Arch Capital hits bull’s-eye with deal for AIG unit
NEW YORK (Bloomberg) — Like an archer at the Olympics, Arch Capital has landed its target: AIG's mortgage insurance business.
The Bermudian-based insurer said late on Monday that it would buy United Guaranty for $3.4 billion in cash and stock. The deal is set to be more than 35 per cent accretive to both its earnings per share on a run-rate basis and will also immediately lift the company's book value per share. Investors applauded Arch's biggest deal on record — the shares climbed as much as 5 per cent yesterday to the highest level since its initial public offering some 21 years ago.
The transaction isn't a complete surprise. Arch has been scaling back its property-and-casualty operations and recently made a notable stride in mortgage insurance. In the second quarter, that culminated in the latter posting an 81 per cent jump in new premiums written, a figure that was driven by its reinsurance of Australian mortgages.
For AIG, the price tag is lower than the $4 billion United Guaranty was said to be valued at in a planned IPO, but the sale allows for a cleaner exit. The insurance giant will receive at least $2.2 billion up front, and can begin selling its Arch Capital shares after an initial six-month lock-up.
The proceeds will come in handy for AIG, considering it hopes to return $25 billion to shareholders by the end of next year through dividends and buy-backs. On that basis, one can assume AIG's newest board members — John Paulson and Samuel Merksamer of Icahn Capital — were quick to give this deal the green light. Every dollar counts.

Need to
Know

2. Please respect the use of this community forum and its users.
3. Any poster that insults, threatens or verbally abuses another member, uses defamatory language, or deliberately disrupts discussions will be banned.
4. Users who violate the Terms of Service or any commenting rules will be banned.
5. Please stay on topic. "Trolling" to incite emotional responses and disrupt conversations will be deleted.
6. To understand further what is and isn't allowed and the actions we may take, please read our Terms of Service