Arch Buying CMG from PMI and CUNA Mutual
A subsidiary of Arch Capital Group Ltd., a Bermuda-based insurance company, has agreed to buy CMG Mortgage Insurance Co. from its joint venture owners PMI Mortgage Insurance Co. and CUNA Mutual.
The transaction calls for a payout of $300 million at closing. Additional compensation is possible based on the performance of CMG’s preclosing portfolio.
Besides CMG, Arch U.S. MI has agreed to buy PMI’s operating platform and other assets; Arch said it expects to hire the current senior management team and staff of PMI.
However, several former executives of PMI, most notably Bradley Shuster and Glen Corso, are part of the executive team at National MI, the start-up operation which recently received Fannie Mae and Freddie Mac approvals and expects to start writing business later this year.
PMI has been operating in receivership through its regulator, the Arizona Department of Insurance. Parent company The PMI Group filed for bankruptcy protection in 2011.
The deal is expected to close within 12 months, subject to the approvals of the Arizona receivership court, regulators, Fannie Mae and Freddie Mac.
CUNA Mutual will enter into distribution and reinsurance agreements with CMG and Arch.
In a press release, CUNA Mutual president and CEO Jeff Post said, "Our goals have been consistent from the start of this process: Protect policyholders, deliver strong service to customers, and aim for a long-term, viable solution for credit unions to have a private mortgage insurer that is sensitive to, and understands their unique mission. Through its significant financial resources and risk management expertise, the agreement with Arch supports the stability and future growth of CMG."
"We are confident that, following the purchase of CMG by Arch, CMG will continue to provide the customer-focused products and services that have made CMG the long-standing market leader in meeting the mortgage insurance needs of credit unions."
Among the terms of the deal is that Arch will provide reinsurance for the run-off book of business originated by PMI between 2009 and 2011. But except than for the loan in that agreement, Arch will not assume any obligation for risks insured under PMI’s existing insurance contracts.
Arch will enter into a contract with PMI to provide the necessary services to administer the run-off book of business.
In a separate press release, Constantine Iordanou, chairman and CEO of Arch Capital, 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.”
A request for further comment from Arch has not yet been returned.