American International Group (AIG) has completed the $3.4bn sale of its mortgage guaranty unit to Arch Capital Group.

In August 2016, the global insurance giant disclosed the deal to divest United Guaranty Corp (UGC) as part of its strategy to transform itself into a more focused firm.

Headquartered in Greensboro, North Carolina, UGC had come under one of AIG’s selective divestitures to achieve the objective.

AIG president and CEO Peter Hancock said: “With this transaction, AIG has taken another step in simplifying our organization to become a leaner, more focused insurance company committed to our vision of being our clients’ most valued insurer.

“We believe UGC and the outstanding professionals who work there have gained a strong partner in Arch to continue to grow and facilitate home ownership for consumers and provide valuable and necessary protection to mortgage lenders.”

As of 30 September 2016, UGC had registered $186.4bn of first-lien primary mortgage insurance. It is said to have around 1,700 customers and nearly employs 1,000 people which includes a national sales force of about 100 employees.

UGC’s new owner, Arch Capital which operates from Bermuda, Canada, the US and Europe is an insurance and reinsurance underwriting company, focused on specialty lines on an international basis.

It went ahead with the deal with the belief that UGC complements its own risk management culture which is likely to speed up its innovation and sound risk management in the specialty insurance space. Besides, the UGC acquisition would also diversify its business profile and customer base.

Arch Capital chairman and CEO Constantine (Dinos) Iordanou said: “We are extremely pleased to complete this transaction, which will enable our company to continue to provide a strong and diversified source of private capital to the U.S. mortgage insurance and housing finance markets.

“We believe the impressive operational, managerial and risk management expertise of Arch, together with the talented professionals joining us from UGC, will enable us to provide our clients with the best products and services available anywhere in the industry.”

As per the deal, Arch Capital had to pay $2.2bn in cash along with its newly issued perpetual preferred stock worth $250m and $975m worth of its freshly issued convertible non-voting common-equivalent preferred stock to AIG.


Image: The AIG Towers of Los Angeles. Photo: courtesy of HanSangYoon and Wikipedia.