Old Republic sells remaining MI business to Arch

In selling the remainder of its mortgage insurance line to Arch Capital Group, Old Republic International removes any possibility that this zombie business could be revived.

On at least three separate occasions, the most recent in 2017, Old Republic has considered starting to write new policies again out of the unit, which had been in run-off status since September 2011.

Over that time, the possibility remained that the company could resume physical production capabilities via an entity currently not in the mortgage insurance business acquiring any state licenses it still held.

But "with Arch Capital's purchase of the platform, that risk is removed, so we view this as a modest positive for the MI industry," wrote Bose George, Keefe, Bruyette & Woods analyst in a flash note on the sale.

Arch will pay approximately $140 million for all of the capital stock of RMIC Cos. and its wholly owned subsidiaries that make up the run-off business.

The deal is expected to close in the first half of next year. For the fourth quarter, the mortgage insurer is expected to upstream to its soon-to-be former parent company a dividend of $25 million. It made a similar payment in the third quarter.

"Since placing this business in run-off in 2011, we have been able to preserve significant value for shareholders and we are grateful for the many years of hard work and dedication of our RMIC associates," Old Republic President and CEO Craig Smiddy said in a press release. "In the last five years our run-off reserves have developed favorably, enabling us to receive over $398 million of dividends from these subsidiaries, inclusive of the $25 million expected in the 4th quarter."

The end for RMIC began in late July 2011 as Fannie Mae terminated its counterparty status, followed days later by Freddie Mac.

Even so, Smiddy's predecessor as CEO, Aldo Zucaro, made two definitive attempts, in 2012 and 2014, to recapitalize and restart RMIC. Even as late as 2017, he was still interested in finding ways to make that happen.

Republic Mortgage Insurance Co. was the last of the three legacy platforms still available from underwriters that were forced to stop writing new business because of losses during the Great Financial Crisis.

In November 2009, de novo company Essent Guaranty purchased the operating platform of Triad Guaranty. Arch Capital, which previously had been writing mortgage insurance overseas and also was in the reinsurance business, picked up PMI's platform in February 2013 when it purchased CMG Mortgage Insurance, which had been a joint venture between the bankrupt company and CUNA Mutual.

Arch would acquire what was then the largest MI underwriter, United Guaranty Corp. from American International Group in 2017.

RMIC's risk-in-force portfolio as of the end of the third quarter was down to $1 billion, a fraction of the $75.9 billion that Arch U.S. MI now holds, it said in its own press release.

"Our ability to leverage the scale of our platform to gain significant expense and capital synergies makes this an attractive financial transaction for Arch," said David Gansberg, CEO of its Global Mortgage Group. "Our teams are experienced and proficient at acquiring and integrating mortgage insurance companies, which we expect will help us quickly maximize the value of this acquisition."

In the third quarter, the RFIG run-off segment for Old Republic, primarily the mortgage insurance unit, reported operating income of $4.5 million, versus $9.2 million one year prior.

The decline reflects the continued shrinking of net premiums earned, to $3.8 million for the third quarter from $5.5 million for the same period in 2022.