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Assured Guaranty (AGO) Subsidiary to Acquire CIFG Holding

Assured Guaranty Corp. ("AGC"), a subsidiary of Assured Guaranty Ltd. AGO, inked a deal, to acquire CIFG Holding Inc. for $450 million cash. This buyout will not only enhance the acquirer’s franchise but also increase its capital base. The transaction, pending regulatory approvals, is expected to culminate by mid-2016.

CIFG Holding is the parent company of financial guaranty insurer, CIFG Assurance North America, Inc. Per the agreement, CIFG Assurance will merge with Assured Guaranty. Also, post merger, all the assets and obligations as well as insured bonds of CIFG Assurance will become part of the acquirer’s inorganic portfolio. The company will receive the financial strength ratings of the acquirer as well.

In addition, the policies, which were part of the 2009 reinsurance deal between CIFG Assurance and Assured Guaranty will become direct obligations of the latter. Such obligations, insured by the aforementioned policies, will also receive the financial strength ratings of the acquirer.

Apart from building the acquirer’s franchise by adding a solid book of business, this transaction is expected to increase the acquirer’s policyholders’ surplus.

Assured Guaranty has continuously bolstered its inorganic portfolio through prudent acquisitions and the latest transaction marks the third buyout of a legacy bond insurer. In 2015, Assured Guaranty purchased Radian Asset Assurance Inc., while it purchased Financial Security Assurance Inc. (now Assured Guaranty Municipal Corp.) in 2009.

The acquisition is expected to be accretive to the Zacks Rank #4 (Sell) muti line insurer’s earnings per share, operating shareholder’s equity and adjusted book value. Also, the value and market liquidity of the insured bonds of CIFG Assurance are likely to witness substantial improvement.

CIFG Assurance had an insured portfolio of $5.6 billion of net par and around $637 million of statutory capital as of Dec 31, 2015. With the latest acquisition, Assured Guaranty’s statutory capital is estimated to increase by about $300 million to $325 million in 2016.

Following the inorganic route to ramp up one’s growth profile seems a well-accepted strategy among insurers as acquisitions and consolidations rage this space. Recently, Marsh & McLennan Agency LLC (“MMA”), the middle market agency subsidiary of Marsh & McLennan Companies, Inc. MMC, acquired Corporate Consulting Services, Ltd. for an undisclosed amount. Also, Sun Life Assurance Company of Canada, the wholly owned subsidiary of Sun Life Financial Inc. SLF acquired the employee benefits business of Assurant Inc. AIZ for $940 million.

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MARSH &MCLENNAN (MMC): Free Stock Analysis Report
SUN LIFE FINL (SLF): Free Stock Analysis Report
ASSURANT INC (AIZ): Free Stock Analysis Report
ASSURED GUARNTY (AGO): Free Stock Analysis Report
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