Thank you very much.
Good morning to you all.
You will necessarily hear some repetition here, as our businesses are, of course, very similar.
Let me begin with a bit of background on us and the subject of mortgage insurance. Sagen is the country's largest private mortgage insurer. Canada Guaranty, as you know, is the other notable private sector player. We both compete with CMHC. In 2021 Sagen was Canada's largest insurer of high-ratio mortgages with about 40% of the market share.
The insurance we provide reimburses lenders for the losses they incur when homebuyers default on their mortgage. Mortgage insurance is mandatory for homebuyers with a down payment of less than 20%. Thus, we primarily serve first-time homebuyers.
Mortgage insurance is an unqualified public policy and commercial success. It has helped many first-time homebuyers responsibly access affordable mortgages while also protecting our housing and financial sectors from downside risk. We are very well capitalized, tightly regulated and deeply experienced to properly manage mortgage-related risks.
There are a couple of important things to keep in mind when thinking about mortgage insurance.
First, mortgage insurance premiums are paid in full by the lender at the time that the mortgage is originated. The lender is then reimbursed for the premium by the borrower by adding the premium amount to the mortgage, which is then paid off on the same amortization schedule as the rest of the mortgage.
Second, mortgage insurance coverage lasts for the entire amortization period of the mortgage. As the premium is paid in full at the time a mortgage is originated, mortgage insurance cannot charge additional premium when economic downturns occur. Consequently, we price our product based on a full business cycle, as we must rely on our capital and unearned premiums to pay for future claims.
Our insured first-time buyers are the most tightly regulated, rigorously underwritten borrowers in the market today. The stress test has only served to fortify that rigour. Mortgage insurers act as a second set of eyes on every high-ratio loan application, ensuring that only borrowers who can afford their mortgages are approved.
Our insured buyers reside in all regions across Canada with a majority ranging in age from 25 to 45 with stable jobs and an average household income of $100,000 to $120,000. The credit scores are strong, averaging above 750,and they typically purchase homes priced below market averages. This is especially true for borrowers in Vancouver and Toronto.
Before turning to your questions, I want to say that we agree that the rising cost of homes is a challenge for homebuyers, especially first-time homebuyers. Housing demand is driven predominantly by the need for a place to live, and our population growth has been strong. A lack of appropriate supply to meet this demand is the fundamental problem that afflicts Canada's housing sector and drives up prices.
In support of the committee's work, we would make three observations.
First, the federal government should do everything it can to boost the supply of housing that is affordable—not just affordable housing. That means playing a coordinating and supportive role with provinces, municipalities and the private sector. It means taking direct action creating incentives to boost supply.
Second, we believe that it would be imprudent to alter the mortgage insurance pricing structure when things remain so volatile. The risk of unintended consequences is too great. For example, if prices are lowered arbitrarily, mortgage insurers will be forced to reassess risk, and there's a real possibility that it will lead to tighter underwriting with the effect of making homebuyers who would have qualified for a mortgage today unable to do so in the future.
Finally, boost the accessibility of homes for new buyers. One specific move would be an increase in the cap on insured mortgages that was established in 2012 to something greater than its current $1 million. This is particularly important in markets such as Vancouver and the greater Toronto area.
Thank you for your time.
We look forward to your questions.