Swiss Re Insurance-Linked Fund Management

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MGIC targets first mortgage ILS of year, a $437m Home Re 2022-1


MGIC Investment Corporation is back in the capital markets to secure a fresh source of collateralized reinsurance with its first mortgage insurance-linked securities (ILS) deal of the year, sponsoring a $437 million Home Re 2022-1 Ltd. transaction.

mortgage-ils-reinsuranceThis will be be the sixth time that we’ve recorded MGIC Investment Corporation tapping capital market investor appetite to secure reinsurance for its Mortgage Guaranty Insurance Corporation unit, as the company has consistently used the catastrophe bond like structure to secure mortgage reinsurance from capital market investors.

The mortgage ILS, or mortgage insurance-linked note (ILN) market has been quiet so far in 2022, with just one issuance from regular sponsor Arch MI.

We understand capital market volatility in 2022 has resulted in some deals being held back, but now greater confidence is returning and so it’s good to see MGIC looking to kickstart the mortgage ILS market again.

As with all mortgage insurance-linked securities (ILS) transactions, the coverage is layered across a number of tranches of notes, again like you’d see in a cat bond.

MGIC has registered a new Bermuda-based special purpose insurer (SPI), Home Re 2022-1 Ltd. (HMIR 2021-1) for this issuance of a targeted almost $437 million of mortgage insurance linked notes.

Five classes of notes are being issued, each backed by reinsurance premiums, eligible investments, and related account investment earnings, in each case relating to a pool of MI policies linked to residential loans.

The covered pool of insured mortgage loans features 218,568 fully amortizing first-lien fixed- and variable-rate mortgages, all underwritten to a full documentation standard and never reported as 60 or more days delinquent.

The mortgage insurance policies covering the loans are all effective on or after September 2019 and on or before January 2022.

The transaction will have a 12.5-year term, but amortize down over the coverage period and is subject to a call at the sponsors request.

The transaction breaks down as follows, along with each tranches rating:

  • $159.8 million Class M-1A (DBRS Morningstar rated BBB (sf); Moody’s rated Baa2 (sf))
  • $53.3 million Class M-1B (DBRS Morningstar rated BBB (low) (sf); Moody’s rated Baa3 (sf))
  • $146.8 million Class M-1C (DBRS Morningstar rated BB (low) (sf); Moody’s rated Ba2 (sf))
  • $47.4 million Class M-2 (DBRS Morningstar rated B (high) (sf); Moody’s rated B1 (sf))
  • $29.6 million Class B-1 (DBRS Morningstar rated B (high) (sf); Moody’s rated B2 (sf))

Each class of notes issued by Home Re 2022-1 (HMIR 2022-1) will be sold to capital market investors and the resulting collateral proceeds will be used to underpin excess-of-loss mortgage reinsurance arrangements between the SPI and the sponsor of the transaction, Mortgage Guaranty Insurance Corporation.

As a result, this transaction transfers the credit risk associated with mortgage insurance policies on a defined portfolio of mortgages to the capital markets for MGIC.

As with the majority of 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 2022-1 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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