MGIC Investment Corporation has returned to the capital markets in search of more collateralized reinsurance with its second mortgage insurance-linked securities (ILS) deal of the year, as it sponsors a roughly $398 million Home Re 2021-2 Ltd. issuance.
This will be be the fourth time that MGIC Investment Corporation has tapped investor appetite in the capital markets as a way to secure more reinsurance for its Mortgage Guaranty Insurance Corporation unit.
MGIC entered the mortgage insurance-linked securities (ILS) market in 2018 with a $318.6 million Home Re 2018-1 Ltd. mortgage ILS deal, returning in 2019 for a $315.74 million Home Re 2019-1 Ltd. transaction and then most recently its largest mortgage ILS so far, a $399 million Home Re 2021-1 Ltd. in February of this year.
As with all of the large US mortgage insurers, use of reinsurance as capital tool, protection and a lever for growth continues to be attractive for MGIC, with the capital markets offering an efficient way to source this from investors keen to take on more exposure to the mortgage market.
For its second mortgage ILS deal of 2021, MGIC has established Home Re 2021-2 Ltd. in Bermuda and the special purpose insurer (SPI) will issue five classes of notes.
Each class will be sold to capital market investors, with the resulting collateral used to underpin excess-of-loss mortgage reinsurance arrangements between the SPI and the sponsor of the deal, Mortgage Guaranty Insurance Corporation.
As a result, the transaction transfers the credit risk associated with mortgage insurance policies on a defined portfolio of mortgages to the capital markets for MGIC.
Covered mortgage loans have an effective date from January 1st 2021 to May 28th 2021, with the pool made up of 181,727 mortgage loans with a total insured loan balance of roughly $52 billion.
Rating agency Moody’s said that the insured pool consists of high-quality mortgage loans and that the notes offered have a 12.5 year maturity and a sequential pay structure.
The roughly $398 million of mortgage insurance-linked notes are split across five tranches being offered to investors, with Moody’s having rated four of them.
The transaction breaks down as follows, including ratings from Moody’s:
- $67.9m Class M-1A notes, rated Baa2 (sf), paying SOFR +125 bps.
- $108.7m Class M-1B notes, rated Baa3 (sf), paying SOFR +160 bps.
- $126.8m Class M-1C notes, rated Ba3 (sf), paying SOFR +280 bps.
- $72.4m Class M-2 notes, rated B3 (sf), paying SOFR +325 bps.
- $22.6m Class B-1 notes, unrated, paying SOFR +415 bps.
As with all of these mortgage ILS deals, the sponsor will bear a first loss layer sitting beneath the tranches, after which the notes would take losses in order of priority.
You can read all about the Home Re 2021-2 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.