Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Oaktown Re II Ltd.

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Oaktown Re II Ltd. – At a glance:

  • Issuer: Oaktown Re II Ltd.
  • Cedent / sponsor: National Mortgage Insurance Corporation
  • Placement / structuring agent/s: Credit Suisse is structuring agent and sole bookrunner.
  • Risk modelling / calculation agents etc: Unknown
  • Risks / perils covered: Mortgage insurance risk
  • Size: $264.55m
  • Trigger type: Indemnity
  • Ratings: Morningstar: M-1 - BBB-, Class M-2 - BB-, Class B-1 - B+
  • Date of issue: Jul 2018

Oaktown Re II Ltd. – Full details:

NMI Holdings Inc’s wholly owned subsidiary National Mortgage Insurance Corporation returns to the ILS market for its second attempt to secure collateralized mortgage reinsurance protection from the capital markets.

Oaktown Re II Ltd. has been formed as a Bermuda special purpose insurer to issue the second transaction of mortgage linked ILS notes for sponsor NMI and the issuer is offering three tranches of notes to investors in order to collateralize the underlying excess of loss mortgage reinsurance arrangement between itself and National Mortgage Insurance Corp.

This capital markets-backed reinsurance arrangement will provide National Mortgage Insurance Corporation with $264.55 million of excess of loss reinsurance protection, covering an existing portfolio of its mortgage insurance policies.

The coverage will span a ten-year period, with final maturity for the notes issued being slated for July 2028.

The deal is split into three tranches of notes, Classes M-1, M-2, and B-1.

The Class M-1 tranche is targeting a size of $133.665 million, the Class M-2 $116.957 million and the Class B-1 $13.923 million.

Class M-1 is the most senior, having the lowest risk and Morningstar has given these notes a preliminary rating of BBB-. The Class M-2 is more risky, having been rated BB-. The Class B-1 is the most junior and risky layer of notes, with a preliminary rating of B+.

The notes are exposed to the performance of a pool of mortgage-insurance policies that are linked to residential loans. The residential mortgage loans are insured against certain losses through the underlying mortgage insurance policy pool, which are in turn covered by the reinsurance agreement with Oaktown Re II Ltd. that is to be collateralized by the sale of the mortgage insurance ILS notes.

The pool of insured loans are not in default, is geographically diverse with California the largest contributor to the risk at 14.1%, and is counted at 121,621 loans according to Morningstar.

The balance of the insured mortgage loans covered by the policies amounts to $30.21 billion, while the aggregate mortgage-insurance coverage totals $5.57 billion.

The notes are only exposed to the risk of reinsured losses on the pool of mortgage-insurance policies issued by National Mortgage Insurance Corporation.

Update 1:

The three tranches of notes have now been priced with no changes to the size of the offering either.

A $133,665,000 tranche of Class M-1 Notes will pay investors a coupon of 1.55%, a $116,957,000 tranche of Class M-2 Notes will pay a coupon of 2.85%, and a $13,923,000 tranche of Class B-1 Notes will pay a coupon of 4.05%, all above one-month LIBOR rates.

The transaction is expected to complete on July 25th 2018.

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