Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Home Re 2018-1 Ltd.

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Home Re 2018-1 Ltd. – At a glance:

  • Issuer: Home Re 2018-1 Ltd.
  • Cedent / sponsor: MGIC Investment Corporation
  • Placement / structuring agent/s: Credit Suisse is structuring agent and joint bookrunner.
  • Risk modelling / calculation agents etc: N/A
  • Risks / perils covered: Mortgage insurance risks
  • Size: $318.6m
  • Trigger type: Indemnity
  • Ratings: Morningstar: M-1 - "BBB-"; M-2 - "B+"; B-1 - "B+"
  • Date of issue: Oct 2018

Home Re 2018-1 Ltd. – Full details:

This is the first mortgage insurance ILS issuance to be sponsored by MGIC Investment Corporation and its Mortgage Guaranty Insurance Corporation entity, using a new Bermuda-based special purpose insurer (SPI) for the issuance of its first mortgage insurance linked notes transaction.

The goal of the transaction and the issuance of $318.6 million of mortgage linked notes is to secure a multi-year source of capital markets backed reinsurance capacity.

MGIC Investment Corporation, the parent of Mortgage Guaranty Insurance Corporation (MGIC), underwrote roughly $500 million of premium in the first-half of 2018 and has around $200 billion of primary mortgage insurance in force.

The company said that its Mortgage Guaranty Insurance Corporation entity intends to proceed with a capital markets-based reinsurance transaction, which it will enter into with a newly formed Bermuda special purpose insurer.

We understand that the SPI in question is Home Re 2018-1 Ltd., which was registered in Bermuda in September.

This is unsurprising, as MGIC had completed securitisations back in the mid-2000’s using the Home Re moniker, although these were a little different in structure to the current and recent wave of mortgage ILS for reinsurance purposes.

MGIC said that it anticipates purchasing $318.6 million of excess of loss reinsurance protection from Home Re 2018-1, to provide coverage for an existing portfolio of mortgage insurance policies.

Simultaneously, Home Re 2018-1 will issue an identical amount of unregistered securities which will be sold to third-party capital markets investors, providing the collateral to back the reinsurance coverage agreement.

The Home Re 2018-1 mortgage ILS transaction will be split into three tranches of notes. A $142.449 million tranche of Class M-1 notes, rated BBB- by Morningstar, a $157.444 million tranche of Class M-2 notes, rated B+, and a $18.743 million tranche of Class B-1 notes which are also rated B+.

The notes all have a ten-year maturity, scheduled for October 2028.

The balance of the insured mortgage loans covered by the policies is approximately $54.55 billion, while the aggregate of the mortgage-insurance policy coverage amount is approximately $7.50 billion. The notes will provide the $318.6 million of mortgage reinsurance, while MGIC will retain a significant portion of the remaining coverage layers.

The weighted average seasoning of the loans is 14 months, making this one of the older loan mortgage ILS transactions seen to date.

MGIC said that its Home Re 2018-1 Ltd. mortgage insurance-linked note offering is expected to be completed by the end of October 2018.

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