Radian Guaranty Inc. has entered into its first ever quota share reinsurance agreement that only covers single-premium private mortgage insurance policies.
This is also the first reinsurance agreement Radian has entered into since the
Fannie Mae and Freddie Mac have both approved the transaction and will give full credit to Radian Guaranty for the policies ceded towards meeting the PMIERs secondary market capital standards. Single-premium private mortgage insurance has the highest capital requirements when it comes to the PMIERs, spokeswoman Emily Riley pointed out in an email.
Radian would not disclose the other parties in the reinsurance transaction, only that they are highly rated, she added.
In a press release, parent company Radian Group CEO S.A. Ibrahim said, "Importantly, the extremely low cost of capital for this program is expected to generate meaningful value for our shareholders."
The transaction calls for Radian Guaranty to receive a 25% commission for the ceded premiums, plus a profit commission if the loss ratio for the policies ceded remains below 55%.
To help Radian Guaranty meet the capital standards, the parent company
The agreement allows Radian Guaranty to reinsure 20% of the single-premium policies written between Jan. 1, 2012 and March 31, 2013 and 35% of those written between April 1, 2013 and Dec. 31, 2015. Furthermore, 35% of policies written since Jan. 1, plus new insurance written from now through Dec. 31, 2017, are also included in the agreement.
Philadelphia-based Radian Group said the deal will have negligible effect on the corporation's operating earnings.
Previous Radian Guaranty quota share reinsurance agreements covered both monthly and single-premium policies. Those agreements, done before Dec. 31, 2015, also received full credit from the government-sponsored enterprises under PMIERs, Riley said.
