(Bloomberg) -- Munich Re’s American Modern Insurance Group is retreating from the business of providing protection to mortgage lenders on U.S. homes in which borrowers have lapsed on premiums.
The so-called lender-placed insurance business will be wound down in the next 15 to 24 months, the Ohio-based unit said Monday in a statement, citing unacceptable returns. American Modern said about 325 of its 1,400 employees support its LPI business and that it doesn’t yet know how many jobs will be affected.
The industry has suffered in recent years amid rate pressure and probes by regulators into suspected kickback schemes to win business from banks. Banks pick the insurers for delinquent customers, even though borrowers are eventually responsible for the premiums.
“It has become clear this business model can no longer achieve acceptable returns in the foreseeable future,” the insurer said in its statement.
American Modern joins Australia’s QBE Insurance Group Ltd. in exiting lender-placed insurance. New York-based Assurant Inc. has sought to focus more on businesses such as mobile phone coverage after the company was fined $14 million in 2013 and ordered to cut insurance premiums and make refunds to homeowners to resolve a New York probe. State regulators found the company overcharged clients and won business through improper deals with banks.
The Munich Re unit agreed in 2013 to pay a $1 million penalty, provide customer refunds and make reforms after a New York probe. American Modern also covers rental properties, mobile homes, motorcycles and boats.
Exiting the LPI segment “will allow us to better focus our efforts on delivering highly innovative, complementary specialty personal lines products and services,” Tony Kuczinski, chairman of American Modern, said in the statement. “The most difficult part of this decision is the impact it will have on staff and partners.”
QBE struck a deal last year to sell its lender-placed business to National General Holdings Corp. at a loss. Munich Re obtained American Modern through a 2007 agreement to purchase Midland Co. for U.S. expansion.
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