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Radian Guaranty has now completed its second issuance of mortgage insurance-linked securities (ILS), citing a pleasing response from investors to its $562 million Eagle Re 2019-1 Ltd. that secures it additional reinsurance capacity from the capital markets.
The transaction has been in the market for some weeks now and saw Radian Guaranty looking to increase the participation of capital market investors within its excess-of-loss mortgage reinsurance program.
This second mortgage ILS follows Radian Guaranty’s first sponsorship of a mortgage insurance-linked notes (ILN) transaction in the fourth-quarter of 2018, the $434 million from the Eagle Re 2018-1 Ltd.
Now, with the successful completion of its second Eagle Re mortgage ILS transaction, Radian Guaranty now benefits from almost $1 billion of fully collateralized mortgage reinsurance protection.
The deal saw Bermuda domiciled special purpose insurer (SPI) Eagle Re 2019-1 Ltd. issuing $562 million of mortgage insurance-linked notes (ILNs) which were sold to eligible third-party capital markets investors in an unregistered private offering.
The proceeds were then used to collateralize the underlying reinsurance agreements between Eagle Re 2019-1 and Radian Guaranty.
Four classes of mortgage ILS notes were issued, all with ten year maturities and a 7 year call option. The four tranches of notes Eagle Re 2019-1 Ltd. will issue are split as $107 million Class M-1A, $176.64 million Class M-1B, $235.52 million Class M-2 and $$42.822 million Class B-1 notes which are the riskiest tranche.
The lower layer of the tower will be retained by Radian Guaranty, with the coverage kicking in at 2.5% of losses across the covered over $10.71 billion of mortgage insurance portfolio risk.
Subsequently each layer of notes will erode upwards from the riskiest Class B-1 notes as losses eat through the related mortgage reinsurance layers of excess-of-loss protection.
Radian Guaranty was pleased with the support its second mortgage ILS transaction received.
“We were once again pleased with the strong market demand for our ILN transaction,” explained Radian’s Chief Executive Officer Rick Thornberry. “The successful execution of Eagle Re 2019-1 is indicative of both the quality of the mortgage insurance we have written and the increasing breadth and depth of investors interested in this asset class.”
Radian explained a number of the benefits of its mortgage ILS transactions, saying that they lower its overall cost of capital, while increasing capital efficiency and enhancing its return on capital.
In addition, the Eagle Re mortgage ILS deals support its rating agency and PMIERs capital, while transferring risk in the event of adverse development across the reinsured subject mortgage insurance business.
As a result it increases Radian’s counterparty strength, while mitigating income statement and balance sheet volatility across the economic cycle for the firm.
The structure also means that Radian retains a significant proportion of the risk from the covered mortgage insurance portfolio, aligning itself with the investors and enabling it to make better use of its capital.