1 Promising Sign for AIG

I wrote an article yesterday advising investors in no uncertain terms to avoid buying stock in mortgage insurance companies. As I noted, "If you haven't already gotten the memo on [these] companies, then here it is: Avoid them like the plague."

My rationale was perhaps best summed up by a reader's response: "Private mortgage insurance companies still exist? I thought that every one of them went bankrupt in 2009-10."

Although presumably made in jest, he had a point. As I noted yesterday and have illustrated in the table below, six of the seven largest private mortgage insurers measured by outstanding exposure to Fannie Mae are either currently closing up shop or on the verge of doing so. Indeed, the only one that doesn't appear to be similarly situated is United Guaranty, a wholly owned subsidiary of American International Group (NYSE: AIG  ) .

Mortgage Insurance Company

Insured Balance (millions)

Status

Mortgage Guaranty (NYSE: MTG  )

$83,601

Undercapitalized

Radian Guaranty (NYSE: RDN  )

$67,309

Impending undercapitalization

United Guaranty

$62,828

 

Genworth Mortgage (NYSE: GNW  )

$53,995

Operating pursuant to regulatory waiver

PMI Mortgage

$42,738

In receivership

Republic Mortgage

$34,416

In run-off

Triad Guaranty

$11,372

In run-off

Source: Fannie Mae's 2Q12 10-Q.

According to a recent article on MSN Money: "The three main AIG businesses -- U.S. life insurer Chartis, annuity company SunAmerica, and mortgage insurer United Guaranty -- each posted solid results in the last quarter and should continue to do well, provided that the economy does not falter too badly."

Most recently, AIG made news after the Treasury Department announced its decision to sell $18 billion of its stake in the insurance giant. "Whatever the cause behind the sale of the company's shares may be," noted my colleague Mark Reeth, "AIG has been performing well as of late ... For the first time since 2008, [it] may truly be making a comeback, and Fools should definitely keep their eyes on it."

Although I remain skeptical about Mark's conclusion given AIG's history and only quasi-private status, the possibility that its mortgage insurance business could be the last of a breed certainly lends credibility to sentiment.

Nevertheless, before making such a speculative leap, I'd urge investors with a preference for financial stocks to redirect their attention to the company revealed in our free report: "The Only Big Bank Built to Last." Unlike AIG, the business identified in this report is tried and true, pays investors a respectable dividend yield, and is bound to be around come hell or high water. Click here now to download this free report instantly.

Fool contributor John Maxfield does not own shares in any company mentioned above. Motley Fool newsletter services have recommended buying shares of American International Group. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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