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Essent nears $360m Radnor Re 2018-1 mortgage ILS issuance


According to Artemis’ sources, mortgage insurance firm Essent Guaranty is nearing completion of a first mortgage insurance-linked securities (ILS) transaction, as it seeks capital markets support for its mortgage insurance portfolio, in a deal said to be likely to secure it $360.75 million of collateralized reinsurance capacity.

Essent has recently established a Bermuda-based special purpose insurer (SPI) for the issuance of its first mortgage insurance ILS transaction.

The Radnor Re 2018-1 Ltd. vehicle will be used to issue a mortgage insurance-linked securitisation, that will transfer a portion of the risk contained within Essent Guaranty’s mortgage insurance portfolio to capital market investors, using a catastrophe bond-like structure.

We’re told that this Radnor Re 2018-1 mortgage ILS deal will likely be announced within days and that it is likely to secure the sponsor, Essent Guaranty, precisely $360.75 million of mortgage reinsurance coverage.

The notes issued by Radnor Re 2018-1 Ltd. are being sold to qualified institutional investors, including some ILS funds we understand, with the proceeds set to be used to collateralize reinsurance agreements between the SPI and Essent.

These mortgage ILS transactions see primary mortgage insurer looking to the capital markets and ILS as a way to augment their reinsurance protection for mortgage insurance books, in a fully-collateralized transaction similar to a catastrophe bond or other insurance-linked security.

At this stage it’s not clear if the protection is for Essent’s legacy mortgage book or a recently underwritten portfolio, but the end result is the same, a transfer of a portion of the mortgage insurance risk to capital markets investors.

The capital market investors backing the $360.75 million of notes issued by Radnor Re 2018-1 are taking on the risk of Essent suffering mortgage insurance losses above a pre-defined indemnity trigger level on certain segments of its mortgage insurance portfolio, we understand.

Deals like this and the use of the capital markets and ILS investors for the transfer of mortgage insurance risk are a way to unlock fully collateralized reinsurance protection for a mortgage insurance book, securing multi-year reinsurance protection while also providing a useful way to test reinsurer appetite and pricing as well.

We’ve found that this deal is still being marketed at this time, with an expected issuance date of March 22nd 2018, we understand.

Morningstar is set to rate the $360.75 million of mortgage insurance-linked notes that are being issued, and said of the deal, “Radnor Re 2018-1 is backed by reinsurance premiums and related account investment earnings and reversionary interests, in each case relating to a pool of mortgage-insurance policies linked to residential loans. The residential mortgage loans are insured against certain losses by mortgage insurance policies that are in turn subject to the coverage provided by the Reinsurance Agreement.

“The pool of insured mortgage loans consists of fully amortizing, fixed-and variable rate, first-lien loans that have never been reported as in default as of the cutoff date. The pool is geographically diverse, with the largest state concentration in California at approximately 10.0% of the balance.”

The notes will cover mortgage insurance risk linked to a pool of $40.55 billion of insured mortgage loans, for which the mortgage insurance policy coverage amount totals $9.99 billion.

Radnor Re 2018-1 will provide reinsurance totalling $360.75 million from this offering which consists of Classes M-1, M-2, and B-1 notes. These note tranches are exposed to the risk of reinsured losses on the mortgage insurance policies issued by Essent Guaranty, Inc., the ceding insurer under the terms of the transaction.

We understand that Radnor Re 2018-1 will issue a $161.277 million M-1 tranche, a $178.253 million M-2 tranche and a $21.221 million class B-1 tranche to investors.

We will update you should any further information emerge about this deal.

You can read all about this Radnor Re 2018-1 Ltd. mortgage insurance ILS transaction from Essent Guaranty in the Artemis Deal Directory.

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