Arch Capital Acquires CMG Insurance - Analyst Blog
11 Février 2013 - 3:50PM
Zacks
Arch U.S. MI, the U.S. subsidiary
of Arch Capital Group Ltd. (ACGL) intends to foray
into the U.S. Mortgage Insurance market. It has announced that it
will acquire CMG Mortgage Insurance Company (CMG MI) from PMI
Mortgage Insurance Company for $300 million. PMI has been under
review of the Arizona Department of Insurance and CMFG Life
Insurance Company (CUNA Mutual). It had a 50% equity ownership in
CMG Mortgage Insurance Company and CMG Mortgage Assurance
Company.
The deal is expected to culminate within a year, pending regulatory
approval. Though the purchase consideration is estimated to be $300
million, additional amounts are payable depending on CMG MI’s
pre-closing portfolio over a pre-decided period. We believe the
strong cash position of the company to be sufficient to support the
transaction.
Per the transaction, Arch Capital will take over the entire capital
stock of CMG MI and its associates and also PMI’s mortgage
Insurance operating platform and related assets. Moreover, Arch
U.S. MI also expects to enter into a contract with CUNA Mutual,
under which the latter will continue serving the credit union
clients for the company. It is expected to strengthen its credit
union market operations.
Additionally, an Arch U.S. MI affiliate would be responsible for
reinsuring the run-off of in-force insurance on current,
non-delinquent loans within PMI’s primary mortgage insurance of
2009-2011 without any risk obligation. According to the deal, it
will also provide quota share reinsurance to CMG MI.
Thus the deal will not only entail Arch Capital to penetrate the
U.S. mortgage insurance market but also will help it obtain
mortgage insurance license throughout the nation, thereby
diversifying its business portfolio and providing a global
operating platform. The company also expects to employ the
competent senior management team of PMI to enhance its operating
efficiency.
Management expects the deal to complement its objective to expand
and capitalize on new specialty lines of business. The company is
optimistic about the incorporation of PMI’s staff strength as this
will entail it to serve more clients more efficiently.
Last month, another financial
services company, Fidelity National Financial
(FNF), acquired America’s leading employee benefits platform
Digital Insurance, Inc. (Digital) to expand its existing employee
benefits market rapidly.
Arch Capital group currently
carries a Zacks Rank #3 (Hold). Others from the industry, like
Cincinnati Financial (CINF), RLI
Corp. (RLI) as well as Fidelity National carry a favorable
Zacks Rank #1 (Strong Buy) and are worth noting.
ARCH CAP GP LTD (ACGL): Free Stock Analysis Report
CINCINNATI FINL (CINF): Free Stock Analysis Report
FIDELITY NAT FI (FNF): Free Stock Analysis Report
RLI CORP (RLI): Free Stock Analysis Report
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