Essent Guaranty is back in search of more capital markets backed reinsurance protection with its latest and sixth mortgage insurance-linked securities (ILS) transaction, which will be its largest yet if the almost $558 million Radnor Re 2021-1 Ltd. issuance is successful.
This Radnor Re 2021-1 issuance of mortgage insurance-linked securities (ILS) is Essent Guaranty’s sixth mortgage insurance-linked notes transaction and its first of 2021.
Once completed and if settled at the target size, Essent Guaranty will have secured some $2.69 billion of mortgage reinsurance from the capital markets using a catastrophe bond like structure across the six Radnor Re deals.
Essent has registered a new Bermuda domiciled special purpose insurance company (SPI) for the purposes of this mortgage ILS issuance, Radnor Re 2021-1 Ltd.
Radnor Re 2021-1 Ltd. aims to issue five tranches of mortgage insurance-linked notes, which will be offered and sold to investors, with the proceeds used to collateralize underlying excess of loss mortgage reinsurance agreements between thee SPI and the sponsor Essent Guaranty.
Each class of mortgage insurance-linked notes have 12.5-year legal maturities and will be sold to eligible third party capital markets investors.
Moody’s rated four out of the five classes of notes being issued:
- $139.5m Class M-1A notes, rated Baa3 (sf).
- $132.5m Class M-1B notes, rated Baa3 (sf).
- $153.4m Class M-1C notes, rated Ba3 (sf).
- $97.6m Class M-2 notes, rated B3 (sf)
- $34.9m Class B-1 notes (not rated).
Each tranche of notes will provide Essent Guaranty with 100% of reinsurance coverage, minus any existing quota share reinsurance through unaffiliated insurers, Moody’s explained.
Describing the subject business, Moody’s explained:
The reference pool consists of 227,086 prime, fixed- and adjustable-rate, one- to four-unit, first-lien fully-amortizing, predominantly conforming mortgage loans with a total insured loan balance of approximately $68 billion. All loans in the reference pool had a loan-to-value (LTV) ratio at origination that was greater than 80%, with a weighted average of 90.8%. The borrowers in the pool have a weighted average FICO score of 748, a weighted average debt-to-income ratio of 36.0% and a weighted average mortgage rate of 3.0%. The weighted average risk in force (MI coverage percentage net of existing reinsurance coverage) is approximately 20.4% of the reference pool unpaid principal balance. The aggregate exposed principal balance is the portion of the pool’s risk in force that is not covered by existing quota share reinsurance through unaffiliated parties.
Mortgage ILS issuance year-to-date is accelerating with two new deals now in the market, including the latest from Arch Capital that we covered yesterday.
If these two June mortgage insurance-linked securities transactions are both successfully issued at target sizes, then 2021 issuance of mortgage ILS for the first-half will rise to above $3.7 billion.