AIG sees its recently completed near-$300m Bellemeade Re Ltd. mortgage insurance-linked ILS transaction as part of a wider strategy to expand the insurance-linked securities market, a goal which helps the insurer achieve a more efficient and flexible capital structure.
With the Bellemeade Re deal, the first such securitisation of mortgage insurance portfolio risks since the mid-2000’s, American International Group (AIG) subsidiary United Guaranty benefits from a source of fully collateralised reinsurance protection from the capital markets.
Peter Hancock, President and Chief Executive Officer of AIG explained that the insurer was delighted with investor response to the deal, saying; “I am very pleased to see the overwhelming support investors have shown to this transaction and in general to our strategy to expand the ILS market.”
However, AIG is keen to see more diversifying catastrophe bonds and ILS deals, as it finds that; “A robust ILS market allows AIG to have a more flexible and efficient capital structure for the benefit of our customers and shareholders,” Hancock said.
For AIG, the use of ILS provides more than just pure reinsurance and risk transfer, enabling the insurer to better model its capital structure to suit market conditions, as well as to take advantage of capital from the diversified sources of the capital markets.
United Guaranty Corporation (UGC) benefits from $298.9 million of indemnity reinsurance protection, on a collateralised basis, from the Bellemeade Re ILS bond. The coverage is for a portfolio of mortgage insurance (MI) policies issued from 2009 through the first quarter of 2013.
Three classes of 10 year notes, with five-year call-options, were issued by Bermuda SPI Bellemeade Re. Further details on the transaction specifics are available in our article on the bond as well as the Bellemeade Re Deal Directory entry.
AIG has used the ILS and catastrophe bond market to secure over $3 billion of collateralised reinsurance protection, transferring those risks to the capital markets. AIG’s use of cat bonds and ILS has been for its property insurance portfolio to date through natural catastrophe bonds. Bellemeade Re “expands the scope of risk AIG has brought to investors to include mortgage insurance.”
For United Guaranty the added layer of protection diversifies the insurers sources of mortgage insurance portfolio reinsurance cover.
United Guaranty President and CEO Donna DeMaio explained; “United Guaranty’s financial strength and depth of knowledge have enabled us to successfully tap the capital markets for risk transfer, a differentiator for us in the mortgage insurance space.
“This makes the MI industry financially stronger, while demonstrating the advanced financial capabilities that make United Guaranty uniquely qualified to be an important partner to mortgage lenders.”
It’s encouraging to see that AIG, one of the world’s largest insurers, is fully embracing the use of ILS for its risk transfer and capital management needs. With the breadth of business the insurer underwrites it could lead the way on a number of new lines or classes of business entering the ILS space in the future.