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Radnor Re 2019-2 Ltd.

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Radnor Re 2019-2 Ltd. – At a glance:

  • Issuer: Radnor Re 2019-2 Ltd.
  • Cedent / sponsor: Essent Guaranty
  • Placement / structuring agent/s:
  • Risk modelling / calculation agents etc: N/A
  • Risks / perils covered: Mortgage insurance risks
  • Size: $333.84m
  • Trigger type: Indemnity
  • Ratings: Morningstar: M-1A - AA-; M-1B - A-; B1 - BBB+
  • Date of issue: Jun 2019

Radnor Re 2019-2 Ltd. – Full details:

Insurance firm Essent Guaranty’s is back with its third mortgage insurance-linked securities (ILS) transaction, as it seeks to grow its capital markets backed sources of excess-of-loss mortgage reinsurance protection with a new $333.84 million Radnor Re 2019-2 transaction.

A new issuing vehicle has been registered, Bermuda domiciled special purpose insurer (SPI) Radnor Re 2019-2 Ltd.

Radnor Re 2019-2 Ltd. will seek to issue three classes of mortgage insurance linked notes, which will be sold to qualified institutional investors and the proceeds used to collateralize underlying excess of loss reinsurance agreements between the SPI and Essent Guaranty itself.

Each tranche covers a different layer of risk, so have differing risk and return profiles, with attachments at a range of loss levels to Essent.

So Radnor Re 2019-2 will issue a mortgage insurance-linked securitisation, in three tranches of notes targeting $333.84 million of coverage, transferring a portion of Essent Guaranty’s mortgage insurance portfolio exposure to capital market investors, using a catastrophe bond-like structure.

In this way Essent can augment its reinsurance protection for its mortgage insurance book, in a fully-collateralized transaction similar to a catastrophe bond or other insurance-linked security.

The three tranches of ten-year notes being issued by Radnor Re 2019-2 are a $125.734 million M-1A tranche, a $186.432 million M-1B tranche and a $21.678 million class B-1 tranche.

The Class B-1 notes are the riskiest and would attach to losses first, followed by the Class M-1B tranche and finally the least risky Class M-1A tranche of mortgage ILS notes.

The three tranches have been rated: M-1A – AA-; M-1B – A-; B1 – BBB+.

Ratings agency Morningstar explained on the notes, “The pool of insured mortgage loans consists of fully amortizing, fixed- and variable-rate, first-lien loans. The pool is geographically diverse, with the largest state concentration in California at approximately 9.3% of the unpaid principal balance. The offered notes are exposed to the risk of reinsured losses on the mortgage-insurance policies issued by Essent Guaranty, Inc., the ceding insurer.”

The covered mortgage loans are seasoned by an average of 38 months, with 97.7% of loans always current and not reported as delinquent.

Essent Guaranty said that the Radnor Re 2019-2 mortgage ILS secures it $333.8 million of fully collateralized excess of loss reinsurance coverage.

The reinsurance specifically covers a portfolio of mortgage insurance policies underwritten by Essent in 2015 and 2016.

The issuance featured: a $125.734 million tranche of Class M-1A Notes, which will pay investors interest of one-month LIBOR plus 1.2%; a $186.432 million Class M-1B tranche of Notes which pay interest of LIBOR plus 1.75%; and $21.678 million of Class B-1 Notes with initial interest of LIBOR plus 2.7%.

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