DBRS Places Rating of United Guaranty Canada Under Review-Positive

DBRS has today placed its A (high) Financial Strength rating of AIG United Guaranty Mortgage Insurance Company Canada (AIGUG Canada) Under Review with Positive Implications following today’s announcement that a Canadian investor group of which Ontario Teachers’ Pension Plan (Ontario Teachers) is a lead sponsor, has entered into a definitive agreement with American International Group, Inc. (AIG) to acquire its Canadian mortgage insurance operations.

At the time of its last annual review of AIGUG Canada in April 2009, following the deterioration in the U.S. mortgage market, DBRS discounted the rating by a single notch from what would otherwise have been a AA (low) rating employing a strict application of the DBRS methodology. Because AIGUG Canada continued to rely on capital injections from its immediate parent, United Guaranty Corporation (UGC) which at the same time was downgraded to BBB (high), in order to meet certain capital adequacy thresholds, a notch discount was considered reasonable.

With the announcement that AIGUG Canada is to be sold to a private investor group jointly headed by Ontario Teachers, there is reduced justification for the incremental discount which had been assigned to AIGUG Canada on the basis of the AIG sponsorship. The Under Review - Positive status is expected to resolved following a review of the Company’s insurance portfolio and its capital adequacy following the closing of the transaction. DBRS will also want to receive comfort that the newly independent mortgage insurance company will not be adversely impacted by the withdrawal over time of the mortgage insurance infrastructure and expertise which it had shared with UGC.

The original DBRS rating on AIGUG Canada was based on a capital support agreement between AIGUG Canada and United Guaranty Corporation which provided for incremental capital injections to maintain the rating of AIGUG Canada at least as high as that of UGC. Under its terms, however, the support agreement can be terminated by UGC should the Financial Strength rating on AIGUG Canada on a stand-alone basis be equal to or higher than the Issuer Rating of UGC. Since the current A (high) Financial Strength rating of AIGUG Canada exceeds the BBB (high) Issuer Rating of UGC, UGC has correspondingly sent notice to DBRS that it intends to terminate the existing support agreement as of January 15, 2010. At that time, DBRS expects to discontinue its existing ratings on UGC and its affiliate, United Guaranty Residential Insurance Company.

Notes:
The applicable methodology is Rating Mortgage Insurance Companies in Canada which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.