Radian seeks mortgage reinsurance from capital market for first time since 2021

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Radian Guaranty, the US mortgage insurance arm of the Radian Group, is back seeking a capital markets funded source of reinsurance for the first time since November 2021, as it successfully upsized a new Eagle Re 2023-1 Ltd. mortgage insurance-linked securities (ILS) issuance to $353 million.

When Radian was last in the capital markets for mortgage reinsurance, the company secured $484 million of collateralized reinsurance for its Radian Guaranty subsidiary, with an Eagle Re 2021-2 Ltd. issuance of mortgage insurance-linked notes in November 2021.

The market for mortgage insurance-linked notes, which forms part of insurance-linked securities (ILS) given the structures are insurance-linked in nature and structured very similarly to a catastrophe bond, has been extremely quiet in recent years.

As with all mortgage ILS, these transactions utilise the catastrophe bond structure to source capital market investor capital to fund some of the excess-of-loss mortgage reinsurance needs of major US mortgage insurers.

Essent Guaranty last secured $281.5 million of fully collateralized excess of loss reinsurance coverage with a Radnor Re 2023-1 Ltd., mortgage ILS deal back in August, but that is the only mortgage ILS deal of 2023 so far.

The need for mortgage reinsurance has not reduced, but uncertainty around the mortgage market and economic factors related to it has slowed the issuance pipeline.

But investor appetite for bond issuances remains strong and given the floating rate nature and the fact the mortgage insurance risks being ceded through these deals are also increasingly remote, things have moved up in a similar way to other reinsurance deals, they remain a very attractive asset for a lot of investors.

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So it’s encouraging to see Radian Guaranty return and even better to learn that the Eagle Re 2023-1 mortgage ILS deal upsized before pricing.

Radian was originally seeking just slightly over $300 million of collateralized mortgage reinsurance with its latest Eagle Re insurance-linked notes sponsorship, but strong investor demand helped the deal to upsize before pricing, to approximately $353 million, Artemis has learned.

We understand the coverage is across four layers of notes that will float above SOFR.

Eagle Re 2023-1 Ltd. funded its reinsurance obligations under the transaction, via the issuance of classes of mortgage insurance-linked notes, each with 10-year legal maturities, to eligible third party capital markets investors in an unregistered private offering.

The transaction is split as follows, along with each tranches DBRS Morningstar ratings:

$110.34 million Class M-1A at BBB (low) (sf)
$145.64 million Class M-1B at BB (sf)

$48.548 million Class M-1B-1 at BB (high) (sf)
$48.548 million Class M-1B-2 at BB (high) (sf)
$48.548 million Class M-1B-3 at BB (sf)

$75.03 million Class M-2 at B (high) (sf)
$22.07 million Class B-1 at B (sf)

The structure of the Eagle Re 2023-1 mortgage ILS issuance sees the M-1B notes split into three sub tranches with different levels of credit enhancement, providing more optionality for investors, we understand.

This is the seventh rated mortgage insurance-linked notes issuance under an Eagle Re vehicle for Radian.

In rating these new 2023-1 notes, DBRS Morningstar explained, “The Notes are backed by reinsurance premiums, eligible investments, and related account investment earnings, in each case relating to a pool of MI policies linked to residential loans. The Notes are exposed to the risk arising from losses the Ceding Insurer pays to settle claims on the underlying MI policies. As of the Cut-off Date, the pool of insured mortgage loans consists of 131,258 fully amortizing first-lien fixed- and variable-rate mortgages. They all have been underwritten to a full documentation standard, have original loan-to-value ratios (LTVs) less than or equal to 97%, have never been reported to the Ceding Insurer as 60 or more days delinquent, and have never been reported to be in a payment forbearance plan as of the Cut-off Date. The mortgage loans have MI policies activated on or after April 2022 and on or before December 2022.”

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We understand this issuance settles in early October, so pushing the deal’s completion date into Q4.

You can read all about the Eagle Re 2023-1 Ltd. mortgage ILS transaction and every other mortgage ILS deal in the Artemis Deal Directory.

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