AIG has nailed down nearly $300 million of indemnity reinsurance coverage for its mortgage insurance business, expanding on its initial use of ILS financing for the division nearly a year ago.
The details: AIG’s mortgage insurance business United Guaranty Corp. obtained $298.6 million of indemnity reinsurance from Bellemeade Re II Ltd., a special purpose insurer based in Bermuda. Plans call for using the coverage for a portfolio of mortgage insurance policies issued 2008 and earlier.
As of March 31, 2016, less than 20 percent of United Guaranty’s gross risk in force was written in 2008 and prior years.
Bellemeade Re II said it will fund its reinsurance obligations by issuing three classes of amortizing notes with 10 year legal final maturities. In doing so, the ILS transaction will give United Guarantee fully collateralized coverage for possible losses on part of its legacy mortgage insurance policies.
In a statement, United Guaranty President and CEO Donna DeMaio said that the transaction could be the first time a mortgage insurer used the capital markets “for a risk transfer involving a mortgage portfolio of policies issued in 2008 and earlier years.”
Last August, United Guaranty obtained $298.9 million of indemnity reinsurance – also from Bellemeade Re Ltd. – for a portfolio of mortgage insurance policies issued from 2009 through the 2013 first quarter.
United Guaranty filed for an IPO in March, a move that’s part of AIG CEO Peter Hancock’s strategy to streamline and revamp the insurer and boost shareholder returns. Sources told Bloomberg recently that AIG is eying a nearly $4 billion valuation for United Guaranty in an initial public offering that would raise $700 million to $800 million in share sales to the public.
AIG is one of the largest buyers of reinsurance protection backed by insurance-lined securities.