Arch Capital Group Ltd. to Enter U.S. Mortgage Insurance Market Through Acquisition of CMG Mortgage Insurance Company and the Operating Platform of PMI Mortgage Insurance Co.
Arch Capital Group Ltd. [Nasdaq: ACGL] today announced that its
U.S.-based subsidiaries (Arch U.S. MI) have entered into a definitive
agreement to acquire CMG Mortgage Insurance Company (CMG MI) from its
current owners, PMI Mortgage Insurance Co. (PMI), which has been in
rehabilitation under the receivership of the Arizona Department of
Insurance since 2011, and CMFG Life Insurance Company (CUNA Mutual).
Arch U.S. MI also agreed to acquire PMI’s mortgage insurance operating
platform and related assets from PMI. This transaction will allow ACGL
to enter the rapidly improving U.S. mortgage insurance marketplace and
will broaden its existing mortgage insurance and reinsurance
capabilities. Arch U.S. MI expects to hire the current experienced
senior management team and staff of PMI. ACGL’s global mortgage
insurance and reinsurance operations will report to Marc Grandisson,
Chairman and CEO of Arch Worldwide Reinsurance Group.
The transaction will provide Arch U.S. MI with nationwide mortgage
insurance licenses and a comprehensive mortgage insurance operating
platform. Additionally, Arch U.S. MI expects to enter into distribution
and reinsurance agreements with CUNA Mutual, which will continue to
serve credit union customers on behalf of Arch U.S. MI. With these
proposed arrangements, Arch U.S. MI will gain significant access to the
credit union marketplace immediately upon closing.
It is anticipated that the transaction will close within 12 months,
subject to approvals of the Arizona receivership court, applicable
regulators and government-sponsored enterprises (GSEs), including the
Federal National Mortgage Association (Fannie Mae) and the Federal Home
Loan Mortgage Corporation (Freddie Mac), and the satisfaction of
customary closing conditions. Additional transaction highlights are
included below.
Constantine (Dinos) Iordanou, Chairman and CEO of ACGL, commented, “We
are extremely pleased to be able to provide a strong source of private
capital to a U.S. mortgage insurance market in great need of capacity,
subject to obtaining all required approvals. We believe that this
transaction, which is consistent with our strategy of moving into new
specialty lines of business where we can hire experienced teams that fit
our corporate culture, will allow us to capitalize on significant
opportunities in the U.S. mortgage insurance marketplace. The new
operation will complement our existing European Union-based mortgage
insurance and global reinsurance operations, providing us with a
platform to participate in mortgage insurance and reinsurance business
on a worldwide basis.”
Marc Grandisson commented, “We are very gratified that PMI’s
exceptionally strong management team and staff will be joining Arch.
Together with our senior executives, they will form an industry leading
team with broad capabilities to meet our clients’ needs over the long
term. We are also extremely pleased to partner with CUNA Mutual on an
ongoing basis. Their access to the credit union marketplace and brand
reputation should allow us to secure a strong flow of credit union
business.”
“The petition being filed for court approval of this agreement is a
significant milestone and positive step in the PMI receivership,” said
Germaine L. Marks, Director of the Arizona Department of Insurance. “The
successful negotiation of this transaction clearly evidences Arch's
commitment to the private mortgage insurance market, and the PMI
receivership team looks forward to building on that commitment and our
relationship with Arch as we move forward.”
Additional Transaction Highlights
Outlined below are some of the key components of the transaction, all of
which are subject to the terms and conditions included in the related
agreements:
-
At closing, it is currently estimated that Arch U.S. MI and its
affiliates will pay to the sellers aggregate consideration of
approximately $300 million. Additional amounts may be paid based on
the actual results of CMG MI’s pre-closing portfolio over an agreed
upon period.
-
Arch U.S. MI will acquire all of the capital stock of CMG MI and its
affiliates.
-
Arch U.S. MI will acquire PMI’s mortgage insurance operating platform
and related assets.
-
An affiliate of Arch U.S. MI will reinsure the run-off of in-force
insurance on current, non-delinquent loans included in the primary
mortgage insurance originated by PMI for book years 2009-2011. Other
than for the risks assumed by Arch U.S. MI’s affiliate under this
reinsurance agreement, the Arch group will not assume any obligation
for risks insured under PMI’s existing insurance contracts.
-
Arch U.S. MI will also enter into a services agreement with PMI to
provide for necessary services to administer the run-off of PMI’s
legacy business at the direction of PMI.
-
Subject to applicable regulatory and GSE approvals, an affiliate of
Arch U.S. MI will provide quota share reinsurance to CMG MI through a
reinsurance agreement that will become effective prior to the closing.
About Arch Capital Group Ltd.
Arch Capital Group Ltd., a Bermuda-based company with approximately
$5.75 billion in capital at September 30, 2012, provides insurance and
reinsurance on a worldwide basis through its wholly owned subsidiaries.
Cautionary Note Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward−looking statements. This release or any other
written or oral statements made by or on behalf of Arch Capital Group
Ltd. and its subsidiaries may include forward−looking statements, which
reflect our current views with respect to future events and financial
performance. All statements other than statements of historical fact
included in or incorporated by reference in this release are
forward−looking statements.
Forward−looking statements can generally be identified by the use of
forward−looking terminology such as "may," "will," "expect," "intend,"
"estimate," "anticipate," "believe" or "continue" or their negative or
variations or similar terminology. Forward−looking statements involve
our current assessment of risks and uncertainties. Actual events and
results may differ materially from those expressed or implied in these
statements. A non-exclusive list of the important factors that could
cause actual results to differ materially from those in such
forward-looking statements includes the following: adverse general
economic and market conditions; increased competition; pricing
and policy term trends; fluctuations in the actions of rating
agencies and our ability to maintain and improve our ratings;
investment performance; the loss of key personnel; the
adequacy of our loss reserves, severity and/or frequency of
losses, greater than expected loss ratios and adverse development on
claim and/or claim expense liabilities; greater frequency or
severity of unpredictable natural and man-made catastrophic events; the
impact of acts of terrorism and acts of war; changes in regulations
and/or tax laws in the United States or elsewhere; our ability to
successfully integrate, establish and maintain operating procedures as
well as integrate the businesses we have acquired or may acquire into
the existing operations; changes in accounting principles or
policies; material differences between actual and expected
assessments for guaranty funds and mandatory pooling arrangements; availability
and cost to us of reinsurance to manage our gross and net exposures; the
failure of others to meet their obligations to us; and other
factors identified in our filings with the U.S. Securities and Exchange
Commission.
The foregoing review of important factors should not be construed as
exhaustive and should be read in conjunction with other cautionary
statements that are included herein or elsewhere. All subsequent written
and oral forward−looking statements attributable to us or persons acting
on our behalf are expressly qualified in their entirety by these
cautionary statements. We undertake no obligation to publicly update or
revise any forward−looking statement, whether as a result of new
information, future events or otherwise.