestone for the MI industry, and it will be interesting to see how investors view other mortgage insurers who may follow the new route United Guaranty has opened.
Chip Compton oversees the Accounting, Financial Planning and Analysis, and Treasury groups at United Guaranty. He is responsible for the corporation's financial reporting and performance, capital management, and rating agency relationships. Compton joined the company in 2011, bringing to the company strong leadership experience in both finance and insurance. He was most recently Executive Vice President and Chief Financial Officer of HSBC Insurance where he was responsible for financial leadership of the company's North American insurance operations. At HSBC, he helped align the North American insurance business with the company's global retail banking and wealth models. Prior to joining HSBC, Chip was partner at Adanac II LP. Before that, Chip was with Associates First Capital Corp for 11 years, leaving as Executive Vice President for International Insurance Operations. Chip began his career at Ernst & Young, after earning his bachelor's degree from the University of North Texas. He is also a certified public accountant.
© United Guaranty Corporation 2015. All rights reserved. United Guaranty is a marketing term for United Guaranty Residential Insurance Company and United Guaranty Mortgage Indemnity Company and is a registered mark. Coverage is available through admitted company only.