Radian Guaranty, the US mortgage insurer entity of the Radian Group, has said that the successful completion of its latest mortgage insurance-linked securities (ILS) deal, the $498 million Eagle Re 2021-1 Ltd. transaction, is a capital efficient way to secure reinsurance for the company.
We explained back in early April that Radian was back in the market with its largest mortgage insurance-linked securities (ILS) issuance since the pandemic outbreak, in search of additional collateralized mortgage reinsurance capacity.
The mortgage insurer has now successfully secured its target $498 million of capital markets backed and fully collateralised mortgage reinsurance, secured using a catastrophe bond like structure, thanks to $498 million of notes issued by Bermuda special purpose insurer Eagle Re 2021-1 Ltd.
It’s Radian’s fifth mortgage ILS deal in total, bringing the total reinsurance coverage the company has secured through the Eagle Re series of mortgage ILS transactions to over $2.37 billion.
The completion of Radian’s latest deal takes issuance of mortgage insurance-linked notes arrangements to $1.97 billion already in 2021, with one more transaction still in the market and yet to complete as well. All are detailed in the Artemis Deal Directory, which you can filter to display just mortgage ILS deals.
Highlighting the efficiency of accessing reinsurance from the capital markets, the company explained that this new mortgage ILS, “Reduces Radian’s overall cost of capital, increases capital efficiency and enhances return on capital.”
In addition it supports the capital requirements Radian is subject to, under its rating agency and PMIERs, while transferring risk in the event of adverse development of the reinsured business.
Radian also said that the transaction increases its counterparty strength, while also mitigating its income statement and balance sheet volatility across the economic cycle.
This transaction is also notable as the first Eagle Re mortgage ILS transaction from Radian to have a 12.5-year term, with the notes scheduled for final maturity on October 25th 2033.
It is also the first Eagle Re mortgage ILS deal to use the Secured Overnight Financing Rate (SOFR) for the base for its coupon rates, instead of the previously used Libor.
The excess of loss reinsurance cover the notes provide covers eligible mortgage insurance policies underwritten by Radian Guaranty between August 2020 through December 2020
The transaction is structured as follows, along with the coupons to be paid:
- $82,956,000 Class M-1A Notes with a coupon equal to one-month SOFR plus 170 basis points
- $82,956,000 Class M-1B Notes with a coupon equal to one-month SOFR plus 215 basis points
- $165,912,000 Class M-1C Notes with a coupon equal to one-month SOFR plus 270 basis points
- $110,607,000 Class M-2 Notes with a coupon equal to one-month SOFR plus 445 basis points
- $27,652,000 Class B-1 Notes with a coupon equal to one-month SOFR plus 575 basis points
- $27,652,000 Class B-2 Notes with a coupon equal to one-month SOFR plus 625 basis points