Fitch Bullish on Arch’s CMG Buy

Fitch Ratings said Arch Capital’s proposed purchase of CMG Mortgage Insurance Co. from PMI Group and CUNA Mutual represents the opportunity for the Bermuda-based insurer to add an additional diversified source of earnings.

The ratings agency recently affirmed Arch’s ratings and stable outlook.

Arch will pay $300 million at closing for CMG.

CMG is a joint venture between PMI Mortgage Insurance Co. and CUNA Mutual that concentrated on the credit union market. The sale to Arch, which includes the PMI operating platform and personnel, would bring a third new entrant into the U.S. private mortgage business since the bust, the other two being Essent (already active) and National MI (approved by Fannie Mae and Freddie Mac and expected to be active soon).

Fitch noted Arch “currently writes European Union-based mortgage insurance.

“However, it also represents a challenge in generating favorable profitability in a line of business which experienced severe difficulty during the financial crisis. Nevertheless, Fitch expects that Arch’s approach to developing the business will be controlled and prudently managed to the company’s conservative underwriting and risk-management standards.”