Mortgage insurer Essent Guaranty has completed its second mortgage insurance-linked securities (ILS) transaction at an upsized amount, as the Radnor Re 2019-1 Ltd. deal grew to $473.2 million thanks to investor demand.
Essent Guaranty sponsored the $424.4 million Radnor Re 2018-1 Ltd. transaction in 2018, its first mortgage ILS, or insurance-linked note, transaction and a source of what the company sees as diversifying risk capital.
The firms second visit to the capital markets for additional excess-of-loss mortgage reinsurance has clearly been well received, as the size of the mortgage ILS transaction has increased by 7% since our first news of the deal.
The company had said that following its experience with the first Radnor Re mortgage ILS in 2018, a return to the capital markets in 2019 to issue another mortgage ILS deal was likely, to increase the amount of multi-year fully-collateralized excess of loss reinsurance protection it has its portfolio of mortgage insurance policies.
This 2019 transaction was issued using a fresh Bermuda domiciled special purpose insurer (SPI) for its second mortgage ILS transaction, Radnor Re 2019-1 Ltd.
Four tranches of notes were offered and sold to investors, providing tranching and different collateralized reinsurance coverage levels for Essent, with each seeing some increase in size.
At completion, the transaction featured an $84.547 million Class M-1A tranche with an initial interest rate of one-month LIBOR plus 125 basis points, a $174.563 million Class M-1B tranche with an initial interest rate of one-month LIBOR plus 195 basis points, a $192.937 million Class M-2 tranche with an initial interest rate of one-month LIBOR plus 320 basis points and a $21.137 million Class B-1 tranche of notes with an initial interest rate of one-month LIBOR plus 445 basis points, totaling $473.184 million in size.
All of the mortgage insurance-linked notes issued through this Radnor Re 2019-1 transaction are exposed to the risk of reinsured losses on the portfolio of mortgage insurance policies covered by the deal. Losses would eat their way up through the tranches of notes, from the riskiest B-1 layer upwards, as impacts to the underlying reinsurance agreements expanded.
All four tranches of notes have 10 year maturities, with February 2029 the stated final maturity for the transaction.
Essent will be delighted with the expansion of its latest mortgage ILS transaction.
As we explained recently, CEO of Essent Mark Casale had commented, “Distributing risk to the capital markets and reinsurers is not only a hedge to our cycle-dependent franchise, but can also be accretive to returns by freeing up capital at a lower cost, without adding financial leverage to the balance-sheet.
“We believe that this strategy, along with future earnings, should generate excess capital going forward.”
The experience with Radnor Re 2019-1 is only likely to affirm that thinking for Essent.