Arch to Buy PMI Assets in $300 Million Mortgage WagerZachary Tracer
Arch Capital Group Ltd., the Bermuda-based insurer, said it’s adding assets from bankrupt insurer PMI Group Inc. in a $300 million deal to enter the U.S. mortgage guaranty business as the housing market rebounds.
Arch is acquiring CMG Mortgage Insurance Co. and PMI’s mortgage insurance operating platform, and will hire staff from PMI, the buyer said in a statement today. Arch will reinsure some coverage written by PMI, avoiding the books that drove the Walnut Creek, California-based firm to failure.
An improving U.S. housing market has attracted fresh investors to mortgage insurance, after the worst housing slump since the Great Depression hurt the industry. New insurer NMI Holdings Inc. raised $550 million in private capital last year to back home loans. Essent Guaranty Inc., whose backers included Goldman Sachs Group Inc. and PartnerRe Ltd., began writing some policies in 2011 after buying assets from Triad Guaranty Inc., another hobbled mortgage insurer.
“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,” Constantine Iordanou, chief executive officer of Arch, said in the statement. Arch will benefit from “significant opportunities in the U.S. mortgage insurance marketplace,” he said.
U.S. home prices rose 8.3 percent in December from a year earlier, the biggest jump since May 2006, according to data from CoreLogic Inc. Higher housing values benefit mortgage insurers, which pay lenders when homeowners default and foreclosures fail to recoup costs.
Arch provides insurance for construction, health care and environmental risks, and sells workers’ compensation and medical-liability coverage. The company has about $5.75 billion in capital and operates in the U.S. and Europe.
The insurer has gained at least 18 percent each of the past three years in New York trading, and has climbed 11 percent since Dec. 31. Arch rose 2.8 percent to $48.85 at 4 p.m. in New York.
PMI filed for bankruptcy protection in November 2011 after the Arizona Department of Insurance took over the main unit as claims on sourced mortgages drained capital. Triad also had to stop selling new policies when capital ran short, and Old Republic International Corp. has scaled back from the market.
Firms including American International Group Inc., Radian Group Inc., Genworth Financial Inc. and MGIC Investment Corp. still offer the coverage.
Arch said it expects the deal to be completed within 12 months. The transaction needs approvals from an Arizona court, insurance regulators, and government mortgage-finance firms Fannie Mae and Freddie Mac, Arch said in the statement.