The bogus transaction the receiver is trying to pull off with Arch is stealing at least $1 per share from PMI's insureds and ultimately shareholders once the holding company gets PMI back. They are selling all the profits from the good books, 2009-2011, to Arch for $90M. But if you look at the estimates from MGIC on their recent earnings call, $20B in NIW is worth $400M in future cash flows. PMI wrote $20B in NIW from 2009-2011, so you have to figure at least $250M in future cash flows, if not more, is still embedded in those books. But the receiver is selling those books for $90M, meaning the theft per share is over $1. This is a ripoff of the insureds (who happen to be Freddie and Fannie, and therefore, you the taxpayer) and ultimately the shareholders. I urge you all to contact your Congressional representative to force the FHFA to block this theft and have the assets returned to their rightful owners. The FHFA can act because Arch wants to enter the MI space and needs Fannie and Freddie to approve them. That is fine if they do, but not at the cost of the shareholder. I have personally contacted my congressional reps (one of whom is Mr Hensarling). Please do the same.
I went back and looked at Petition 24 more closely. Based on this, I withdraw my statement that penknife is wrong. Though I'm not saying he is right either.
Exhibit 5, Item #52 describes a 100% quota share reinsurance agreement for the non-delinquent 2009-11 policies effective as of July 1, 2012. I'm no MI expert, but I believe traditional reinsurance was simply "insurance on the insurance" and didn't involve selling the original insurance policies. However then it states, "The Arch Capital reinsurer will pay a $90 million ceding commission at closing to PMI and PMI will transfer to the Arch Capital reinsurer the unearned premium and the economics of the book of business between July 1, 2012, and the closing date.". This seems very odd. With traditional reinsurance I would think the insurer would have paid the reinsurer to initiate coverage, not vice-versa.
Item #53 then states "The Receiver estimates the ceded income to the Arch Capital reinsurer to range, before taking into account the $90 million ceding commission to be paid to PMI at closing, between $158 million in an upside case and $118 million in a downside case." So I can see how penknife concludes the Receiver may be giving away something.
Item #64 states the ultimate value of the proposed Transaction to the PMI estate ranges between $227 million and $267 million. I believe that includes CMG and PMAC.
I don't entirely understand the deal. There is no mention of what happens to MIC's NOLs. To realize their value the profits need to remain in MIC. I am not sure why Receiver would sell MIC's unearned premiums, but perhaps that was a necessary carrot to get Arch to agree to the overall deal.
If the above numbers are right, then $1B NOLs seems far more than MIC will ever be able to use. If true, then the unused NOLs may become property of holdco if/when MIC is returned to holdco.
OK Dan ; I like the fact that you withdrew your statement regarding petition 24 ; it does not matter who is wrong or right but rather try to dissect into this mess and figure out where we Common stand
Sentiment: Strong Buy
I don't disagree that the Arizona Receiver totally shafted this company.
However I think your analysis is off. Only CMG and PMAC have been sold. The bulk of insurance written within MIC is staying in MIC in runoff mode. This includes the recent books which will be profitable, which is why Receiver approved a payment from MIC to holdco for $1B of NOLs. The Receiver agrees recent books will be profitable, but the profits will be used to pay policyholder claims. As long as MIC still has a policyholder deficit, no profits will go back to holdco.
You are wrong. Look on the receivership website, Petition 24, page 22, there is a section titled "Reinsurance Agreement on 2009-2011 PMI Policies". It describes the theft:
"PMI and Arch Capital will enter into a 100% quota share reinsurance agreement for the non-delinquent 2009-2011 policies effective as of July 1, 2012."
This is a blatant ripoff of policyholders, taxpayers, and shareholders. As described by MGIC and other MIs (for example, see Genworth's presentations on their US MI subsidiary), the 2009-2011 books have at least $250M, if not more, in value from 7/1/12 forward. For that value, Arch is paying $90M.
Those profits will NOT be used to pay policyholders claims under this agreement - PMI will get $90M, nothing more, and in exchange will send the profits to Arch.