Private-sector mortgage insurers say they're gaining market share in wake of CMHC tightening rules

Private-sector mortgage insurers say they're gaining market share in wake of CMHC tightening rules

Financial Post

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Another Canada Mortgage and Housing Corp. competitor in the loan-default insurance industry says it gained market share following changes the Crown agency made last summer, a trend the government-owned company has warned could weaken its ability to respond to a crisis.

Regulatory data for Canada Guaranty Mortgage Insurance Co., which is owned by Ontario Teachers’ Pension Plan and Canadian financier Stephen Smith, showed business was booming as of the end of the third quarter.

Canada Guaranty’s year-to-date premiums written — a source of revenue — stood at $454.4 million as of Sept. 30, according to data from the Office of the Superintendent of Financial Institutions. The premiums written were an increase of more than 96 per cent from the end of the second quarter, and were up by 37 per cent compared to the third quarter of 2019.

The rise came during a record year for Canada’s housing market, even with a global pandemic raging. However, it was also in the third quarter of 2020 that CMHC changed its underwriting policies for insured mortgages, tightening up new-application criteria around credit scores, the amount of income being spent on housing costs and “non-traditional” down payments.

CMHC said its changes were intended to protect homebuyers, reduce government and taxpayer risk and to help keep housing markets stable. It also gave a lift to CMHC’s publicly-traded competitor, Genworth MI Canada Inc. (now operating as Sagen MI Canada), as the company indicated in early November that CMHC’s changes had helped boost its share of the mortgage-default insurance market to somewhere in the high 30-per-cent range.

Canada Guaranty says its market share, like that of Sagen, is rising. However, the company says that was also the case before CMHC started fiddling with its underwriting criteria.

“Over the last several years Canada Guaranty has been steadily growing market share with the addition of new lenders and allocation increases over time with existing partners,” said Mary Putnam, vice president, sales and marketing, at Canada Guaranty, in an email. “Canada Guaranty’s market share was on the rise before CMHC’s changes and continued post CMHC restrictions. Canada Guaranty anticipates measured growth in 2021 and remains comfortable with its industry leading risk management.”

Mortgage-default insurance is crucial to the housing market. Banks must buy the insurance, which protects them in the event borrowers stop repaying their loans, when the amount of a mortgage is worth more than 80 per cent of a home’s value. The cost of premiums is typically passed on to the borrower, who is then able to get a loan without having to make a down payment of more than 20 per cent.

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The mortgage-default insurance market in Canada also has only three players: CMHC, Canada Guaranty and Sagen. A June 2020 report from National Bank Financial estimated Sagen’s market share at around 33 per cent of premiums written in 2019, while CMHC accounted for approximately 46 per cent and Canada Guaranty about 21 per cent.

CMHC says it does not publicly report its market share. It does, however, have a target range, which is around 40 to 50 per cent of homeowners.

“Since the start of the COVID-19 pandemic CMHC has taken on an important role in helping to ensure that Canadians have a safe place to call home, to mitigate the impact on our economy, and to preserving a healthy mortgage sector in Canada,” a spokesperson for the agency said in an email. “We will continue to monitor the environment to ensure that we remain in a position to maintain our financial stability mandate.”

CMHC’s changes to underwriting criteria that came into force in July caused a slight decrease in its transactional homeowner insurance unit volumes, the Crown corporation reported in its third-quarter financial report.

However, the company’s president and CEO Evan Siddall also wrote a letter to lenders in August warning that “our ability to respond effectively in a crisis will be weakened if our market share deteriorates significantly further.”

Siddall asked those lenders to reconsider highly leveraged household lending and to avoid “unnecessarily” undermining CMHC’s standing in the market.

“Our financial stability mandate is an important focus of the Corporation,” the spokesperson for the Crown corporation said in an email. “To be able to act upon our financial stability mandate, CMHC aims to maintain enough presence to be able to: a) step in to enable financial stability and b) absorb market share if private insurers exit market.”

Sagen, meanwhile, is set to be taken private by its majority shareholder, Brookfield Business Partners LP, which wants to buy the remaining 43 per cent or so of the insurer that it doesn’t already own. The approximately $1.6-billion transaction recently received court approval and, pending a sign-off from the federal government and other conditions, is expected to close in the first half of this year.

Financial Post

• Email: gzochodne@postmedia.com | Twitter: GeoffZochodne

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