NMI returns for fifth mortgage ILS, with $242m Oaktown Re V Ltd.

Specialist mortgage insurance group NMI Holdings, Inc. has successfully priced its latest and now fifth mortgage insurance-linked securities (ILS) deal, a $242 million Oaktown Re V Ltd. transaction.

This is the fifth mortgage insurance-linked securities (ILS) transaction to be sponsored by NMI Holdings Inc., as it continues to source capital markets investor backed fully-collateralized mortgage reinsurance protection for its wholly owned subsidiary National Mortgage Insurance Corporation.

This new Oaktown Re V mortgage ILS transaction is NMI’s second sponsorship of mortgage insurance-linked notes in 2020, the first year it has returned twice to secure reinsurance from the capital markets.

NMI has established Oaktown Re V Ltd. as a newly formed Bermuda special-purpose insurer established for the issuance of series of notes linked to the performance of its mortgage insurance book.

For this deal, Oaktown Re V is issuing four tranches of mortgage insurance-linked notes that are being sold to investors and the proceeds used to collateralize excess of loss mortgage reinsurance agreements between the issuer, Oaktown Re V and the beneficiary of the coverage National Mortgage Insurance Corporation.

In total, $242 million of 10-year mortgage insurance-linked notes are being issued by Oaktown Re V Ltd., with this transaction expected to close on October 29th 2020.

The transaction has now priced and breaks down in this way. Three of the tranches have received ratings from DBRS Morningstar:

• $69,676,000 Class M-1A Notes with an initial interest rate of one-month LIBOR plus 2.40% – rated BBB (low) (sf)
• $78,764,000 Class M-1B Notes with an initial interest rate of one-month LIBOR plus 3.60% – rated BB (low)(sf)
• $78,764,000 Class M-2 Notes with an initial interest rate of one-month LIBOR plus 5.25% – rated B (low) (sf)
• $15,147,000 Class B-1 Notes with an initial interest rate of one-month LIBOR plus 7.00%

Once the issuance is completed, National Mortgage Insurance Corporation will benefit from $242 million of fully collateralized excess of loss reinsurance protection from Oaktown Re V.

The reinsurance will cover an existing portfolio of mortgage insurance policies underwritten largely between April 2020 and September 2020.

The notes provide National MI with reinsurance against aggregate losses on subject loans beginning at a 2.00% cumulative claim rate threshold and providing coverage up to a 6.25% aggregate detachment level.

Importantly, National MI said that it expects to receive initial PMIERs credit for the portion of coverage attaching within the current risk-based required asset charge on subject loans, while additional benefit may be received if the PMIERs requirement on subject loans increases during the term.

You can read all about this new Oaktown Re V Ltd. mortgage ILS transaction from NMI Holdings and every other mortgage ILS deal our comprehensive catastrophe bond and insurance-linked security Deal Directory.