Investing.com -- American International Group Inc (NYSE:AIG) announced on Monday evening that it has entered into a definitive agreement to sell a 100% stake in United Guaranty Corporation (UGC) to Arch Capital Group, a Bermuda-based writer of specialty lines of property and casualty insurance and reinsurance.
The $3.4 billion cash-and-stock deal for AIG's mortgage insurance unit, includes $2.2 billion in cash, $250 million in Arch perpetual preferred stock and $975 million in newly issued Arch convertible, non-voting, common equivalent preferred stock. In addition, AIG had the option of accepting up to $250 million in pre-closing dividends in lieu of perpetual preferred stock, subject to regulatory approval, AIG said in a statement.
The move was widely expected after AIG made the Initial Public Offer of UGC earlier this year and restated the sale of the division as part of its key strategic objective moving forward. Dating back even further, AIG president and CEO Peter Hancock considered the divestiture pivotal in "sculpting the future," of the company when he penned his first letter to shareholders in March, 2015.
"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," Hancock said in a statement. "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, which was launched from an underwriting initiative in 2001 to meet investor demand in global insurance and reinsurance markets, operates on a worldwide basis in Bermuda, the U.S., Canada, Europe, Australia and South Africa. The Bermuda-based limited liability company currently maintains A+ ratings from S&P and Fitch, as well as an A1 credit rating from Moody's.
"We are excited about the combination of ACGL and United Guaranty because these companies have led the market in innovation through their risk based pricing models and focus on data analytics," said Dinos Iordanou, Chairman and CEO of Arch Capital Group Ltd. "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."
Shares in AIG closed at 59.22, up 0.37 or 0.63% in Monday's regular session. AIG shares were inactive in after-hours trading.