Reinsurance Contract Important for AIG in UG Sale to Arch

A reinsurance contract from Arch Capital Group to American International Group to cover United Guaranty Corp.'s policies written between 2014 and 2016 was an important element of the private mortgage insurer's sale.

The contract is not part of the $3.4 billion "headline purchase price" for UGC, said Rob Schimek, executive vice president and CEO of commercial insurance, at the Barclays Global Financial Service Conference on Monday.

"The truth of the matter is, obviously it's a transaction with all of those factors put in place, the headline price as well as the reinsurance agreement, that makes sense for both Arch and for AIG. So you can imagine that this was an interconnected element of the negotiation. But I think many people skip past that reinsurance element way too fast," he said.

The sale agreement cancelled a planned initial public offering for UGC where AIG would have retained majority ownership of the private mortgage insurer.

The New York-based holding company looked at a partial IPO, a full IPO and multiple sales opportunities, "and ultimately we concluded that the best economic answer for AIG was this sale to Arch, which we announced just last quarter," Schimek said.

AIG will disclose more about what it plans to do with the proceeds from the sale when it closes, which is expected to take place late this year or early next year, he said.