American International Group disclosed that it is expanding its already robust use of insurance linked securities into its mortgage insurance business.
To do this, AIG’s mortgage arm – United Guaranty Corp. – obtained $298.9 million of indemnity reinsurance from Bellemeade Re Ltd., a special purpose insurer domiciled in Bermuda. The coverage is designated for a portfolio of mortgage insurance policies issued from 2009 through the 2013 first quarter.
Details of the transaction: Bellemeade Re is funding its reinsurance obligations by issuing investors three classes of 10 year notes. The ILS transaction closed on July 29 and gives United Guaranty fully collateralized coverage from Bellemeade Re for potential losses on its mortgage insurance portfolio.
AIG noted that it is one of the largest buyers of reinsurance protection backed by insurance-linked securities (ILS). What’s more, it has successfully used the ILS market in recent years to transfer more than $3 billion of risk to the capital markets from its property portfolio, via CAT bonds. What’s noteworthy here, then, is that AIG’s arrangement with Bellemeade Re broadens the practice to mortgage insurance.
AIG President and CEO said that investors have shown “overwhelming support” to the Bellemeade transaction, and AIG’s strategy to expand its participation in the ILS market.
“A robust ILS market allows AIG to have a more flexible and efficient capital structure for the benefit of our customers and shareholders,” Hancock said in prepared remarks.
United Guaranty President and CEO Donna De Maio said her institution’s financial strength and “depth of knowledge” allowed it tap the ILS market for risk transfer.
“This makes the [mortgage insurance] industry financially stronger,” she added in prepared remarks.