Radnor Re 2018-1 Ltd.

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Radnor Re 2018-1 Ltd. - At a glance:

  • Issuer / SPV: Radnor Re 2018-1 Ltd.
  • Cedent / Sponsor: Essent Guaranty
  • Placement / structuring agent/s: ?
  • Risk modelling / calculation agents etc: N/A
  • Risks / Perils covered: Mortgage insurance risks
  • Size: $424.412m
  • Trigger type: Indemnity
  • Ratings: Morningstar: M-1 - BBB; M2 - BB-; B1 - B+
  • Date of issue: Mar 2018

Radnor Re 2018-1 Ltd. - Full details

This is the first mortgage insurance ILS issuance to be sponsored by Essent Guaranty, using a new Bermuda-based special purpose insurer (SPI) for the issuance of its first mortgage insurance ILS transaction.

The Radnor Re 2018-1 Ltd. vehicle will be used to issue a mortgage insurance-linked securitisation, that will transfer a portion of the risk contained within Essent Guaranty’s mortgage insurance portfolio to capital market investors, using a catastrophe bond-like structure.

We’re told that this Radnor Re 2018-1 mortgage ILS deal will likely be announced within days and that it is likely to secure the sponsor, Essent Guaranty, around $360.75 million of fully collateralized excess of loss mortgage reinsurance coverage.

The notes issued by Radnor Re 2018-1 Ltd. are being sold to qualified institutional investors, including some ILS funds we understand, with the proceeds set to be used to collateralize reinsurance agreements between the SPI and Essent. The notes have a 10-year term.

These mortgage ILS transactions see primary mortgage insurer looking to the capital markets and ILS as a way to augment their reinsurance protection for mortgage insurance books, in a fully-collateralized transaction similar to a catastrophe bond or other insurance-linked security.

At this stage it’s not clear if the protection is for Essent’s legacy mortgage book or a recently underwritten portfolio, but the end result is the same, a transfer of a portion of the mortgage insurance risk to capital markets investors.

The capital market investors backing the $360.75 million of notes issued by Radnor Re 2018-1 are taking on the risk of Essent suffering mortgage insurance losses above a pre-defined indemnity trigger level on certain segments of its mortgage insurance portfolio, we understand.

This transaction is split into three classes of notes, a $161.277 million M-1 tranche, a $178.253 million M-2 tranche and a $21.221 million class B-1 tranche which will be issued and sold to investors.

These tranches of notes issued by Radnor Re 2018-1 will provide reinsurance totalling $360.75 million from this offering. These note tranches are exposed to the risk of reinsured losses on the mortgage insurance policies issued by Essent Guaranty, Inc., the ceding insurer under the terms of the transaction.

The notes will cover mortgage insurance risk linked to a pool of $40.55 billion of insured mortgage loans, for which the mortgage insurance policy coverage amount totals $9.99 billion.

Morningstar is set to rate the $360.75 million of mortgage insurance-linked notes that are being issued, and said of the deal, “Radnor Re 2018-1 is backed by reinsurance premiums and related account investment earnings and reversionary interests, in each case relating to a pool of mortgage-insurance policies linked to residential loans. The residential mortgage loans are insured against certain losses by mortgage insurance policies that are in turn subject to the coverage provided by the Reinsurance Agreement.

“The pool of insured mortgage loans consists of fully amortizing, fixed-and variable rate, first-lien loans that have never been reported as in default as of the cutoff date. The pool is geographically diverse, with the largest state concentration in California at approximately 10.0% of the balance.”

Update 1:

The Radnor Re 2018-1 mortgage insurance ILS transaction from Essent Guaranty received strong investor demand, helping the transaction to increase in size to $424.412 million.

Essent Group announced the pricing of the Radnor Re 2018-1 notes, saying that its subsidiary Essent Guaranty will benefit from $424,412,000 of fully collateralized excess of loss reinsurance protection from Radnor Re at inception of the deal.

The reinsurance protection will cover an existing portfolio of mortgage insurance policies that had been underwritten with an insurance coverage effective date on or after January 1st 2017, but before January 1st 2018.

After pricing and thanks to strong investor demand for the mortgage ILS offering, Essent said that the Class M-1 tranche has grown to $189.737 million (consisting of $188.837m of 144a notes and $900k of RegS notes), the Class M-2 tranche has grown to $209.71 million (consisting of $208.97m of 144A notes and $740k of RegS notes) and the Class B-1 tranche has upsized to $24.965 million (all 144A).

At the same time the pricing has been fixed for each of the tranches of notes and we understand that generally the trend in pricing over the course of marketing the mortgage ILS deal was downwards.

The Class M-1 tranche will offer investors an initial interest rate of one-month LIBOR plus 1.4%, the Class M-2 tranche will pay 2.7% above LIBOR and the Class B-1 tranche will pay 3.8% above LIBOR.




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