Benmosche Says AIG Unit Thrives on Red-State Culture
American International Group Inc.’s mortgage insurer does more business in Republican-leaning states as it signs up more reliable customers than those in “more liberal” areas, Chief Executive Officer Robert Benmosche said.
“All of the states where we’re a leader, where we’re the No. 1 insurer, are red states, all of the states where we’re at the bottom are blue states,” Benmosche, 66, said yesterday at a conference in Washington. “Part of what we found out is that our model is about culture and it’s about the attitude in the public. And what we find is where there’s more of a tendency for people to be more liberal, more that the government is responsible for what happens to me.”
Benmosche oversees an insurer propped up by more than $40 billion in government capital while competing mortgage guarantors operate without U.S. Treasury Department assistance. The housing crisis prompted rival MGIC Investment Corp. to scale back in 2008 in Arizona, a so-called red, or Republican-leaning state, and in California, known as a blue state for favoring Democrats.
“We think we’re getting at the essence of the ability of someone to repay their mortgage,” said Benmosche, who joined New York-based AIG in 2009. “We’ve plotted it on a map.”
AIG’s mortgage insurer, United Guaranty, weighs data including borrowers’ credit scores, the property’s value and the number of wage earners in a household, Benmosche said. The company’s model doesn’t take party affiliation into account, said Mark Herr, a spokesman for AIG.
“If you want to talk about Red and Blue states, the leader of the Red states, George W. Bush, had to come to the rescue and bail AIG out,” Frank said.
Homeowner defaults pushed U.S. mortgage insurers into losses in 2007 as property prices plummeted and foreclosure sales failed to recoup money owed to banks. AIG’s United Guaranty business had more than $4 billion in losses in the three years ended Dec. 31, 2009.
United Guaranty posted a pretax loss of $124 million in the third quarter of 2010, compared with a loss of $461 million a year earlier. The business is heading in the “right direction,” United Guaranty said in June, citing its new pricing model and market trends.
Genworth Financial Inc., which was ineligible for Treasury assistance after the 2009 rejection of its application to become a savings and loan holding company, posted a fourth-quarter loss today on results at its mortgage insurer. AIG hasn’t yet announced fourth-quarter results.
MGIC, which focuses on backing home loans, posted a fourth- quarter loss of $186.7 million on Jan. 19 and said it can’t predict when it will post an annual profit.
MGIC retreated in some of the worst property markets in 2008, including California, Florida, Arizona and Nevada. Genworth said in late 2007 it was limiting some Florida sales. Triad Guaranty Inc., a Winston-Salem, North Carolina-based mortgage insurer, stopped selling new policies.
“We have a whole new model, the only one like it,” Benmosche said at the conference, which was sponsored by Insured Retirement Institute.
Research shows that the key variables in mortgage defaults are homeowners’ equity in the property and ability to pay, said Sam Khater, chief economist for CoreLogic Inc., a research company based in Santa Ana, California.
The states with the highest foreclosure rates last year were Nevada, Arizona, Florida and California, according to RealtyTrac Inc., an Irvine, California-based real-estate data service. Florida and Nevada each have one Democrat in the U.S. Senate and one Republican. Arizona has two Republicans, and California has two Democrats.
“In each of those states you have a very large decline” in housing prices, Khater said. “And economic distress.”
AIG is seeking to profit from the U.S. housing market after failed bets on subprime mortgages under Benmosche’s predecessors forced the company to take the government rescue in 2008. Benmosche has identified United Guaranty as one of the four main businesses that AIG will keep as he sells operating units and reshapes what was once the world’s largest insurer.
AIG is appealing to private investors to replace government capital that accounts for 92 percent of the company’s stock. The firm, which has sold assets including non-U.S. life insurance units and a consumer lender to help repay a bailout that swelled to $182.3 billion, plans to maintain a plane-leasing subsidiary, the Chartis property-casualty insurer and the SunAmerica Financial Group life business, Benmosche has said.
“If AIG, whose reckless behavior resulted in a $182 billion taxpayer bailout, prefers to do business in Republican states, then the next time they go bankrupt, I hope they don’t ask taxpayers in Vermont and other Democratic-leaning states for another bailout,” Senator Bernard Sanders, a Vermont independent, said today.
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