According to reports, a deal has been reached between American International Group and Arch Capital to sell mortgage insurance unit to the later for about $3.4 billion. The plans to stage an initial public offer of United Guaranty, the mortgage business was disclosed at the beginning of the year. It was to be done while preserving a majority stake. The goal of returning $25 billion to shareholders will be met more easily by selling the unit to Arch Capital.
There have been times where companies have chosen sales over initial public offer as the new issue market suffered. The Wall Street Journal confirmed the news about AIG being open to an outright sale of the unit in early August. According to conditions, Arch Capital will pay $2.2 billion in cash along with $975 million in stock and $250 million in another preferred stock, either cash or dividends.
Home purchasers putting down less than 20% of the purchase price are needed to acquire mortgage insurance to safeguard the lender from undergoing losses. The mortgage insurance operation of AIG is the leader in the U.S. market today with more than a fifth of the insurance share though the operation is comparably smaller than other operations.
Early this year and also in the last fall, AIG was in a public face-off with investors including John Paulson and Carl Icahn who called for a three-way split of insurance corporation and criticized its performance.
Arch Capital is huge in property casualty insurance and has a market value of about $9 billion. With this new move, Arch who has currently about 3% in the U.S. market will leave behind everyone and move forward from being