Essent Guaranty’s first mortgage insurance-linked securities (ILS) transaction Radnor Re 2018-1 Ltd. has increased in size while being marketed to investors and now looks set to secure the company a $424.4 million capital markets backed source of collateralized reinsurance protection.
Last week we wrote about the Radnor Re 2018 mortgage ILS deal, after our sources told us the transactions was seeking to secure at least $360 million of reinsurance protection for Essent.
Now, the three tranches of mortgage insurance-linked notes being offered by Radnor Re 2018 have been priced and investor demand has helped each slice of mortgage insurance risk to upsize, with the overall offering set to complete at $424.412 million.
Essent Group today announced the pricing of the Radnor Re 2018-1 notes, saying that its subsidiary Essent Guaranty will benefit from $424,412,000 of fully collateralized excess of loss reinsurance protection from Radnor Re at inception of the deal.
The reinsurance protection will cover an existing portfolio of mortgage insurance policies that had been underwritten with an insurance coverage effective date on or after January 1st 2017, but before January 1st 2018.
As we explained in our previous article, the notes will cover mortgage insurance risk linked to a pool of $40.55 billion of insured mortgage loans, for which the mortgage insurance policy coverage amount totals $9.99 billion and the notes are exposed to the risk of reinsured losses on the mortgage insurance policies issued by Essent Guaranty, Inc., the ceding insurer under the terms of the transaction.
When we covered the deal last week we explained that the Radnor Re 2018-1 offering was seeking to issue and sell to institutional investors three tranches of notes in order to collateralize the underlying mortgage reinsurance agreements.
At launch the tranches were sized as, a $161.277 million Class M-1 tranche, a $178.253 million Class M-2 tranche and a $21.221 million Class B-1 tranche.
Now, after pricing and thanks to strong investor demand for the mortgage ILS offering, Essent said that the Class M-1 tranche has grown to $189.737 million, the Class M-2 tranche has grown to $209.71 million and the Class B-1 tranche has upsized to $24.965 million.
At the same time the pricing has been fixed for each of the tranches of notes and we understand that generally the trend in pricing over the course of marketing the mortgage ILS deal was downwards.
The Class M-1 tranche will offer investors an initial interest rate of one-month LIBOR plus 1.4%, the Class M-2 tranche will pay 2.7% above LIBOR and the Class B-1 tranche will pay 3.8% above LIBOR.
Such mortgage ILS transactions allow insurers to leverage the capital markets and ILS as a way to augment their reinsurance protection for mortgage insurance books, in a fully-collateralized transaction similar to a catastrophe bond, unlocking fully collateralized reinsurance protection, securing multi-year coverage and offering a useful way to test reinsurer appetite and market pricing as well.
The transaction is slated for final settlement on the March 22nd, Essent said.