AIG has agreed to sell United Guaranty Corporation (UGC), its mortgage-guaranty unit, to Arch Capital for about $3.4 billion – $2.2 billion in cash – the rest in Arch Capital stock.

In January, AIG said it would spin off the mortgage insurance unit to fend off activist shareholders Carl Icahn and John Paulson.

AIG’s President and CEO Peter Hancock says the deal with Arch addresses commitments made to focus the insurer, while enhancing its capital position.

Arch Chairman and CEO, of, Constantine Dinos Iordanou“said he was “extremely pleased to be able to expand our private mortgage insurance business…” By adding UGC’s business to Arch’s existing mortgage insurance operation, Arch will be the largest private mortgage insurer in the world (based on insurance in-force, with a global footprint).

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