The softened reinsurance market landscape and a mandate by the Federal Housing Finance Agency (FHFA) is driving the increased participation of reinsurers in the U.S. mortgage insurance sector, a trend A.M. Best expects to continue.
The persistent softening in the property/casualty reinsurance sector, underlined by continued rate declines across most business lines, that are most pronounced in the property catastrophe space, is seeing more reinsurance companies enter the U.S. mortgage insurance sector, according to A.M. Best.
This, combined with a mandate by the FHFA that requires Fannie Mae and Freddie Mac to transfer as much credit risk of their pooled loans as possible to the private sector, are trends A.M. Best expects to persist, resulting in more of the government-sponsored enterprises (GSEs) mortgage exposure transferring to the global reinsurance market.
“In the future, A.M. Best expects to see more of the GSEs’ mortgage risks finding their way to the reinsurance market, as the FHFA expects the GSEs to reduce taxpayers’ risk by expanding the role of private capital in the mortgage market. The GSEs would continue to cede the credit risks associated with single-family and multifamily loans in the foreseeable future,” explained A.M. Best, in a recent industry note.
Furthermore, the ratings agency expects both traditional reinsurers and alternative reinsurance providers to show an increased demand for the GSEs mortgage credit exposure.
“Benign property catastrophe insured losses (which have kept rate-on-line in the doldrums), along with insurance brokers actively involved in this market, bode well for increased participation in the GSEs’ reinsurance credit risk sharing program. Current U.S. housing pricing conditions may also be a contributing factor,” continued A.M. Best.
