American International Group Inc.’s Donna DeMaio, who has management duties for several different segments of insurance, was designated to stick with the mortgage-guaranty subsidiary that the company plans to exit, Chief Executive Officer Peter Hancock said.
DeMaio, 56, has led a revival of the United Guaranty Corp. business since being named CEO of the unit in 2012. She was also appointed in October as president of credit insurance, giving her oversight of a business line that includes political-risk, trade-credit and surety coverage.
Hancock announced Tuesday that AIG will offer a minority holding of UGC to the public and would then be open to buyout bid for the unit. He added in an interview that DeMaio would be the right leader for UGC, whether New York-based AIG exits through additional share sales or an auction.
“I would see her as an excellent leader in private or public ownership,” Hancock said after his presentation to Wall Street. “By floating a 20 percent stake, it gives us a lot of strategic flexibility. It gives us price discovery. It sends a very clear signal to strategic buyers that we would be a seller.”
UGC would probably be worth about $3.2 billion as an independent company, based on valuations for publicly traded mortgage insurers, Meyer Shields, an analyst at Keefe, Bruyette & Woods, said in a note this week. That figure would have been higher before the plunges of MGIC Investment Corp. and Radian Group Inc., which each dropped more than 20 percent in New York trading this year amid increased competition for business and a broader market decline.
Improving Fundamentals
“The business fundamentals are still good and improving” in the industry because of strength in the housing market, Jack Micenko, an analyst at Susquehanna International Group, said in an interview. “And AIG’s no different, so I think there will be demand” when Hancock exits UGC.
Mortgage insurers cover losses for lenders when homeowners default and foreclosure fails to recoup costs. DeMaio was previously CEO of MetLife Bank. Micenko said her company is already a leader among U.S. mortgage insurers, but that she will face new challenges leading a publicly traded firm.
“Running a company inside of a company, yes it’s a tough job,” Micenko said. “But the added challenge of having relationships with institutional investors is another responsibility.”
AIG may want to wait for a rebound among mortgage-insurer stocks before exiting a majority stake, Bose George, an analyst at KBW, said in an interview. He said that UGC could be a good fit with Arch Capital Group Ltd., the Bermuda-based insurer that pushed into mortgage coverage with a 2013 deal to buy assets from PMI Group Inc.
Tax Advantages
“People are curious whether there are other insurers that might be interested, especially Bermuda-based companies because there are some obvious tax advantages” compared with the U.S., George said. MGIC is based in Milwaukee, and Radian in Philadelphia. A representative from Arch declined to comment.
DeMaio is among several AIG executives who are becoming more visible after the departure of top managers in a shakeup last month and Hancock’s announcement Tuesday that he is creating new business “modules” to highlight units’ prospects to investors and potential buyers.
Greer, Harbeck
Charlie Shamieh, who previously oversaw life, health and disability operations, was named CEO of a legacy unit for businesses that AIG plans to sell or wind down. Rod Rishel was given duties previously handled by Shamieh, according to a memo to employees sent by consumer insurance head Kevin Hogan and obtained by Bloomberg News.
Hogan also announced that Bob Noddin will oversee Japan, and Gaurav Garg will manage personal insurance. U.S. individual and group retirement will be led by Jana Greer, and Peter Harbeck will be in charge of retail mutual funds.