MGIC targets its biggest mortgage ILS, with $399m Home Re 2021-1

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MGIC Investment Corporation is back in the capital markets with what will be its third sponsorship of a mortgage insurance-linked securities (ILS) issuance, as it seeks roughly $399 million of collateralized mortgage reinsurance with the Home Re 2021-1 Ltd. issuance.

mortgage-ils-reinsuranceMGIC Investment Corporation first entered the mortgage insurance-linked securities (ILS) market in 2018, securing a  $318.6 million Home Re 2018-1 Ltd. mortgage ILS deal, and then returned in 2019 for a $315.74 million Home Re 2019-1 Ltd. transaction.

Having taken a year out, possibly due to the issues in capital markets and with mortgage delinquencies, MGIC now returns to secure more reinsurance for its Mortgage Guaranty Insurance Corporation entity with this 2021 transaction, that looks likely to be its largest yet.

The company has established a new Bermuda-based special purpose insurer (SPI) Home Re 2021-1 Ltd. for the issuance of almost $399 million of mortgage insurance linked notes.

These notes will be sold to capital market investors and the proceeds used to collateralize reinsurance agreements between Home Re 2021-1 and Mortgage Guaranty Insurance Corporation, securing the sponsor a multi-year source of capital markets backed reinsurance capacity, by tapping into investor appetite for the growing pool of mortgage ILS issuance.

The function of these mortgage insurance linked notes transactions is the same as a catastrophe bond, being sold to investors and the proceeds used to collateralize underlying reinsurance agreement between the issuing vehicle and ceding company.

In this case, Home Re 2021-1 Ltd. will issue five tranches of 144A notes, four of which will be rated by Moody’s.

The notes will be exposed to the risk of claims payments above predetermined levels, covering levels of MGIC’s portfolio and providing reinsurance capital to support claims as they reach attachment points for each tranche.

The notes are linked to the insurance claims performance of residential mortgage loans, across a reference pool of 195,208 mortgages with a total insured loan balance of roughly $55 billion.

As with all of these mortgage ILS deals, the sponsor will bear the first loss layer, after which the notes would take losses in order of priority.

The almost $399 million Home Re 2021-1 mortgage ILS deal is structured as:

– M-1A, $75.077m, rated by Moody’s as Baa2 (sf).
– M-1B, $112.616m, rated by Moody’s as Baa3 (sf).
– M-1C, $93.847m, rated by Moody’s as Ba2 (sf).
– M-2, $93.847m, rated by Moody’s as B2 (sf).
– B-1, $23.461m, unrated.

You can read all about the Home Re 2021-1 Ltd. mortgage insurance-linked securities transaction and every other mortgage ILS deal in our specific directory of mortgage ILS deals, as well as in our all-encompassing Artemis Deal Directory.

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