Genworth Mortgage Insurance, the mortgage insurer subsidiary of Genworth Financial, has sponsored its first mortgage insurance-linked securities (ILS) transaction, successfully securing $302.8 million of reinsurance from a Triangle Re 2019-1 Ltd. deal.
Genworth joins the other major U.S. mortgage insurers that are now regularly tapping the capital markets using a catastrophe bond like structure to source mortgage reinsurance capacity from third-party investors.
As this practice evolves, the mortgage insurance-linked notes (ILN’s) are becoming an integral part of these mortgage insurers capital stacks, providing efficient capacity that helps to back their growing portfolios of mortgage insurance risk.
For its first mortgage ILS transaction, Genworth has registered a Bermuda special purpose insurer (SPI) named Triangle Re 2019-1 Ltd.
Triangle Re 2019-1 has issued three classes of mortgage insurance-linked notes (ILNs), each of which have 10-year legal final maturities as well as a 7-year call option.
The issued notes will provide Genworth Mortgage Insurance with a $302.8 million source of fully collateralised and capital markets backed excess of loss mortgage reinsurance.
The $302.8 million of mortgage ILS notes have been sold to qualified institutional investors in an unregistered private offering, with the proceeds set to be used as the collateral to back the reinsurance agreements between Triangle Re 2019-1 and Genworth.
In the case of this transaction, the reinsurance it provides will cover a portfolio of Genworth’s existing mortgage insurance policies that have been underwritten from January 2019 through September 2019.
“We are very pleased with the strong market response to our first ILN transaction. It’s an effective complement to our existing credit risk transfer program, which has now generated more than $1.6 billion of excess of loss reinsurance coverage over the course of the program’s first five years,” explained Genworth MI’s Chief Executive Officer Rohit Gupta. “These types of capital market transactions provide both incremental diversification of capital sources and additional capacity at an attractive cost to Genworth.”
The Triangle Re 2019-1 mortgage ILS transaction features three tranches of notes.
A $134,574,000 tranche of Class M-1 Notes which will pay investors a coupon equal to one-month LIBOR plus 190 basis points, a $151,396,000 tranche of Class M-2 Notes paying a coupon equal to one-month LIBOR plus 290 basis points, and a $16,821,000 tranche of Class B-1 Notes paying a coupon equal to one-month LIBOR plus 415 basis points.
Including this new Triangle Re 2019-1 Ltd. transaction, the mortgage insurance-linked securities market has now witnessed over $8.7 billion of issuance since the first transaction in 2015 and an impressive almost $4.6 billion in 2019 alone.
It’s encouraging to see another sponsor come to market. We understand that there are likely to be two more mortgage ILS deals coming to market in the next couple of months, so we can expect to see this growing insurance-linked asset class expanding further.