Arch to Acquire Interests in California Firm From Bankrupt PMI

Arch Capital Group Ltd., through its U.S.-based subsidiaries (Arch U.S. MI), will acquire all outstanding equity interests in San Francisco, Calif.-based CMG Mortgage Insurance Co. from bankrupt Arizona-based PMI Mortgage Insurance Co. and CUNA Mutual Group, it was announced on Friday.

The deal is estimated to be for $300 million.

CUNA Mutual Group and the Arizona Department of Insurance, the receiver for PMI, said following the announcement of the deal that it would support the future growth of CMG MI.

CMG MI is jointly owned by PMI and CUNA Mutual Group. The PMI Group Inc. in late 2011 filed for voluntary relief under chapter 11 of the United States Bankruptcy Code in the U. S. Bankruptcy Court for the District of Delaware. The filing was a result of the previously-announced seizure by the director of the Arizona Department of Insurance of the company’s primary regulated subsidiaries.

PMI began experiencing losses from insurance operations since the financial crisis unfolded in 2007, according to an Oct. 20, 2011 Arizona Department of Insurance court filing petitioning to take over PMI. At the time, the filling stated that PMI in June of that year reported a net loss of $329 million, and when compared to the surplus for that period “was a hazardous financial condition under Arizona insurance laws and regulations.” PMI also reported net incurred losses of $574 million and net earned premiums of $227 million, resulting in a loss ratio of 253 percent.

In August publicly traded PMI and two other Arizona-domiciled mortgage guaranty insurers with in a group operated by PMI, known as TPG, were suspended by the Federal Home Loan Mortgage Corp. and the Federal National Mortgage Association from their list of approved mortgage insurers.

Under the deal announced on Friday CUNA Mutual Group will enter into distribution and reinsurance agreements with CMG MI, continuing CMG MI’s private mortgage insurance offerings to credit unions. The transactions with Arch U.S. MI are expected to close within one year, and subject to approval of the Arizona receivership court, regulatory approval and satisfying other closing conditions.

CMG MI is a a monoline insurer focused on mortgage insurance. CUNA wanted to ensure credit unions continue to receive services, considering PMI and its receivership action, according to Joel Luebkeman, director of strategic partnership at CMG MI.

“By selling both shares of CMG Mortgage Co, it would ensure those goals are met,” Luebkeman said.

Under the deal Arch will record the mortgage insurance business of CMG MI and the service and origination platforms of PMI, according to Luebkeman.

“It will ensure that one entity controls all fo the key elements,” he added.

The assets that Arch purchased were core operating assets of PMI, but it will continue to exist as a distinct legal entity, and the old legacy portfolios will stay with PMI and will be runoff, according to Luebkeman.

“PMI will have own its own personnel to manage the runoff of that old legacy book of business, and that will still be under the supervision of the Arizona Department of Insurance,” he said.

With the proposed distribution arrangement, CUNA Mutual Group mortgage insurance sales staff will continue to serve credit union customers on behalf of CMG MI.

Arch Capital Group Ltd., a Bermuda-based company that reported roughly $5.75 billion in capital on Sept. 30, 2012, provides insurance and reinsurance worldwide through wholly owned subsidiaries. The agreement allows Arch, is an international insurer and reinsurer, to enter the rapidly improving U.S. mortgage insurance marketplace and broaden its existing mortgage insurance and reinsurance capabilities.

“We are very gratified that this exceptionally strong management team and staff will be joining Arch. Together with our senior executives, they will form an industry leading team with broad capabilities to meet our clients’ needs over the long term,” Marc Grandisson, chairman and CEO of Arch Worldwide Reinsurance Group, said in a statement. “We are also extremely pleased to partner with CUNA Mutual Group on an ongoing basis. Their access to the credit union marketplace and brand reputation should allow us to secure a strong flow of credit union business.”

CMG MI is a national provider of mortgage insurance products and services to America’s Credit Unions. The company provides private mortgage guaranty insurance to protect credit unions against potential losses in the event of borrower default. CMG MI serves more than 800 credit unions nationwide.

Madison, Wis.-based CUNA focuses on insurance, retirement and investment products that provide financial security and protection to credit unions worldwide. CUNA Mutual Group is the marketing name for CUNA Mutual Holding Co., a mutual insurance holding company, its subsidiaries and affiliates. Life, accident, health and annuity insurance products are issued by CMFG Life Insurance Company. Property and casualty insurance products are issued by CUMIS Insurance Society Inc.

Topics California Mergers & Acquisitions USA Reinsurance Arizona