AIG Completes $3.4B Sale of Mortgage Guaranty Unit to Arch Capital

January 3, 2017

American International Group said it has completed the $3.4 billion sale of its mortgage-guaranty unit to Arch Capital Group, an important piece of a wide-ranging, ongoing plan to cut jobs, streamline and overhaul the company.

The deal to sell United Guaranty Corporation (UGC), first announced in August 2016, was concluded on Dec. 31.

AIG President and CEO Peter Hancock said that the close of its transaction with Arch reflected a major move toward streamlining AIG.

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

AIG has been involved in a massive effort to reorganize and streamline, in part to fend off pressure from activist investor Carl Icahn to break up the insurer.

What Bermuda-based Arch Capital Group gains: AIG bills UGC as “the leading private mortgage insurance company in the United States.”

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.

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.

Source: AIG