Swiss Re Insurance-Linked Fund Management

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Oaktown Re IV Ltd.

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Oaktown Re IV Ltd. – At a glance:

  • Issuer: Oaktown Re IV Ltd.
  • Cedent / sponsor: National Mortgage Insurance Corporation
  • Placement / structuring agent/s: Unknown
  • Risk modelling / calculation agents etc: Unknown
  • Risks / perils covered: Mortgage insurance risks
  • Size: $322m
  • Trigger type: Indemnity
  • Ratings: DBRS Morningstar: Class M-1A at BBB; Class M-1B at BB; Class M-2 at B.
  • Date of issue: Jul 2020

Oaktown Re IV Ltd. – Full details:

This is the fourth mortgage insurance-linked securities (ILS) issuance from NMI Holdings Inc., as it returns to the capital markets to secure a new source of fully-collateralized mortgage reinsurance protection for its wholly owned subsidiary National Mortgage Insurance Corporation.

Oaktown Re IV Ltd., a Bermuda domiciled special purpose insurer that was actually registered right back in April, but is only now being used, will seek to issue $322 million of mortgage insurance-linked notes that will be sold to investors and the proceeds used to collateralise underlying reinsurance agreements between the issuer and NMI.

The $322 million of 10-year mortgage insurance-linked notes issued by Oaktown Re IV will be placed with investors in an unregistered private offering that is expected to close on July 30th 2020.

Once issued successfully, this transaction will see NMI subsidiary National Mortgage Insurance Corporation (National MI) benefiting from $322 million of fully collateralized excess of loss reinsurance protection through Oaktown Re IV.

The mortgage reinsurance protection will cover an existing portfolio of mortgage insurance policies written from July 2019 through March 2020 for Nationam MI, protecting the insurer against aggregate losses on subject loans beginning at a 2.50% cumulative claim rate threshold and continuing up to an eventual 8.00% aggregate detachment level.

DBRS Morningstar has rated the three tranches of notes being issued by Oaktown Re IV Ltd.:

– $81.4 million Class M-1A at BBB (low) (sf)
– $125.4 million Class M-1B at BB (low)(sf)
– $98.3 million Class M-2 at B (low) (sf)

There is a fourth tranche, of roughly $17 million of Class B-1 notes that were not rated.

The rating agency further explained on this transaction, “The Notes are exposed to the risk arising from losses that the ceding insurer pays to settle claims on the underlying MI policies. As of the cut-off date, the pool of insured mortgage loans consists of 100,621 fully amortizing first-lien fixed- and variable-rate mortgages. They all have been underwritten to a full documentation standard, have original loan-to-value ratios (LTVs) less than or equal to 97%, and have never been reported to the ceding insurer as 60 or more days delinquent. The mortgage loans were originated on or after April 2019.”

National MI said that it “expects to receive initial PMIERs credit for the portion of coverage attaching within the current risk-based required asset charge on subject loans and additional benefit in the future if the PMIERs requirement on subject loans increases, all subject to GSE approval.”

That’s important, as the recent Bellemeade issuance from Arch did not provide the PMIERs credit it could have, being higher up in its reinsurance tower.

This Oaktown Re IV mortgage ILS transaction is also higher up, hence only a portion of the coverage is expected to qualify for PMIERs credit it seems.

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