Groundbreaker: AIG insures crisis-era United Guaranty mortgage insurance policies

Risk-transfer deals just jumped to a whole other level

By its own admission, American International Group is set to break ground in the risk-transfer space as the company announced Monday that it obtained an insurance policy designed to cover any losses the company might suffer on a series of crisis-era mortgages that are currently insured by its mortgage insurance subsidiary, United Guaranty.

According to a release from AIG, United Guaranty obtained $298.6 million of indemnity reinsurance from a “special purpose insurer” called Bellemeade Re II Ltd.

The policy covers a pool of mortgage insurance polices issues in 2008 and in earlier years.

According to United Guaranty President and CEO Donna DeMaio, the insurance policy is the first of its kind.

“We believe this marks the first time a mortgage insurer has accessed the capital markets for a risk transfer involving a mortgage insurance portfolio made up of policies issued in 2008 and earlier years,” DeMaio said.

“The transaction not only helps United Guaranty manage risk, but also demonstrates that investors are willing to assign value to this type of portfolio from the 2008 and earlier period,” DeMaio added.

According to the release from AIG, the reinsurance is on a portion of United Guaranty’s first-lien U.S. mortgage insurance portfolio of policies issued in 2008 and prior years, which represents a relatively small portion of the company’s portfolio.

“As of March 31, 2016, less than 20% of United Guaranty’s gross risk in force was written in 2008 and prior years,” AIG said.

AIG also stated that Bellemeade Re II is funding its reinsurance obligations through the issuance of three classes of amortizing notes with 10-year legal final maturities.

According to AIG, the insurance-linked securities transaction will United Guaranty with fully collateralized coverage from Bellemeade Re II for potential losses on a portion of its legacy MI portfolio.

AIG also said that it obtained similar policies from Bellemeade Re Ltd. last year, although that $300 million worth of indemnity reinsurance was for a portfolio of MI policies from 2009 through the first quarter of 2013.

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