Mortgage focused insurer Essent Guaranty has returned to reopen the mortgage insurance-linked securities (ILS) marketplace after a hiatus with no deals for a few months, bringing its first of the year, as it seeks almost $304 million of mortgage reinsurance from this Radnor Re 2022-1 Ltd. issuance.
The market for mortgage ILS, or mortgage insurance-linked notes as they are often termed, has been particularly slow through 2022.
Just two transactions have been completed so far this year, one from Arch Capital in January and one sponsored by MGIC Investment Corporation in April.
Because of this, mortgage ILN issuance is way down so far in 2022, at just $756 million so far, compared to last year’s record full-year issuance of nearly $6.3 billion.
The slowdown in mortgage ILS issuance has come during the financial market volatility of 2022, as uncertainty layered across capital markets and dented investor appetite.
With interest rates rising, there has also been some concern over the stability of mortgage stock, causing the market to take a pause.
But Essent Guaranty appears determined to restart the use of capital markets investor backing for excess-of-loss mortgage reinsurance and it’s certain the rest of the major US mortgage insurers will be watching closely and if this deal is successfull issued we could see a flurry of activity.
As ever, this is structured like a catastrophe bond, using a Bermuda based special purpose insurer, in this case Radnor Re 2022-1 Ltd.
Radnor Re 2022-1 Ltd. will issue four tranches of notes that will be sold to capital market investors, with the proceeds used to collateralize excess-of-loss reinsurance agreements between the vehicle and sponsor Essent.
The notes can be triggered by a rise in mortgage insurance claims, so are exposed to credit risk but the securities issued are still a pure insurance-linked asset.
If successful, the sale of the four tranches of notes issued by Radnor Re 2022-1 will secure Essent almost $304 million of fully-collateralized and capital market investor backed excess-of-loss mortgage reinsurance protection.
This new mortgage ILS deal from Essent consists of:
- $84.1 million Class M-1A (DBRS Morningstar rated BBB (low) (sf); Moody’s rated Ba2 (sf)).
- $126.2 million Class M-1B (DBRS Morningstar rated BB (high) (sf); Moody’s rated B1 (sf)).
- $70.1 million Class M-2 (DBRS Morningstar rated BB (low) (sf)).
- $23.4 million Class B-1 (DBRS Morningstar rated B (high) (sf))
The notes issued will have a 10-year term and will cover the insurance risk over a pool of insured mortgage loans consisting of 151,740 fully amortizing first-lien fixed- and variable-rate mortgages.