Swiss Re Insurance-Linked Fund Management

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Radian joins mortgage ILS club with $410m Eagle Re 2018-1 deal


U.S. mortgage insurance firm Radian Guaranty, part of the Radian Group, is the latest to join the mortgage insurance-linked securities (ILS) club, having launched a new Eagle Re 2018-1 Ltd. transaction to investors as it seeks around $410 million of reinsurance from the capital markets for its mortgage book.

The company said that its mortgage insurance linked notes offering is expected to close in November and it sees the firm looking to secure excess of loss reinsurance coverage through the issuance and sale of three tranches of notes to investors.

Newly-formed Bermuda special purpose insurer Eagle Re 2018-1 Ltd. will be the issuer of the notes for this capital markets based reinsurance transaction.

Eagle Re 2018-1 will issue three tranches of notes, each linked to the performance of its mortgage insurance book, which will be sold to investors from the capital markets and the proceeds used to collateralize reinsurance agreements between the issuer and Radian itself.

Radian Guaranty said that through the mortgage ILS transaction it expects to benefit from $410 million of excess of loss reinsurance protection from Eagle Re 2018-1 Ltd., providing cover for an existing portfolio of mortgage insurance policies that the company underwrote between January 2017 and December 2017.

The transaction will feature a $217.3 million tranche of Class M-1 notes that have been rated BBB- by Morningstar, a $168.1 million tranche of Class M-2 notes that have been rated BB- and a $24.6 million tranche of Class B-1 notes that have been rated B+.

Each tranche will fund 90% of the reinsurance coverage for the layers in question for Radian and they cover a geographically diverse pool of mortgage insurance risk, with the largest state concentration in California at approximately 12.1% of the balance.

All three tranches of notes will be exposed to the risk of mortgage insurance losses on the policies issued by ceding insurer Radian Guaranty Inc.

Radian has accessed the capital markets before as a complement to its reinsurance protection through a transaction known as SHome (Smart Home) in the mid-2000’s, a kind of precursor to the recent use of ILS structures for mortgage reinsurance provision from institutional investors.

Recently insurer MGIC entered the ILS market with its first mortgage insurance linked deal and Arch Capital completed its latest transaction as well.

We’ll update you as and when the Eagle Re 2018-1 Ltd. is completed and you can read about this and every other mortgage ILS deal in the Artemis Deal Directory.

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