Comptroller Approves PNC's Captive Reinsurance Business

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PNC Bank Corp. will reinsure mortgages through a new subsidiary that will be set up within the next two months.

The Pittsburgh-based bank received approval from the Office of the Comptroller of the Currency on Monday to establish a captive mortgage reinsurance subsidiary. PNC is the second bank to receive such approval. Chase Manhattan Bank was given the green light in January.

Richard J. Lovett, executive vice president of PNC Mortgage Corp., Vernon Hills, Ill., said PNC's interest was piqued last fall after the comptroller sent an interpretive letter to United Guaranty Corp., a mortgage insurer.

In that letter, the comptroller's chief counsel, Julie L. Williams, said mortgage reinsurance was permissible for banks under the National Bank Act.

Mortgage insurers have typically enjoyed healthier profits in the last few years than mortgage lenders. As a result, lenders have sought ways to share some of these profits.

One way is with captive reinsurance. A bank sets up a separate subsidiary to reinsure mortgages that are originally insured by a private mortgage insurer. The reinsurer shares some of the default risks in exchange for a portion of the insurance premiums.

PNC will set up its subsidiary in Vermont. Chase's captive subsidiary is also based there. Mr. Lovett said Vermont has a division within its insurance regulatory agency that deals with reinsurance.

Mr. Lovett said PNC was in discussions with several mortgage insurers but declined to name any particular company for whom it would be reinsuring loans. But Gerald Friedman, chairman of Amerin Guaranty Corp., a mortgage insurer based in Chicago, said his company was one PNC would be working with.

Observers said the approval of PNC's application, which only took about a month, could spark a round of similar moves. An OCC official said other applications had been received but would not say how many.

Mr. Friedman said he expects a dozen applications for mortgage reinsurance subsidiaries to be approved by June and that the total could reach 20 by the end of the year.

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