The PMI Group entered into a definitive agreement to sell its Australian mortgage insurance subsidiary and related Australian holding company to QBE Insurance Group, the country's biggest international general insurance and reinsurance group.
According to a release from the firm, this deal will enhance PMI's overall liquidity and support opportunities for its U.S. mortgage insurance operations.
The purchase price is roughly 100% of the net tangible asset value of PMI Australia under U.S. GAAP as of June 30, 2008.
The aggregate purchase price payable upon closing is about $920 million, which is subject to adjustment under certain limited circumstances, including an event of a material adverse change in PMI Australia's business before the closing of the deal.
The purchase price will be payable 80% in cash at closing and 20% payable in the form of an interest-bearing promissory note issued by QBE, according to the PMI release.
According to the terms of the sale, the promissory note matures and is payable in September 2011, and the actual amount payable on the note could be reduced to the extent that the performance of PMI Australia's existing insurance portfolio as of June 30 does not achieve specified targets. Interest will be accrued from July 1, 2008 for the cash component of the purchase price until the closing of the deal and through September 2011 for the note.
In connection with the transaction, PMI will also fund premiums of about $46.5 million to assist in procuring an excess of loss reinsurance cover for PMI Australia. The agreement provides for reinsurance profit-sharing for a half of the reinsurance premiums at the end of the three-year policy life, subject to certain conditions.
"This transaction is a strategic move that will benefit both companies," said Steve Smith, chairman & CEO of The PMI Group. "PMI Australia's customers will benefit from the financial strength, expertise, and operational excellence of QBE, and PMI Australia's employees will gain the scale and resources QBE will bring them to expand and grow their business in Australia. We are extremely proud of the business operations that our Australian team, with assistance and support from our U.S. team, has built and the reputation for outstanding customer service that PMI Australia enjoys in the mortgage market."