The latest mortgage insurance-linked securities (ILS) transaction to be sponsored by insurer Essent Guaranty has now completed, with Radnor Re 2020-1 Ltd. providing the company an upsized $496 million of capital markets backed excess of loss reinsurance protection for its mortgage insurance portfolio.
This is Essent’s fourth mortgage insurance-linked securities (ILS) transaction and its first of 2020, so its successful completing at a larger than anticipated size will have been pleasing for the company.
For mortgage insurers like Essent, the capital markets and the catastrophe bond structure is now providing an effective way to source efficiently priced reinsurance protection for their mortgage insurance portfolios.
This capital is being used to help the companies grow their mortgage insurance books, while protecting the balance-sheet and ensuring potential significant mortgage delinquency or default events are effectively hedged.
This Radnor Re 2020-1 mortgage insurance-linked notes (ILN) transaction came to market earlier this month, with Essent Guaranty seeking at least $421.6 million of reinsurance protection across five rated tranches of notes, corresponding to five layers of risk within its subject mortgage insurance portfolio.
It’s now clear that all five of those rated tranches of notes has been upsized slightly, while at the same time an additional and unrated tranche of notes has also come to light, securing the $495 million of excess of loss mortgage reinsurance protection for the company.
With the upsizing and the additional unrated tranche, the offering from Radnor Re 2020-1 now looks like this:
– $94.9 million Class M-1A, rated at BBB (low) (sf) by DBRS Morningstar
– $133.7 million Class M-1B, rated at BB (high) (sf)
– $77.6 million Class M-1C, rated at BB (low) (sf)
– $125.1 million Class M-2A, rated at B (sf)
– $43.1 million Class M-2B, rated at B (low) (sf)
– $21.6 million Class B-1 (unrated)
This is now Essent Guaranty’s largest mortgage ILS transaction to-date and the four mortgage ILS its has now issued have provided the company with a combined $1.73 billion of mortgage reinsurance protection from the capital markets.
Mortgage insurance-linked notes (ILN), or mortgage insurance-linked securities (ILS), are an increasingly supportive source of capital for insurers mortgage reinsurance programs, enabling them to access efficient capacity that is helpful to fuel the growth of their underwriting portfolios while also moderating any volatility in them from losses.