American International Group Inc. said late Monday afternoon that it had reached an agreement to sell its mortgage insurance unit, United Guaranty Corp., to Bermuda-based Arch Capital Group for about $3.4 billion in cash and stock. The deal will create the world’s largest private mortgage insurer, while also advancing AIG’s goal of returning $25 billion to shareholders by the end of 2017.
Peter Hancock, AIG’s president and CEO, says the UGC sale represents “an important milestone” in a strategy the company committed to in March 2015. In his first shareholder letter as CEO, Hancock wrote of plans to “ ‘sculpt the future AIG’ into a more focused company,” with selective divestitures “an important part of reaching that goal. 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.” Headquartered in Greensboro, NC, UGC is a wholly owned subsidiary of AIG.
The transaction 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. Additionally, 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.