SAN FRANCISCO Insurer Arch Capital Group Ltd., on Wednesday said it has made major changes to its proposed acquisition of CMG Mortgage Insurance because of concerns raised by Fannie Mae and Freddie Mac, the largest creditors of troubled PMI, half owner, along with CUNA Mutual Group, of CMG MI.
As a result, Fannie and Freddie did not file an objection to the deal in Arizona, where PMI currently is in receivership court, giving clearance to the acquisition. The court has scheduled a hearing on the deal for June 19.
PMI, which jointly owns CMG Mortgage Insurance with CUNA Mutual, has been in rehabilitation under the receivership of the Arizona Department of Insurance since 2011. It was harmed by the exploding number of mortgage foreclosures caused by the financial crisis.
In February, PMI and CUNA Mutual agreed to sell the credit union mortgage insurer to Arch Capital and its U.S. subsidiary, Arch U.S. MI, for $300 million. CMG Mortgage Insurance holds about half the market share for credit union private mortgage insurance in the U.S.
The new deal amends the purchase price to 80%, from 60% of CMG MI's closing date book value as determined under the CMG Stock Purchase Agreement. The Closing Date Payment will be based on the greater of $185 million and CMG MI’s actual closing date book value. The amended deal calls for the overall maximum purchase price payable to PMI and CUNA Mutual to increase from 110% to 150% of actual closing date book value of CMG MI’s pre-closing portfolio as calculated over the earn-out period to the extent such book value growth emerges.
The deal calls for an affiliate of Arch U.S. MI to reinsure the run-off of in-force insurance on current, non-delinquent loans included in the primary mortgage insurance originated by PMI for book years 2009-2011. Other than for the risks assumed by Arch U.S. MI’s affiliate under this reinsurance agreement, the Arch group will not assume any obligation for risks insured under PMI’s existing insurance contracts. Arch U.S. MI also will enter into a services agreement with PMI to provide for necessary services to administer the run-off of PMI’s legacy business at the direction of PMI.
Arch U.S. MI expects to hire the current experienced senior management team and staff of PMI. ACGL’s global mortgage insurance and reinsurance operations will report to Marc Grandisson, chairman and CEO of Arch Worldwide Reinsurance Group.
