Arch Capital Group is to broaden its mortgage insurance operations through the acquisition of two businesses from American International Group (AIG) for approximately $3.4 billion.
Arch will acquire United Guaranty Corporation (UGC), a mortgage insurer, and AIG United Guaranty Insurance (Asia).
Arch will also assume AIG’s quota share of UGC’s mortgage insurance on a prospective basis upon the closing of the deal.
The company said that the deal provides further versatility for it in a sector that has benefited it during a period of low rates in other parts of its business. It also streamlines AIG and makes it more specialised in line with that company’s strategy.
The transaction is anticipated to close in the late fourth quarter of 2016 or the early first quarter of 2017. During this time, the purchase price could be reduced by a special dividend of up to $250 million from UGC to AIG before closing.
“We are extremely pleased to be able to expand our private mortgage insurance business through the acquisition of United Guaranty,” said Constantine Iordanou, chairman and chief executive officer (CEO) of Arch.
“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.
“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.”
Following the agreement, Arch expects to retain a significant presence in North Carolina while maintaining its existing mortgage insurance operations based in California, and to combine the companies’ global operations in Europe, Hong Kong and Australia.
Peter Hancock, president and CEO of AIG, said: “We are excited about this deal and what it means to AIG and the talented professionals at UGC. It further streamlines AIG into a more focused insurer and enhances our capital position, in keeping with commitments AIG made to the market in early 2015 and restated earlier this year.
“The transaction also maintains AIG’s presence in a profitable market through a stake in a market leader that shares our focus on risk-based pricing and analytics as the foundation for our industry’s future. We are leaving UGC in the good hands of a forward looking management team.”
Arch Capital Group, Bermuda, American International Group, North America, Insurance, Reinsurance, Mortgage insurance, Asia-Pacific, M&A