AIG Plans To Keep Rapidly Expanding Mortgage Insurance Unit

American International Group Inc. (AIG), the insurer that sold off several major units in its effort to repay its 2008 bailout, is planning on keeping its rapidly growing mortgage insurance unit.

Separately, AIG booked a $106 million charge as it overhauled its compliance with unclaimed-property laws at its life insurance operation.

AIG's mortgage insurance unit, which lost over $4 billion before taxes in 2008 and 2009, is now selling highly profitable new business, Chief Executive Robert Benmosche said on a conference call with analysts and investors Friday. And the mortgage-insurance operation has the added benefit of providing other parts of AIG a "tremendous insight" into their massive portfolio of residential mortgage securities, Benmosche said.

Benmosche's endorsement of the mortgage insurance operation, called United Guaranty, comes as other mortgage insurers are struggling with mounting claims costs. PMI Group Inc. (PMI), which operates without the backing of a larger parent company, warned Thursday it could be forced to stop selling new coverage after missing key capital-adequacy targets in the second quarter.

PMI said it was looking for a new source of capital in an effort to keep its primary subsidiary open for business, and the company's chief executive said, "many third parties recognize the potential opportunity" of putting new money into the operation.

But on AIG's conference call, Benmosche suggested AIG wouldn't be among them.

"Our market share has grown dramatically, and with that performance, we don't see any need to help anyone else out," Benmosche said.

Also on the conference call, AIG said the charge to its life-insurance operation came as it began using a Social Security death database to determine if policyholders have died and proceeds are owed to their beneficiaries.

Insurers have been under scrutiny from state insurance regulators and other officials, including New York's attorney general, who have been investigating whether insurers have improperly dragged their feet in determining if benefits are owed. They are probing whether some insurers have used the Social Security death database when doing so has been beneficial for certain parts of their business, such as to cut off retirement-income checks, but haven't used it when doing so could mean payouts to families of life-insurance clients who died.

AIG said in a regulatory filing yesterday it had been among the insurers asked for information about their practices.

"Our practices in that area are currently and have been completely consistent with all the applicable legal requirements and all of the historical industry standards," said the head of AIG's life insurance operations, Jay Wintrob. "Having said that, we used this as an opportunity to enhance our practices and we voluntarily initiated a review" using the Social Security database.

Insurers including MetLife Inc. (MET) and Nationwide Mutual Insurance Co. have told regulators in recent public hearings that they have begun using the death database in recent years to identify when benefits are due on life insurance policies.

Late Thursday, AIG reported a profit of $1.84 billion in the second quarter, a reversal from a loss of $2.66 billion in the same period a year earlier. Still, AIG's two main insurance units, Chartis Inc. and SunAmerica Financial Group, saw their combined operating income slip 15%.

AIG shares fell 5.3% to $25.01 in morning trading amid broad declines for financial stocks.

-By Erik Holm, Dow Jones Newswires; 212-416-2892; erik.holm@dowjones.com

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