III - Property/Casualty: Specialty Lines

INSURANCE

MORTGAGE GUARANTY INSURANCE

Private mortgage insurance (PMI), known as mortgage guaranty insurance, guarantees that, in the event of a default, the insurer will pay the mortgage lender for any loss resulting from a property foreclosure up to a specific amount. PMI, which is purchased by the borrower but protects the lender, is sometimes confused with mortgage insurance, a life insurance product that pays off the mortgage if the borrower dies before the loan is repaid. Banks generally require PMI for all borrowers with down payments of less than 20 percent.

MORTGAGE GUARANTY INSURANCE, 2002-2006 (1)

($000)

	2002	2003	2004	2005	2006
Net premiums written	$3,789,257	$3,482,519	$3,411,062	$3,480,174	$3,541,558
Net premiums earned	3,835,948	3,385,414	3,476,019	3,454,232	3,584,255
Losses	831,973	870,861	1,336,605	1,251,554	1,461,243
Expenses	899,493	787,649	820,268	842,483	858,599
Underwriting income	2,104,483	1,375,427	1,319,146	1,360,195	1,264,413
Loss ratio	21.69%	25.72%	38.45%	36.23%	40.77%
Expense ratio	23.74	22.62	24.05	24.21	24.24
Combined ratio	45.43	48.34	62.50	60.44	65.01
(1) As reported by members of the Mortgage Insurance Companies of America, representing seven private mortgage insurance companies in 2002 and six in 2003-2006. Data for 2003-2006 not strictly comparable with 2002 data. Source: Mortgage Insurance Companies of America.

TOP TEN MORTGAGE GUARANTY INSURANCE COMPANIES
BY DIRECT PREMIUMS WRITTEN, 2006 (1)

Rank	Group	Direct premiums written	Market share
1	MGIC Group	$1,354,674,137	25.0%
2	Radian Group	920,422,508	17.0
3	American International Group	877,044,284	16.2
4	PMI Group of Companies	815,230,235	15.1
5	Genworth Financial Group	587,291,160	10.8
6	Old Republic Group	534,922,510	9.9
7	Collateral Mortgage Group	256,704,777	4.7
8	CUNA Mutual Group	67,135,471	1.2
9	Southern Pioneer Property & Casualty Insurance Co.	376,002	(2)
10	Aztec Insurance Company	29,183	(2)
(1) Before reinsurance transactions, excluding state funds. (2) Less than 0.1 percent. Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC. Copyrighted information. No portion of this work may be copied or redistributed without the express written permission of Highline Data, LLC.

TITLE INSURANCE

Title insurance protects the owner of property or the holder of a mortgage against loss in the event of a property ownership dispute.

TITLE INSURANCE, 1997-2006

Year	Net premiums written ($000)	Annual percent change	Year	Net premiums written ($000)	Annual percent change
1997	$5,976,533	NA	2002	$13,008,588	30.6%
1998	8,203,238	37.3%	2003	17,037,304	31.0
1999	8,727,936	6.4	2004	16,802,053	-1.4
2000	7,817,315	-10.4	2005	18,304,819	8.9
2001	9,959,902	27.4	2006	17,988,241	-1.7
NA= Data not available. Source: American Land Title Association.

SURETY BONDS

Some kinds of insurance provide financial guarantees. The oldest type, a personal contract of suretyship, dates back to biblical times, when one person would guarantee the creditworthiness or the promise to perform of another. Surety bonds in modern times are primarily used to guarantee the performance of contractors.

A surety bond is a contract guaranteeing the performance of a specified obligation. Simply put, it is a three-party agreement under which one party, the surety company, answers to a second party, the owner, creditor or “obligee,” for a third party’s debts, default or nonperformance. Before it issues the bond, the insurer investigates the background and financial condition of the contractor to satisfy itself that the firm is capable of doing the job as set out in the contract. If the contractor fails to perform, the surety company is obligated to get the work completed or pay for the loss up to the bond “penalty.” Surety bonds are generally required on large federal, state and local public works projects.

SURETY BONDS, 1997-2006

Year	Direct premiums written ($000)	Annual percent change	Year	Direct premiums written ($000)	Annual percent change
1997	$2,979,429	6.3%	2002	3,858,824	7.4%
1998	3,256,713	9.3	2003	3,897,844	1.0
1999	3,570,043	9.6	2004	4,274,044	9.7
2000	3,506,666	-1.8	2005	4,497,713	5.2
2001	3,591,747	2.4	2006	5,032,563	11.9
Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC. Copyrighted information. No portion of this work may be copied or redistributed without the express written permission of Highline Data, LLC.

TOP TEN SURETY COMPANIES
BY DIRECT PREMIUMS WRITTEN, 2006 (1)

Rank	Group	Direct premiums written	Market share
1	Travelers Group	$940,806,308	18.6%
2	Zurich Insurance Group	429,530,172	8.5
3	CNA Insurance Group	417,820,848	8.3
4	Safeco Insurance Group	359,684,752	7.1
5	Chubb & Son Group	275,489,568	5.5
6	Liberty Mutual Insurance Group	260,424,654	5.2
7	Hartford Fire & Casualty Group	206,345,552	4.1
8	HCC Insurance Holdings Group	159,588,402	3.2
9	Arch Capital Group	142,176,734	2.8
10	American International Group	120,937,352	2.4
(1) Before reinsurance transactions, excluding state funds. Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC. Copyrighted information. No portion of this work may be copied or redistributed without the express written permission of Highline Data, LLC.

FINANCIAL GUARANTY INSURANCE

Financial guaranty insurance helps expand the financial markets by increasing borrower and lender leverage. Starting in the 1970s, surety bonds began to be used to guarantee the principal and interest payments on municipal obligations. This made the bonds more attractive to investors and at the same time benefited bond issuers because having the insurance lowered their borrowing costs. This kind of surety bond became known as financial guaranty insurance. Initially, financial guaranty insurance was considered a special category of surety covering the risk involved in financial transactions. It became a separate line of insurance in 1986.

The companies that insure bonds are specialized, highly capitalized companies that traditionally have the highest rating. The insurer’s high rating attaches to the bonds, lowering the riskiness of the bonds to investors. With their credit rating thus enhanced, municipalities can issue bonds that pay a lower interest rate, enabling them to borrow more for the same outlay of funds. Investors typically have to sacrifice some yield, generally about 2 to 3 percent, in exchange for the security that bond insurance provides.

FINANCIAL GUARANTY INSURANCE INCOME STATEMENT, 2002-2006 (1)

($ millions)

	2002	2003	2004	2005	2006
Direct premiums written	$3,037	$3,995	$3,769	$3,758	$3,831
Net premiums earned	1,648	2,124	2,275	2,474	2,581
Net investment gain	1,282	1,301	1,420	1,411	1,676
Other income/loss	8	3	0	6	-17
Losses and loss expenses incurred	191	189	372	327	221
Other underwriting expenses	548	671	770	765	964
Net income before taxes	2,199	2,568	2,553	2,799	3,055
Income taxes	572	722	620	715	810
Net income	1,628	1,846	1,933	2,084	2,245
(1) Based on a survey of member firms of the Association of Financial Guaranty Insurers. Source: Association of Financial Guaranty Insurers.

In 2006 financial guaranty insurance companies insured $341.5 billion in asset-backed securities and $232.7 billion in public sector bonds, including $199.4 billion in municipal bonds and $33.2 billion in foreign bonds, for a total of $57.4 billion. This represents a 6 percent increase from 2005.

DIVERSIFICATION OF BOND INSURANCE MARKET

The leading municipal bond insurers have diversified since their inception and now provide insurance and reinsurance for corporate bonds and other forms of credit as well as for foreign government and corporate borrowings. They have also become insurers of asset-backed securities, pools of credit default swaps, and other structured financial transactions. U.S public finance bonds, which include municipal bonds, still account for most of their business.

TYPES OF BONDS INSURED, 2006 (1)

(1) Net par outstanding, December 31, 2006.

Source: Association of Financial Guaranty Insurers.

TOP TEN FINANCIAL GUARANTY INSURERS
BY DIRECT PREMIUMS WRITTEN, 2006 (1)

Rank	Group/Company	Direct premiums written	Market share
1	Ambac Assurance Group	$835,519,020	24.5%
2	MBIA Group	808,115,530	23.7
3	Financial Security Assurance Group	620,316,500	18.2
4	PMI Group of Companies	376,855,003	11.0
5	XL America Group	301,434,718	8.8
6	Radian Group	197,844,567	5.8
7	ACE Ltd. Group (2)	99,833,562	2.9
8	Cifg Assurance North America Inc.	98,807,711	2.9
9	Aca Financial Guaranty Corp.	71,897,219	2.1
10	First Nonprofit Mutual Insurance Co.	2,229,621	0.1
(1) Before reinsurance transactions, excluding state funds. (2) ACE is listed as a controlling shareholder under state regulations which presume control for shareholders owning more than 10% of an insurance entity. ACE owns 24% of Assured Guaranty as a passive investment. ACE does not participate in management of Assured Guaranty, is not represented on the Board of Directors, and exerts no influence over the strategy or business decisions of that company. (Source: ACE.) Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC. Copyrighted information. No portion of this work may be copied or redistributed without the express written permission of Highline Data, LLC.

CREDIT INSURANCE FOR CUSTOMER DEFAULTS

Credit insurance protects merchants, exporters, manufacturers and other businesses that extend credit to their customers from losses or damages resulting from the nonpayment of debts owed them for goods and services provided in the normal course of business. Credit insurance facilitates financing, enabling insured companies to get better credit terms from banks.

CREDIT INSURANCE, 2002-2006 (1)

($000)

Year	Direct premiums written	Annual percent change
2002	$731,798	17.9%
2003	869,543	18.8
2004	1,053,996	21.2
2005	1,206,020	14.4
2006	1,398,762	16.0
(1) Before reinsurance transactions, excluding state funds. Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC. Copyrighted information. No portion of this work may be copied or redistributed without the express written permission of Highline Data, LLC.

TOP TEN CREDIT INSURANCE COMPANIES
BY DIRECT PREMIUMS WRITTEN, 2006 (1)

Rank	Group/Company	Direct premiums written	Market share
1	Allianz Insurance Group	$200,062,653	14.3%
2	Allstate Insurance Group	141,447,979	10.1
3	American National Financial Group	136,188,032	9.7
4	Old Republic Group	115,878,354	8.3
5	Aegon U.S. Holding Group	101,345,416	7.2
6	Swiss Reinsurance Group	87,969,206	6.3
7	American International Group	83,879,422	6.0
8	Protective Life Insurance Group	72,681,282	5.2
9	Coface North America Insurance Co.	58,235,764	4.2
10	Arch Capital Group	43,503,128	3.1
(1) Before reinsurance transactions, excluding state funds. Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC. Copyrighted information. No portion of this work may be copied or redistributed without the express written permission of Highline Data, LLC.