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Essent Guaranty’s third mortgage ILS completed for $333.8m of reinsurance


Bermuda based specialist mortgage insurer Essent Guaranty has completed its third mortgage insurance-linked securities (ILS) issuance, with the successful placement and sale of notes for the $333.8 million Radnor Re 2019-2 Ltd. transaction.

essent-guaranty-logoAs we explained last week, Essent Guaranty had returned to the capital markets to expand on its collateralized mortgage reinsurance protection with a third issuance of mortgage insurance-linked notes.

Essent Guaranty first tapped the ILS structure as a way to source collateralized mortgage reinsurance protection in 2018 with a $424.4 million Radnor Re 2018-1 Ltd. transaction and then followed that with a larger $473.18 million Radnor Re 2019-1 Ltd. in February of this year.

Its third mortgage ILS is a little smaller, at $333.8 million, but after its completion Essent now benefits from roughly $1.23 billion of capital markets backed mortgage reinsurance through its three ILS transactions.

Announcing the completion of the deal today, 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.

Radnor Re 2019-2 issued the mortgage insurance linked notes in an unregistered private offering, selling them to private capital market investors whose funding was used to collateralize the underlying reinsurance agreements between the SPI issuer and Essent Guaranty itself.

The three tranches of mortgage insurance-linked securities (ILS) issued all have ten-year final maturities.

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%.

These transactions are playing an increasingly important role for mortgage insurers, as they allow firms like Essent Guaranty to transfer some of their mortgage insurance portfolio exposure directly to capital market investors, using a catastrophe bond-like structure.

This augments their reinsurance, but also provides all-important efficiency capital relief to the portfolio as well, which ultimately acts as a way to provide elasticity to their own capital and enables them to write more risk.

Hence Essent Guaranty and others use these mortgage ILS deals as a way to effectively bring third-party capital into their businesses, with all of the benefits of reinsurance or other kinds of efficient financing.

Mortgage insurance-linked notes, or mortgage insurance-linked securities (ILS), are becoming an increasingly important component of insurers mortgage reinsurance provisions, enabling them to access efficient capital that is helping to fuel the growth of their portfolios.

As a result we now have a dedicated mortgage insurance-linked securities (ILS) transaction directory and we include them where we can in our ILS and catastrophe bond transaction charts and statistics.

You can read all about this Radnor Re 2019-2 Ltd. mortgage insurance ILS transaction from Essent Guaranty in the Artemis Deal Directory.


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