American International Group Inc. (NYSE: AIG) said it agreed to sell its 100 percent interest in United Guaranty Corp. (UGC) to Arch Capital Group Ltd. (NASDAQ: ACGL), a Bermuda-based writer of mortgage, property and casualty insurance and reinsurance, for $3.4 billion.
The purchase price consists of $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 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.
UGC is the leading private mortgage insurance company in the United States with $186.4 billion of first-lien primary mortgage insurance in force as of June 30, 2016. UGC has active relationships with over 1,800 customers and approximately 1,050 employees including a national sales force of approximately 100 professionals. UGC is headquartered in Greensboro, North Carolina and is a wholly owned subsidiary of AIG.
Arch Capital Group Ltd. is a Bermuda public limited liability company with approximately $7.60 billion in capital at June 30, 2016, and, through operations in Bermuda, the United States, Europe and Canada, writes specialty lines of property and casualty insurance and reinsurance, as well as mortgage insurance and reinsurance, on a worldwide basis.
“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,” said Peter Hancock, president and chief executive of AIG.
“We are excited about the combination of ACGL and United Guaranty because these companies have led the market in innovation through their risk based pricing models and focus on data analytics,” said Dinos Iordanou, chairman and CEO of Arch Capital Group.
Closing of this transaction is subject to required regulatory approvals.
J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC served as financial advisors to AIG, and Sullivan & Cromwell LLP served as legal advisor to AIG on the transaction.
AIG provides insurance products and services for commercial, institutional, and individual customers in the United States, the Asia Pacific, and internationally. The company is the world’s leading insurance organization, with more than 90 million customers around the globe. AIG is a global leader in property casualty insurance, life insurance, retirement products, mortgage insurance, and other financial services. The company has a network of approximately 65,000 people in more than 100 countries and jurisdictions. AIG was founded in 1919 and is based in New York, New York. The company has a market capitalization of slightly over $63 billion.
AIG nearly collapsed into bankruptcy court in 2008 amid the global liquidity crunch. To pay back nearly $185 billion in government bailout funds, the company sold over 50 businesses and other assets, generating more than $90 billion in proceeds.