California insurance regulators announced Thursday that they have barred Ticor from honoring mortgage insurance commitments made prior to Sept. 10, shattering the Los Angeles-based company's repeated promises to fulfill those obligations.
The ban was triggered by a recent increase in Ticor's exposure to liability claims. It further bolsters statements made two weeks ago by Ticor that its mortgage underwriting unit, Ticor Mortgage Insurance, eventually may go out of business.
But state officials said their action also has a silver lining for Ticor. Commitments to underwrite home loans are legal obligations that could land Ticor in court if broken. By stepping in, the state said, it has "shielded" Ticor from breach-of-contract suits.
Ticor, the nation's third-largest home loan insurer, also confirmed Thursday that half of its eight-member board resigned last week.
All of the departed directors will continue to serve as officials at American Can, a New York forest products and financial-services company that invested $50 million in a leveraged buy-out that took Ticor private last year.
The ban by state insurance officials, which took effect two days before it was announced to the public, is a blow to Ticor, which is reeling from a potential $166-million loss on delinquent home loans that it underwrote for Equity Programs Investment Corp. of Falls Church, Va.
EPIC rocked the home lending market in August by defaulting on payments of $1.4 billion in mortgages and mortgage-backed securities.
Run on Parent
The default triggered a run on deposits at EPIC's parent, Community Savings & Loan Assn. of Bethesda, Md.
Last month, Maryland officials took control of the thrift's day-to-day operations, and most of EPIC's limited partnerships filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code.
Of the three major major insurers involved with EPIC, Ticor faces the largest loss.
The trouble at Ticor and the departure of American Can officials from its board raises questions about the continued association of the two companies. Ticor is a part of American Can's attempt, since 1981, to reduce its vulnerability to the highly competitive paper and package market by diversifying into financial services.
The four directors who resigned from Ticor include Gerald Tsai Jr., vice chairman of American Can. All have been instrumental in getting American Can to invest in Ticor, but none has been available for comment since Ticor's troubles came to light in August.
In exchange for the investment, American Can received four seats on Ticor's board, 14% of the company's non-voting preferred stock and an option to buy additional shares that would result in control of 65% of the mortgage, title and home warranty insurance company.
The state Department of Insurance said its decision to ban all new policies was triggered by a move by General Electric Mortgage Insurance, a unit of General Electric.
The GE unit, which is a major reinsurer, last month dropped its coverage of $6.2 billion, or about 25%, of the $24.8 billion in mortgage securities that Ticor insures. The action significantly increased Ticor's exposure to liability claims.
Ticor, like other insurers, buys reinsurance to dilute its risk.
No New Business
Ticor Mortgage stopped writing new mortgage insurance Sept. 10 and said then that it would not take new business until the extent of its EPIC loss is known. But it said that it would honor promises made before Sept. 10 to write new loans and that it would honor existing policies.
The action by state officials Thursday now permits Ticor to honor only policies written before the September cutoff date.
Ticor officials have stressed throughout the EPIC ordeal that their other major insurance unit, which underwrites property titles, is healthy and will not be affected by the financial woes of its home loan underwriting unit.