Mortgage insurance firm Essent Group is likely to secure over $424 million of reinsurance protection from the capital markets, via three tranches of 10-year mortgage insurance-linked notes issued by a newly established Bermuda special purpose insurer, Radnor Re 2018-1 Ltd.
Under the transaction, Essent Guaranty, an Essent Group subsidiary, will receive $424.4 million of fully collateralized excess of loss reinsurance cover from the Radnor Re vehicle, covering an existing portfolio of mortgage insurance policies underwritten with a coverage effective date on or after Jan 1st, 2017, but before Jan 1st, 2018, explains Essent.
The deal is Essent’s first mortgage insurance-linked securities (ILS) transaction, and transactions such as this sees capital markets’ investors being utilised for the transfer of mortgage insurance risk as a way to unlock fully collateralized reinsurance protection for a mortgage insurance portfolio, enabling the security of multi-year cover.
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.
The deal has now priced and is split into three tranches of notes, which includes a $189.7 million Class M-1 tranche of notes with an initial interest rate of one-month LIBOR plus 140 basis points; a $209.7 million Class M-2 tranche of notes with an initial interest rate of one-month LIBOR plus 270 basis points; and a $24.9 million Class B-1 tranche of notes with an initial interest rate of one-month LIBOR plus 380 basis points.
