In 2015 United Guaranty Corporation issued the first Insurance-Linked Note transaction via Bellemeade Re Ltd. Ever since, there has been a growing trend among US private mortgage insurers to turn to ILS as a form of alternative risk transfer, rather than the traditional reinsurance market. 2018 seemed to be the pivotal year in this trend of mortgage insurance ILS as $2.975 billion was issued – an increase of 514% from 2017. The underlying insurance originated from five out of the six current Private Mortgage Insurers (PMIs), with a combined market share of 85.2%. The graphic below demonstrates this growth in 2018, compared with the previous three years of issuances.
According to Artemis, Mortgage insurance risks now make up 10.7% of outstanding catastrophe bonds and ILS risk capital, up from 4.8% reported on the 27th June in my first blog In mortgage reinsurance, the only constant is change. Genworth Financial Inc., is the only PMI not to have accessed the alternative capital markets. Most surprisingly, the 2018 Q4 ILS market was dominated by mortgage ILS deals, making up 68% of issuance. The risk transfer pendulum has very much swung towards ILS as the favoured route for PMIs.
Conversely, this means it has moved away from traditional reinsurance. In 2019, National MI (NMI) elected a smaller cession rate for their quota share reinsurance treaty. This was a decrease to 20%, from 25%. In their press release, NMI refer to their success in “accessing a broad range of alternative funding and risk transfer markets”. This clearly refers to their Oaktown ILS Transactions.
Therefore, this transition from traditional markets to ILS begs the question: if reinsurance markets cannot access mortgage risk via traditional US PMIs, where can they access it?
The answer to that is simple, Freddie Mac’s IMAGIN and Fannie Mae’s EPMI transactions, also known as Mortgage Risk Transfer. For reinsurers, these transactions offer the chance to tap directly into the US mortgage insurance market, and in contrary trend to PMI reinsurance transactions, these MRT programs are only likely to grow.
List of all US Mortgage risk ILS transactions:
|2019||Radnor Re 2019-1 Ltd.||Essent Guaranty||443,870,000|
|2018||Bellemeade Re 2018-3 Ltd.||Arch Capital Group Ltd.||506,110,000|
|2018||Bellemeade Re 2018-2 Ltd.||Arch Capital Group Ltd.||653,300,000|
|2018||Bellemeade Re 2018-1 Ltd.||Arch Capital Group Ltd.||374,500,000|
|2018||Radnor Re 2018-1 Ltd.||Essent Guaranty||424,412,000|
|2018||Home Re 2018-1 Ltd.||MGIC Investment Corporation||318,600,000|
|2018||Oaktown Re II Ltd.||NMI Corporation||264,550,000|
|2018||Eagle Re 2018-1 Ltd.||Radian Guaranty||434,000,000|
|2017||Bellemeade Re 2017-1 Ltd.||Arch Capital Group Ltd.||368,000,000|
|2017||Oaktown Re Ltd. (Series 2017-1)||NMI Corporation||211,320,000|
|2016||Bellemeade Re II Ltd. (Series 2016-1)||Arch Capital Group Ltd. (UG)||298,600,000|
|2015||Bellemeade Re Ltd. (Series 2015-1)||Arch Capital Group Ltd. (UG)||298,890,000|