Home Re 2023-1 Ltd.

This is the seventh mortgage insurance-linked notes issuance under Home Re from MGIC Investment Corporation, on behalf of its mortgage insurer unit, Mortgage Guaranty Insurance Corporation.

It is the first issuance of mortgage insurance-linked securities (ILS) for MGIC since April 2022.

The company has established Home Re 2023-1 Ltd. (HMIR 2023-1) in Bermuda to be registered as a special purpose insurer (SPI) for the issuance of insurance-linked securities (ILS) linked to mortgage insurance risk.

Aon Insurance Managers (Bermuda) Ltd. is managing the vehicle for the sponsor.

In total, across four tranches of notes being offered, MGIC is seeking at least $290 million of mortgage reinsurance for its Mortgage Guaranty Insurance Corporation unit.

The four classes of notes being issued by Home Re 2023-1 Ltd. will all be backed by reinsurance premiums, eligible investments, and related account investment earnings, with each tranche corresponding to a pool of mortgage insurance policies linked to residential loans.

The notes are exposed to the risk of losses the ceding insurer pays to settle claims on the underlying mortgage insurance policies, hence they are truly an insurance-linked security (ILS), although covering credit risk and so these tend to appeal to a different set of investors than the cat bond community.

The covered pool of insured mortgage loans is made up of 202,154 fully amortizing first-lien fixed- and variable-rate mortgages, all underwritten to a full documentation standard and never been reported as 60 or more days delinquent, while none of the loans are reported to be in an active payment forbearance plan.

The mortgage insurance policies have all been activated on or after June 2022 and on or before August 2023.

Details of the tranches of notes being issued, which all have a 10-year term, and their DBRS Morningstar ratings can be seen below:

• $50.3 million Class M-1A at BBB (low) (sf)
• $127.6 million Class M-1B at BB (sf)
• $92.8 million Class M-2 at B (high) (sf)
• $19.3 million Class B-1 at B (sf)

At closing of the Home Re 2023-1 issuance, the SPI will enter into a reinsurance agreement with the ceding insurer, MGIC, with the ceding insurer then receiving reinsurance protection for the funded portion of the mortgage insurance losses.

MGIC will make premium payments related to the underlying insured mortgage loans to the issuer and the proceeds from the sale of the notes will be used to purchase eligible investments that will be held in the reinsurance trust account, much like any ILS transaction.

This Home Re 2023-1 mortgage ILS transaction will transfer the credit risk associated with mortgage insurance policies on a defined portfolio of mortgages to the capital markets for MGIC.

The sponsor will bear a first loss layer sitting beneath these tranches, after which the notes would take losses in order of priority.

Update 1:

MGIC Investment Corporation, on behalf of its mortgage insurer unit, Mortgage Guaranty Insurance Corporation successfully leveraged investor demand to upsize its latest mortgage insurance-linked securities (ILS) issuance.

This Home Re 2023-1 Ltd. eventually settled to provide MGIC with just $330.2 million of mortgage reinsurance protection, with the tranche sizes adjusted to the below:

• $59.1 million Class M-1A at BBB (low) (sf)
• $150.1 million Class M-1B at BB (sf)
• $98.3 million Class M-2 at B (high) (sf)
• $22.7 million Class B-1 at B (sf)