Insurance giant American International Group has agreed to sell its mortgage-guaranty unit to Arch Capital Group for about $3.4 billion as part of its effort to return $25 billion in capital to shareholders by the end of this year.
The mortgate-guaranty business, United Guaranty, is the leader in the U.S. market, but is considerably smaller than AIG’s other businesses, generating $350 million in pretax operating income out of a companywide total of $2.57 billion for the six months through June 30.
AIG had disclosed plans to stage an initial public offering of United Guaranty, while retaining a majority stake. But according to The Wall Street Journal, the sale to Arch Capital helps it more quickly meet the capital-return pledge it made under pressure from billionaire investor Carl Icahn.
Earlier this month, AIG said it had so far returned $7.9 billion to shareholders, mostly from share buybacks.
United Guaranty has long operated as a separate entity, the WSJ noted, “making it easier to shed than other parts of [AIG] … as it seeks to slim down and make good on the ambitious capital-return pledge.”
Arch Capital, a Bermuda-based insurer and reinsurer, will move “from being a smaller-time player in the mortgage insurance business, leapfrogging everybody and becoming the largest mortgage insurer out there,” said Rob Haines, senior insurance analyst at CreditSights.
AIG announced its capital-return plan in January after a public showdown with Icahn and another billionaire shareholder, John Paulson, who called for a three-way split of the insurance conglomerate to and criticized its performance.
AIG’s Chief Executive Peter Hancock rejected a split, instead changing the company’s strategy to include measures he said would be better for investors.
The sale of United Guaranty “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,” he said in a news release.