American International Group has announced on August 15 that it would sell its mortgage-guaranty unit to Arch Capital Group Ltd, a Bermuda-based writer of specialty lines of property and casualty insurance and reinsurance, for around $3.4 billion.
AIG Chief Executive Officer Peter Hancock has agreed to the deal in his latest attempt in restructuring his company and free up capital to return to investors.
The deal is estimated at $3.4 billion including $2.2 billion in cash and the rest in Arch securities, New York-based AIG said in a statement. AIG will retain a portion of mortgage-insurance business initiated from 2014 through 2016 through a previously released intra-company risk transfer deal.
AIG, the largest commercial insurer in the United States and Canada, said it would get $2.2 billion in cash, $250 million in Arch Capital’s perpetual preferred stock and $975 million in non-voting common-equivalent preferred stock from the sale of United Guaranty Corp.
The biggest commercial insurer has stated it would acquire $2.2 billion in cash with the rest in Arch securities. The corporation has stated that it would offshoot the mortgage insurance unit, lay off employees as well as selling its broker-dealer network included in its extensive overhaul which assured shareholders in fending off activist investor Carl Icahn who has been urging for the company to divide itself into three smaller companies. AIG reported a higher-than-expected quarterly profit, which was led by firm underwriting and low costs.
“Today we have reached an important milestone in a strategy we committed to in March 2015, when I stated in my first shareholder letter as AIG CEO that we would ‘sculpt the future AIG’ into a more focused company and that selective divestitures would be an important part of reaching that goal,” said Peter Hancock.
“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.”
“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.”
Shares of Arch Capital and AIG were unaffected in after-market trading on Monday.
J.P Morgan and Morgan Stanley were bankers for AIG, which got legal advice from Sullivan & Cromwell LLP. Arch used Credit Suisse Group AG and the law firms Cahill Gordon & Reindel LLP and Clyde & Co.