With no issuances of mortgage insurance-linked securities (ILS) transactions since last September, it comes down to insurer Essent Guaranty again to reopen the market, with a $253.2 million Radnor Re 2023-1 Ltd. offering now launched to investors.
The mortgage ILS, or mortgage insurance-linked notes, marketplace has been in shutdown since September 2022, as volatile capital market conditions impacted investor appetites.
Financial market volatility through 2022 and extending into 2023 had layered uncertainty across capital markets and dented investor appetite.
At the same time, there has also been some uncertainty over how delinquencies were set to affect the existing stock of mortgage ILS.
A lot of that existing stock has either amortised down further, or in some cases been redeemed in the interim and we’re now told that mortgage insurers have been testing out investor appetite in recent weeks, as they look set to return to seeking mortgage reinsurance from the capital markets again.
Essent Guaranty is the first and if it sees a successful execution for its latest mortgage ILS deal, we could see a flurry of others looking to tap the market.
A signal that investor appetite has recovered and returned is what the major mortgage insurers are waiting for and this Radnor Re 2023-1 issuance could be the deal that provides that confidence to the rest of the US carriers.
This will be the ninth Radnor Re mortgage insurance-linked securities (ILS) issuance from Essent Guaranty.
As with other mortgage ILS, these transactions utilise the catastrophe bond structure to source capital market investor capital to fund some of the excess-of-loss mortgage reinsurance needs of major US mortgage insurers.
So, structured like a catastrophe bond, this deal sees Essent Guaranty registering a new Bermuda based special purpose insurer, in this case Radnor Re 2023-1 Ltd.
Radnor Re 2023-1 Ltd. is targeting issuance of four tranches of mortgage insurance-linked notes, that will be sold to capital market investors.
The proceeds of that sale will be 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 they are exposed to credit risk from mortgage delinquencies and defaults, but the securities that are issued will still be a pure insurance-linked asset.
If successful, the sale of these four tranches of notes to be issued by Radnor Re 2023-1 will see Essent securing roughly $253.2 million of, fully-collateralized and capital market investor backed, excess-of-loss mortgage reinsurance protection.
This latest mortgage ILS deal from Essent consists of:
- $89.6 million Class M-1A (DBRS Morningstar rated BB (high) (sf)).
- $74 million Class M-1B (DBRS Morningstar rated BB (low) (sf)).
- $70.1 million Class M-2 (DBRS Morningstar rated B (sf)).
- $19.5 million Class B-1 (DBRS Morningstar rated B (sf)).
The notes issued will have a 10-year term and will cover some of the insurance risk across a pool of insured mortgage loans consisting of 133,879 fully amortizing first-lien fixed- and variable-rate mortgages.
The subject mortgage policies are effective on dates between August 2022 and June 2023, and the mortgages in question have never been reported 60 or more days delinquent or in a payment forbearance plan.