GMAC LLC, the auto and home lender that has been shut out of some credit markets, said Monday that it has sold a reinsurance business to Maiden Holdings Ltd. and agreed to sell it two other insurance units as part of its efforts to avoid a cash squeeze.
Maiden, of Bermuda, said it plans to raise $260 million through a rights offering in connection with the deal. Financial terms of the deals were not disclosed.
GMAC, partly owned by General Motors Corp., is selling profitable insurance units as it searches for new sources of capital after reporting $5.4 billion of losses in the past year. The Detroit lender has said it has limited access to funding for home and auto lending and has tightened standards, making auto loans only to borrowers with excellent credit scores.
"From GMAC Insurance's perspective, given the current historic market turmoil, this addresses some of our current concerns in terms of providing liquidity and shoring up capital," said Sarah Comstock, a spokeswoman for GMAC's underwriting operations.
The reinsurance unit earned $65 million pretax last year on policy sales of $525 million, providing protection to small and regional insurance companies. About 120 GMAC employees will join Maiden, which will rename the unit Maiden Re.
GMACI Holdings LLC, known as GMAC Insurance Group, includes more than a dozen operating units, with about $4 billion in sales last year, according to the National Association of Insurance Commissioners. In addition to reinsurance, it provides coverage for vehicles and homes, warranties, roadside assistance plans, and commercial insurance for auto dealers.
In April, control of the insurance group was transferred to Cerberus Capital Management LP, the majority owner of GMAC, in an effort to insulate the company from mortgage losses and corporate credit problems. GMAC Insurance Group earned $459 million last year.
