Radian Group has now successfully secured another roughly $484 million of collateralized mortgage reinsurance for its Radian Guaranty subsidiary with the completion of its latest Eagle Re 2021-2 Ltd. issuance of mortgage insurance-linked securities (ILS).
Radian returned to the capital markets at the end of October with what has now become its sixth sponsorship of a mortgage insurance-linked notes issuance.
Now completed, it means the mortgage insurer has secured almost $2.9 billion of multi-year excess-of-loss mortgage reinsurance protection from the capital markets through its Eagle Re series of deals.
Radian established a new Bermuda based special purpose insurer, Eagle Re 2021-2 Ltd. (EMIR 2021-2), through which five tranches of mortgage ILS securities were issued and sold to investors.
The proceeds were used as collateral to support $484 million of fully collateralized excess of loss reinsurance coverage agreements between Eagle Re 2021-2 and Radian Guaranty.
The excess of loss reinsurance covers eligible mortgage insurance policies underwritten by Radian Guaranty largely between January 1st 2021 and July 31st 2021.
The five classes of mortgage insurance-linked notes (ILNs) issued all have a 12.5-year maturity and 7-year call option and were sold to eligible third-party capital markets investors in an unregistered private offering.
The classes of notes along with their pricing can be seen below:
- $118,341,000 Class M-1A Notes with a coupon equal to one-month SOFR plus 155 basis points
- $102,204,000 Class M-1B Notes with a coupon equal to one-month SOFR plus 205 basis points
- $145,236,000 Class M-1C Notes with a coupon equal to one-month SOFR plus 345 basis points
- $91,445,000 Class M-2 Notes with a coupon equal to one-month SOFR plus 425 basis points
- $26,896,000 Class B-1 Notes with a coupon equal to one-month SOFR plus 500 basis points
On closing, the class M-1C Notes can be exchanged for proportionate interests in Class M-1C-1 Notes, Class M-1C-2 Notes and Class M-1C-3 Notes (Exchangeable Notes), and these Exchangeable Notes may also be exchanged for Class M-1C Notes with the same proportionate interest.
Radian said that the new mortgage ILS deal further reduces its overall cost of capital, increases its capital efficiency and enhances its return on capital as well.
At the same time the mortgage ILS notes funding helps to support Radian’s rating agency and PMIERs capital adequacy, which is an important reason mortgage insurers are tapping the capital markets with these ILS arrangements.
Of course, they also transfer risk in the event of adverse development on the reinsured subject business as well, but the capital benefits have become a key driver in how they allow mortgage insurers to flexibly expand their businesses, using mortgage insurance-linked notes as a funding source.