June 1 (Bloomberg) -- American International Group Inc., the insurer bailed out by the U.S., replaced the head of its mortgage insurance unit as the company weighs whether to shut the money-losing business.
Eric Martinez has been named to replace William Nutt as chief executive officer of United Guaranty Corp., said David Monfried, a spokesman for New York-based AIG. Martinez previously worked for AIG restructuring chief Paula Reynolds at Safeco Corp. as executive vice president for claims.
“Paula has a lot of confidence in his leadership capabilities,” Monfried said of Martinez in an interview today. The unit is based in Greensboro, North Carolina and employs about 950 employees worldwide.
United Guaranty turned unprofitable amid the worst U.S. housing slump since the Great Depression, posting more than $3 billion in operating losses in the past eighth quarters. AIG said in October that it may be difficult to find a buyer for the unit, which reimburses mortgage lenders when borrowers don’t meet their obligations and foreclosure fails to cover costs.
AIG is weighing whether to shut the business, two people familiar with the matter said in April. AIG may wind down any parts of the mortgage insurer that can’t be sold, said one of the people, who asked not to be identified because the plans are confidential.
AIG is “considering all options on United Guaranty,” Monfried said today.
AIG’s other ties to the housing market include a unit that originated mortgages and another that invested in securities backed by home loans. Those bets helped force AIG to seek a government rescue, and the insurer has since promised to sell businesses to repay a loan included in a government bailout package valued at $182.5 billion.
The insurer has announced about $5.6 billion of asset sales since the September bailout. The company has disclosed plans to place its two biggest non-U.S. life insurers into trusts for eventual initial public offerings or sales as the credit crisis hobbles potential buyers’ ability to make bids.
United Guaranty was ranked the fifth-largest U.S. mortgage insurer by 2008 sales, behind No. 1 ranked MGIC Investment Corp., Genworth Financial Inc., Radian Group Inc. and PMI Group Inc., according to Inside Mortgage Finance, a trade journal.
United Guaranty was founded in 1963 and sold to AIG in 1981. The business generated $2.8 billion in operating income and $600 million in dividends for AIG in the eight years prior to the housing slump, the company said.
Until 2007, private mortgage policies had been among the most profitable types of coverage sold by insurers. From 2004 to 2006, members of the Mortgage Insurance Companies of America reported a profit margin of at least 35 cents for every dollar they collected in premiums. Auto insurers made less than 5 cents on every dollar in 2006, according to A.M. Best Co.
Last year, United Guaranty spent $3.57 on claims and expenses for every dollar it earned in premiums.