Specialist mortgage insurance company Essent Guaranty has returned to the capital markets to further expand its collateralized mortgage reinsurance protection with a $333.84 million Radnor Re 2019-2 Ltd. transaction that will be its third mortgage insurance-linked securities (ILS) issuance.
Radnor Re 2019-2 will actually be Essent Guaranty’s second mortgage ILS issuance of the year, having completed a larger $473.18 million Radnor Re 2019-1 Ltd. in February of this year.
Clearly, execution and pricing of the reinsurance coverage the capital market investors provided has been attractive, leading Essent Guaranty to return again for another mortgage ILS issuance, to add to its collateralized reinsurance protection.
As with all of the mortgage insurance-linked security (ILS) deals (which are detailed here), Essent Guaranty is seeking to tap the appetite of capital market investors to expand its mortgage reinsurance protection with this new 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.
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.
We will update you should any further information emerge about this deal.
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