Commonwealth, Amerin Guaranty to Merge in $650M Deal

Commonwealth Mortgage Assurance Co. Monday said it would merge with Amerin Guaranty Corp. in a deal valued at more than $650 million.

The merger is expected to be the first in a long line of deals in the mortgage insurance industry, which has been suffering from cutthroat competition among eight participants.

"In an industry that has overcapacity in terms of capital, this needed to happen," said Edwin Ciskowski, analyst at SunTrust Equitable Securities, Chicago.

The deal is a stock-for-stock transaction, in which Amerin stockholders would receive 0.5333 shares of CMAC for every Amerin share they own. The market capitalization of the two companies combined is $1.8 billion.

Frank Filipps, president, chairman, and chief executive officer of Philadelphia-based CMAC, would be at the helm of the new company as chairman and chief executive. Roy Kasmar, president and chief operating officer of Chicago-based Amerin, would be second in command, retaining his previous titles.

CMAC is the fifth-largest mortgage insurer, Amerin the seventh-largest. The companies wrote $25 billion of new policies in the first nine months of the year, or 19% of total insurance written, putting them in the No. 2 spot behind Mortgage Guaranty Insurance Corp., which wrote $31 billion or 23%.

The merger deal is seen as a complementary fit, as there is little overlap between the two companies' clienteles.

Amerin, founded in 1992, focused exclusively on the largest mortgage banking companies, whereas CMAC sold insurance for middle-tier lenders. CMAC has 3,500 clients, Amerin only 60.

Other possible mergers of mortgage insurance companies "would have cannibalized some of the business," Mr. Kasmar said.

Amerin would close its Chicago headquarters and move to Philadelphia, where CMAC's main offices are located.

Company officials said the merger would necessitate some layoffs on the Amerin side in administrative areas such as accounting, customer services, and technology. The officials declined to say how many employees would lose their jobs.

Both stocks rallied on the news, Amerin to $23.5625, up $2.6875, and CMAC to $45.875, up $1.9375.

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