SOUTHEAST EUROPE MORTGAGE FINANCE WORKING GROUP Sofia February 23, 2005

Transcription

1 SOUTHEAST EUROPE MORTGAGE FINANCE WORKING GROUP Sofia February 23, 2005

2 Who We Are Presentation Topics Credit Life Insurance Mortgaged Property Insurance Mortgage Insurance

3 Who We Are The leading international insurance and financial services organization:! Operating in more than 130 countries and jurisdictions! $ 800 Billion Consolidated assets! $ 154 Billion Capital Base! $ Billion Net Income! One of the few left S&P AAA rated insurers

4 Credit Life Insurance Objective : To cover borrowers of Mortgage loans with benefit equal to the remaining outstanding balance of the loans in case of unexpected events. Promotion :! Along with every Mortgage loan sold through the network! Training of Institution s staff and support with specially designed brochures

5 Credit Life Insurance CONCEPT:! Life coverage: Death and Permanent Total Disability due to sickness or accident! Length of loan coverage! Low monthly premium! Flat and guaranteed rate! Clear and simple enrollment procedures! Bundled application with the loan

6 Credit Life Insurance TAILOR MADE SOLUTIONS...! Credit life coverage could be extended, full, limited, accident only! Benefit is fixed to Outstanding amount under the loan, Outstanding installments, Flat amount! Basis: Face Amount, Outstanding Balance, Outstanding installments! Mode of payment: Single, Regular (annual and monthly)! Premium collection: everyday, monthly! Promotion with the main product (mortgage, lease, credit card, consumer finance product)

7 Property Insurance OBJECTIVE: To provide cover of the mortgaged property in case of a material damage by a fortuitous event PROMOTION: Along with every mortgage loan sold through the network

8 Property Insurance CONCEPT of the policy: All risks / Named Perils based incl. fire, flood and earthquake Sum Insured is 100% reinstatement based on the bank s valuation Policy issued on the name of the owner of the property but assigned to the lender up to the outstanding amount and interests One year policies with a tacit renewal for the life time of the loan Simple enrollment / pre-underwritten product Bundled policy issuance with the loan

9 Property Insurance AREAS OF CONCERN:! Valuation of the property - underinsurance! Catastrophic events, i.e. earthquakes, floods - limited insurance capacity

10 Insurance Products Benefits for the Mortgage Lender:! Uniform risk mitigation! Loan assurance! Fee income! Unique selling point! Increase of customer retention and loyalty! Easy administration and audit of premium payments! Compliance with Central Bank s requirements

11 Insurance Products Benefits for the borrowers:!one-shop stop!friendly and easy administration!extended coverage!low group rate

12 Mortgage Insurance (MI ) We Can Provide Portfolio Protection With Mortgage Insurance Mortgage Insurance Is A Form Of Risk Cover That Protects Lenders Or Investors From Borrower Default On Residential Mortgages MI Key Characteristics Used To Insure Low Downpayment (<25%) Loans Enlarges Market Provides Partial First Loss Cover For Residential Mortgage Loans Covers Losses Related To Borrower Default Reduces Provisions Coverage Terms Determined By Lender Allows Lender To Sell To Secondary Market Simple To Administer How Mortgage Insurance Works Outstanding Debt Past Due Interest Other Expenses Assumptions Borrower Equity 10,000 Original Mortgage 190,000 Original Property 200,000 Maximum Claim Amount: 21% * 190,000 = 40,000 Loss On Foreclosure Property Sale Price (10,000) (10,000) Accepted By Regulator (after Jan ) And Investors In Multiple Total Net Loss (40,000) (50,000) 0 Markets Claim Payment 40,000 40,000 0 Net Loss For Lender 160,000 (170,000) (20,000) 0 Case 1 95% LTV Borrower Equity AIG UG Coverage (21% Of Loan) Lender Retained Risk Case 2 150,000 (170,000) (20,000) (10,000) 200,000 (170,000) (20,000) (10,000) 0 100% 95% Case 3 75% 0%

13 MI Why Lenders Use It Experts Agree That Loan-To-Value Ratios Are A Key Risk Indicator Fitch Assumptions For Rated MBS (BBB) For 8 Main RMBS Markets " How Often Does It Happen? " How Bad Does It Get? Average Default Frequency by LTV % Average Loss Severity LTV % Claim Frequency per 100 Loans 16% 14% 12% 10% 8% 6% 4% 2% 0% Loss Severity as a Percent of the Outstanding Loan Amount 60% 50% 40% 30% 20% 10% 0%

14 MI Benefits Of Using It More Loans Without More Risk " Target First-Time Homebuyers Earlier " Introduce New Products To Attract New Borrowers " Obtain An Independent Loan Assessment Backed By Our Capital " Lock In Guaranteed Pricing Versus Alternative Credit Risk Mitigation " Get AAA Level Of Financial Security For Times Of Economic Stress Risk Management Support " Use Well-Tested High LTV Underwriting Criteria " Improve Risk Reporting " Learn New Approaches To Delinquency Management And Loss Mitigation More Liquid Assets " Improve Asset Quality To Allow For Easier Sale To Secondary Investors " Transfer Or Sale Without Residual Risk " Increase Confidence Of Regulators And Investors

15 Bulk Mortgage Insurance We Can Provide Bulk Or Second Loss Coverage To You In Various Ways Supplemental MI Bulk MI Pool MI Loan By Loan Borrower Equity 2 nd Loss 21% Of Loan Lender/ Issuer Retained Risk 100% 95% 1 st Loss (21% Of Loan) Bulk Cover 75% (42% Of Loan) 55% Loan By Loan Borrower Equity Lender/ Issuer Retained Risk 100% 95% 55% Loan By Loan Borrower Equity Pool Cover (100 Of Loan) 100% 95% 0% 0% 0% " Supplemental MI Provides Second Loss Protection Deeper Risk Coverage For More Credit Enhancement Reduced Catastrophic Risk " Lender/SPV Paid Premium Flexible Payment Options " Bulk MI Provides Flexible Loss Positions Can Be Structured With A Deductible Eligibility Criteria Determined Up-Front " Lender/SPV Paid Premium Flexible Payment Options " Pool MI Provides More Credit Enhancement Can Be Structured With A Deductible 100% Cover Can Be Combined With A CDS " Lender/SPV Paid Premium Flexible Payment Options

16 MI Basel II Assistance Basel II CAD 3 Offers Capital Incentives For Implementation Of The More Rigorous IRB Approaches MI Helps In All Areas Of Concern Pillar 1 (Minimum Capital) " Credit Risk " Operational Risk " Market Risk Pillar 2 (Supervisory Review) " General Risk Management " Stress Test For Unanticipated Economic Cycle Risk " Controllership Pillar 3 (Disclosure) " Compulsory Disclosure " Specific Information On Capital, Risk Exposures And Credit risk Mitigation " Higher Standard for Most Advanced Lenders " MI Encourages Collection Of Loan-Level Data " MI Discipline Can Reduce Probability Of Default " MI Reduces Loss Given Default Reduces Capital " Process Focus Reduces Operational Risk " MI Policy Creates External Performance Standards " MI Capital Model Provides Benchmark For Stress Testing " MI Risk Reporting Provides Additional Analytics " MI Encourages Streamlined Processes " MI Easier To Disclose Than Credit Derivatives Or Self-Insurance " AIG Brand Value Helpful For Non- Global Institutions Seeking Broader Investor Base " MI Could Be Seen As Effort To Improve And Maintain Asset Quality In Your Mortgage Book