Radian Group subsidiary, Radian Guaranty, has obtained $434 million of credit risk protection from newly-formed Bermuda special purpose insurer Eagle Re 2018-1 Ltd. through the issuance of mortgage insurance-linked notes (ILNs) to eligible third-party capital markets investors in an unregistered private offering.
In addition, Radian Guaranty has agreed to terms with a third-party global reinsurer on a separate excess of loss (XOL) reinsurance agreement for $21 million of protection.
The ILNs and XOL transfer risk on the same portfolio of eligible mortgage insurance policies issued by Radian Guaranty between January 2017 and December 2017, with the XOL covering a pro rata portion of the risk alongside certain classes of the ILNs.
“At Radian, we have a successful track record of sourcing, underwriting, managing and distributing mortgage credit risk, and we are pleased to execute this combined transaction that is the first of its kind in our industry,” said Radian’s Chief Executive Officer Rick Thornberry.
“We believe there are a number of strategic benefits from leveraging and regularly accessing both the capital and reinsurance markets to distribute risk, including a reduction in our overall cost of capital, increased capital efficiency, and most importantly, the opportunity to reduce portfolio and financial volatility through economic cycles.”
Eagle Re has funded its obligations through the issuance of three classes of ILNs. The ILNs provide excess of loss protection to Radian Guaranty for three coverage levels designated as M-1, M-2 and B-1, with a coverage percentage of 100 percent, 90% and 90%, respectively.
The XOL covers the remaining 10% portion of coverage levels M-2 and B-1, and sits alongside the corresponding class of ILNs.
All classes have 10-year final maturities and may be called at Radian Guaranty’s option after five years. The M-1, M-2 and B-1 notes have been assigned ratings of BBB-, BB- and B+, respectively, by Morningstar Credit Ratings LLC.
You can read about this and every other mortgage ILS deal in our sister site Artemis’ Deal Directory.