American International Group (AIG) has agreed to sell its 100% stake in United Guaranty Corporation (UGC) to Arch Capital for $3.4bn.

UGC is a private mortgage insurance company headquartered in Greensboro, North Carolina.

Its acquirer Arch Capital deals in writing insurance and reinsurance centered on specialty lines on a global basis and operates from Bermuda, the US, Europe and Canada.

The deal is part of AIG's plans to transform itself into a more focused company.

AIG president and CEO Peter Hancock revealed that the company has been looking to make such selective divestitures to achieve the goal.

The company restated the objective earlier this year when it made the IPO and sale of UGC an important part of an updated framework.

Hancock said: “We believe this transaction maximizes UGC’s value while further streamlining our organization. It puts us in a stronger position to invest in the talent and technology essential to being our clients’ most valued insurer, while we continue to deliver on the promise made by AIG’s Board and management to return $25 billion to our shareholders by the end of 2017.

“The deal also maintains our affiliation with the mortgage insurance market and its leading company, through retention of recent business written by UGC and our stake in Arch.”

Arch Capital has agreed to pay $2.2bn of cash, $250m of its newly issued perpetual preferred stock along with $975m of its newly issued convertible non-voting common-equivalent preferred stock.

The closing of the deal is subject to regulatory approvals.

Arch Capital Group chairman and CEO Dinos Iordanou said: “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.”

Also part of the agreement is the clause which mentions that AIG will retain all mortgage insurance business originated in 2014-16 as per an existing 50% quota share agreement between UGC and AIG subsidiaries.

Image: The AIG Towers of Los Angeles. Photo Courtesy of HanSangYoon/Wikipedia.