Arch Capital Group Ltd., a global provider of property and casualty insurance and reinsurance, as well as mortgage insurance and reinsurance under the Arch MI brand, has acquired United Guaranty Corp. (UGC), a nationwide provider of mortgage insurance and casualty insurance, from American International Group Inc., a major global provider of a wide range of insurance products, for about $3.4 billion.
As of the end of June, UGC had about $186.4 billion of first-lien primary mortgage insurance in force. The company has more than 1,800 customers and approximately 1,050 employees, including a national sales force of approximately 100 professionals.
In a statement, Peter Hancock, president and CEO of AIG, says by divesting itself of UGC, AIG will become more “focused” and “streamlined.” This will help the insurance giant expedite its goal of returning $25 billion to shareholders in order to boost its capital reserves to the levels now required under new government regulations aimed at non-bank systemically important financial institutions.
“Today, we have reached an important milestone in a strategy we committed to in March 2015, when I stated in my first shareholder letter as AIG CEO that we would ‘sculpt the future AIG’ into a more focused company and that selective divestitures would be an important part of reaching that goal,” Hancock says. “We restated that objective earlier this year when we made the IPO and eventual sale of UGC a key part of an updated overall strategic framework for AIG.”
The cash-stock transaction includes $2.2 billion of cash; $250 million of newly issued Arch perpetual preferred stock; and $975 million of newly issued Arch convertible non-voting, common-equivalent preferred stock.
In lieu of receiving the perpetual preferred stock, AIG may elect to receive up to $250 million in pre-closing dividends, subject to regulatory approval, or Arch may provide additional cash consideration, according to a press release.
In addition to the $3.4 billion of total consideration, AIG will retain all mortgage insurance business ceded under an existing 50% quota share agreement between UGC and AIG subsidiaries for business originated from 2014 through 2016.
In a separate statement, Constantine (Dinos) Iordanou, chairman and CEO of Arch, says, “We are extremely pleased to be able to expand our private mortgage insurance business through the acquisition of United Guaranty. Our mortgage insurance segment expands and complements our strengths in the specialty insurance and reinsurance businesses, which continue to be central to our global, diversified operations.
“We are excited about the combination of Arch and United Guaranty because these companies have led the market in innovation through their risk based pricing models and focus on data analytics,” he adds. “We believe that the companies’ complementary risk management cultures will further accelerate innovation and sound risk management and help us to maximize our best-in-class processes in the specialty insurance space.”
Arch notes that after the deal goes through, it will become “the largest private mortgage insurer in the world, based on insurance in force, with a global footprint.”