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ARCH CAPITAL GROUP LTD. 8-K Report, Material Agreement (Feb 8, 2013)

Filed February 8, 2013For Securities:ACGLACGLNACGLO

Summary

Arch Capital Group Ltd. (ACGL) announced on February 8, 2013, the execution of two significant agreements to expand its U.S. mortgage insurance operations. The company, through its subsidiaries, entered into an Asset Purchase Agreement to acquire certain assets and the common stock of PMI Mortgage Assurance Co. from PMI Mortgage Insurance Co. for $90.0 million. Concurrently, ACGL entered into a Stock Purchase Agreement to acquire all outstanding shares of CMG MI and CMG Mortgage Assurance Company from CMFG Life Insurance Company (CUNA Mutual) and CMG Mortgage Insurance Company. The estimated consideration for the CMG transaction is approximately $120 million, subject to adjustments based on book value and potential capital contributions. These transactions, expected to close in 2013, are strategic moves to bolster ACGL's presence in the U.S. mortgage insurance market. The acquisition includes intellectual property, IT platforms, and the acquisition of entire mortgage insurance entities. Key conditions for closing include regulatory approvals (HSR Act), court approval, and the acceptance of employment offers by a substantial majority of the target companies' employees. The deals involve significant escrow deposits and indemnification provisions, reflecting the complexity of acquiring businesses in the insurance sector.

Key Highlights

  • 1Arch Capital Group Ltd. (ACGL) is acquiring assets and stock of PMI Mortgage Insurance Co. (PMI) for $90.0 million.
  • 2ACGL is also acquiring CMG Mortgage Insurance Company (CMG MI) and CMG Mortgage Assurance Company (CMG MA) for an estimated $120 million.
  • 3These acquisitions are intended to expand ACGL's U.S. mortgage insurance business.
  • 4The transactions involve acquiring intellectual property, IT platforms, and stock of subsidiary companies.
  • 5Key closing conditions include regulatory approvals (HSR Act), court approval, and employee retention.
  • 6Significant escrow deposits and indemnification arrangements are part of the agreements.
  • 7Both transactions are expected to close during 2013, subject to all conditions being met.

Frequently Asked Questions

The asset purchase from PMI Mortgage Insurance Co. is for $90.0 million. The stock purchase of CMG MI and CMG MA is estimated at approximately $120 million, subject to adjustment based on book value and other factors. The total estimated outlay is around $210 million, plus potential adjustments and deferred consideration.

These acquisitions are designed to significantly expand ACGL's footprint and capabilities in the U.S. mortgage insurance market. The acquisition of assets, technology, and established companies provides a platform for growth and market share expansion.

The primary hurdles include obtaining approval from relevant regulatory authorities, including the expiration of the waiting period under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act, and securing approval from the Arizona Superior Court. Additionally, ensuring that a substantial majority of the employees from the target companies accept employment offers with ACGL's subsidiaries is a condition.

Yes, the CMG Stock Purchase Agreement includes provisions for deferred consideration payments to the CMG Sellers, which will be made in installments over an agreed-upon period following the closing, based on the performance of the CMG Companies' portfolio of insurance policies in force as of closing.