HELD-FOR-SALE CLASSIFICATION

9 Months Ended

Sep. 30, 2016

HELD-FOR-SALE CLASSIFICATION

HELD-FOR-SALE CLASSIFICATION

4. HELD-FOR-SALE CLASSIFICATION

Held-For-Sale Classification

We report a business as held for sale when management has approved the sale or received approval to sell the business and is committed to a formal plan, the business is available for immediate sale, the business is being actively marketed, the sale is anticipated to occur during the next 12 months and certain other specified criteria are met. A business classified as held for sale is recorded at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its estimated fair value, a loss is recognized.

Assets and liabilities related to the businesses classified as held for sale are separately reported in our Condensed Consolidated Balance Sheets beginning in the period in which the business is classified as held-for-sale.

At September 30, 2016, held-for-sale assets and liabilities are comprised of the following:

United Guaranty

On August 15, 2016, we entered into a definitive agreement to sell our 100 percent interest in United Guaranty Corporation (UGCor United Guaranty) and certain related affiliates to Arch Capital Group Ltd. (Arch) for total consideration of $3.4 billion, consisting of $2.2 billion of cash, up to $250 million of newly issued Arch perpetual preferred stock, with terms similar to Arch’s outstanding Series C preferred stock, and approximately $975 million of newly issued Arch convertible non-voting common-equivalent preferred stock.

The closing of the transaction is subject to certain conditions, including obtaining the requisite regulatory approvals or non-disapprovals and other customary closing conditions.

In lieu of receiving the perpetual preferred stock, we have elected to receive $250 million in pre-closing dividends from UGC. Total consideration for the transaction is expected to be $3.4 billion. In the second quarter of 2015, a United Guaranty subsidiary and certain of our property casualty companies entered into a 50 percent quota share arrangement whereby the United Guaranty subsidiary (1) ceded 50 percent of the risk relating to policies written in 2014 that were current as of January 1, 2015 and (2) ceded 50 percent of the risk relating to all policies written in 2015 and 2016, each in exchange for a 30 percent ceding commission and reimbursements of 50 percent of the losses and loss adjustment expenses incurred on covered policies. Beginning in the third quarter of 2016, the effects of these intercompany reinsurance arrangements are included in the results of Commercial Insurance and Corporate and Other for all periods presented. Previously, these arrangements were eliminated for purposes of segment reporting.

Ascot

On September 16, 2016, we entered into an agreement to sell our 100 percent interest in Ascot Underwriting Holdings Ltd. (AUHL) and related syndicate-funding subsidiary Ascot Corporate Name Ltd. (ACNL) (together Ascot) to Canada Pension Plan Investment Board (CPPIB). Total consideration for the transaction is $1.1 billion inclusive of CPPIB’s recapitalization of Syndicate 1414 Funds at Lloyd’s (FAL) capital requirements. We expect to receive approximately $240 million in net cash proceeds from the transaction after the FAL recapitalization and release of the AIG-guaranteed letter of credit currently supporting the syndicate’s FAL. Such proceeds reflect 20 percent of AIG’s stake in AUHL and ownership of ACNL.

Consummation of the transaction is subject to customary closing conditions, including regulatory and other approvals.

Real Estate Investments

Certain real estate investments, including consolidated investment vehicles, met the criteria to be reported as held for sale and are included in the table below. 

The following table summarizes the components of assets and liabilities held-for-sale on theCondensed Consolidated Balance Sheets at September 30,2016:

		September 30,
(in millions)		2016
Assets:
Fixed maturity securities	$	4,233
Mortgage and other loans receivable, net		1
Other invested assets		1,006
Short-term investments		212
Cash		80
Premiums and other receivables, net of allowance		357
Deferred policy acquisition costs		179
Other assets		593
Total assets held for sale	$	6,661
Liabilities:
Liability for unpaid losses and loss adjustment expenses	$	1,074
Unearned premiums		1,164
Long-term debt		1,160
Other liabilities		511
Total liabilities held for sale	$	3,909