MGIC targets first mortgage ILS of the year, $437m Home Re 2022-1

MGIC Investment Corporation is back in the capital markets to secure a new source of collateralized reinsurance with its first Mortgage Insurance Linked Securities (ILS) deal of the year, sponsoring a Home Re 2022-1 Ltd deal. of $437 million.

This will be the sixth time we record that MGIC Investment Corporation has tapped into the appetite of capital market investors to underwrite reinsurance for its Mortgage Guaranty Insurance Corporation unit, as the company has historically used the catastrophe bond type structure to underwrite reinsurance. mortgage from capital market investors. .

The market for mortgage ILS, or Mortgage Insurance Linked Notes (ILNs), has been quiet so far in 2022, with only one issuance from regular sponsor Arch MI.

We understand that the financial market volatility in 2022 caused some transactions to stall, but now more confidence is returning and so it is good to see MGIC looking to revive the mortgage ILS market.

As with all Mortgage Insurance Linked Securities (ILS) transactions, coverage is spread over a number of tranches of notes, again as you would see in a cat bond.

MGIC has registered a new Bermuda-based special purpose insurer (SPI), Home Re 2022-1 Ltd. (HMIR 2021-1) for this targeted issuance of nearly $437 million of mortgage insurance related notes.

Five classes of notes are issued, each backed by reinsurance premiums, qualifying investments and related account investment income, in each case relating to a pool of MI policies linked to residential loans.

The Covered Pool of Insured Mortgages includes 218,568 fully amortized fixed and variable rate first mortgages, all underwritten to a fully documented standard and never reported as 60 days or more past due.

The mortgage insurance policies covering the loans are all effective from September 2019 and from January 2022.

The transaction will have a term of 12.5 years, but will be amortized over the period of coverage and will be subject to a call at the request of the sponsors.

The transaction breaks down as follows, along with the rating of each tranche:

  • $159.8 million Category M-1A (DBRS Morningstar rated BBB (sf); Moody’s rated Baa2 (sf))
  • $53.3 million Category M-1B (DBRS Morningstar rating BBB (low) (sf); Moody’s rated Baa3 (sf))
  • $146.8 million Category M-1C (DBRS Morningstar rating BB (low) (sf); Moody’s rated Ba2 (sf))
  • $47.4 million Category M-2 (DBRS Morningstar rated B (high) (sf); Moody’s rated B1 (sf))
  • $29.6 million Category B-1 (DBRS Morningstar rated B (high) (sf); Moody’s rated B2 (sf))

Each class of notes issued by Home Re 2022-1 (HMIR 2022-1) will be sold to capital market investors and the proceeds of the resulting guarantee will be used to support the mortgage excess of loss reinsurance agreements between the SPI and the promoter of the transaction, Mortgage Guaranty Insurance Corporation.

Accordingly, this transaction transfers the credit risk associated with the mortgage insurance policies to a defined portfolio of capital markets mortgages for MGIC.

As with the majority of mortgage ILS transactions, the sponsor will bear a first loss layer below the tranches, after which the notes would take losses in priority order.

You can find out all about the Home Re 2022-1 Ltd mortgage insurance related securities transaction. and on all other ILS Mortgage transactions in our specific ILS Mortgage Transaction Directory, as well as our comprehensive Artemis Transaction Directory.

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Luisa D. Fuller