AIG Nears Deal to Sell Mortgage-Insurance Unit to Arch Capital for About $3.4 Billion

American International Group Inc. is nearing a deal to sell its mortgage-guaranty unit to Arch Capital Group Ltd. for about $3.4 billion, according to people familiar with the matter, as the insurance giant has been speeding up the return of cash to restive shareholders.

An agreement between the companies could be reached as soon as early this week, some of the people said, cautioning that the talks could still fall apart.

AIG had announced plans early this year to stage an initial public offering of the mortgage business, known as United Guaranty, while retaining a majority stake. Selling the unit outright would help it more quickly meet a goal of returning $25 billion to shareholders. Indeed, there have been a number of instances lately in which companies have opted for sales instead of initial public offerings as the new-issue market languishes. The Wall Street Journal reported in early August that AIG was open to an outright sale of the mortgage-insurance unit.

Home buyers who put down less than 20% of the purchase price are required to obtain mortgage insurance to protect the lender from losses. Since the housing-bubble burst, mortgage insurers have posted better results due to the increasing quality of underlying loans and fewer defaults as the U.S. economy gradually improved.

AIG's mortgage-insurance operation, with about 20% market share in the U.S., has been one of the company's star performers of late. But it's considerably smaller than AIG's other businesses and has long operated as a separate entity. That makes it easier to divest than other parts of the company -- one of the world's biggest property-casualty businesses with a leading U.S. life-insurance operation -- as it seeks to slim down and make good on the ambitious capital-return pledge.

Write to Leslie Scism at and Joann S. Lublin at