AIG Completes Sale of Mortgage Unit to Arch Capital for $3.4 Billion

January 4, 2017

American International Group said it has completed the $3.4 billion sale of its mortgage guaranty unit to Arch Capital Group.

The deal to sell United Guaranty Corp. (UGC), first announced in August 2016, closed on Dec. 31.

“With this transaction, AIG has taken another step in simplifying our organization to become a leaner, more focused insurance company,” AIG President and CEO Peter Hancock said in prepared remarks.

AIG has been reorganizing and streamlining in part to fend off pressure from activist investor Carl Icahn to break up the insurer.

AIG has said it will continue to be a participant in the residential real estate market through direct ownership of mortgage loans, a portfolio of structured securities, the holding of Arch stock and continued ties to United Guaranty.

Arch CEO Dinos Iordanou said the transaction unites two market leaders. “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,” Iordanou said when the deal was announced.

United Guaranty, based in Greensboro, North Carolina, has about 1,000 employees. Arch has said it will maintain a significant presence in that state while retaining mortgage-insurance operations in California. International business will be combined in Europe, Hong Kong and Australia.

UGC had $186.4 billion of first-lien primary mortgage insurance in force as of Sept. 30, with 1,000 employees and active relationships with nearly 1,700 customers, according to AIG.

The deal is valued at $3.4 billion including $2.2 billion in cash and the rest in Arch securities, AIG said in August. AIG said it is retaining a portion of mortgage-insurance business originated from 2014 through 2016 through a intra-company risk transfer deal.

David Gansberg, president and CEO of Arch U.S., is responsible for U.S. primary mortgage insurance operations, which will be headquartered in Greensboro, North Carolina, with significant operations in California. He reports to Andrew Rippert, CEO of Arch’s global mortgage group.

Soon after the deal was announced, Standard & Poor’s, Fitch Ratings, Moody’s and A.M. Best gave a mixed response regarding Arch’s side of the deal.

S&P revised its outlook to negative from stable on all Arch Capital ratings and its subsidiaries (except for Arch Mortgage) due to financial risks involved. But S&P affirmed its “A-” long-term counterparty credit rating for Arch Capital, as well as the counterparty credit and financial strength ratings for Arch’s operating subsidiaries. The ratings agency raised its ratings for Arch in light of the completed deal.

Fitch placed several ratings for Arch Capital Group on rating watch negative. Moody’s placed several Arch ratings on review for downgrade, and A.M. Best placed a number of its own Arch ratings on review with developing implications.

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