Freddie Mac has completed the largest aggregate risk transfer transaction in its history after acquiring three new policies through its Agency Credit Insurance Structure (ACIS).
These three policies provide Freddie Mac with protection valued up to a combined maximum limit of $788m of losses on single-family loans and transfer much of the remaining credit risk associated with three of the Structured Agency Credit Risk (STACR) debt issuances it has made this year.
The three STACR transactions are transferring a significant portion of mortgage credit risk on approximately $75bn of unpaid principal balance on single-family mortgages.
Via ACIS, Freddie Mac obtains that transfer a portion of the credit risk associated with its STACR debt note reference pools to the global re/insurance industry. Since the programme’s inception back in 2013, Freddie Mac has placed over $5bn in insurance coverage through 20 ACIS transactions.
“We are pleased to have reached another significant issuance milestone in our single-family credit risk transfer programme," said Kevin Palmer, senior vice president of single-family credit risk transfer for Freddie Mac.
“Our evolving and maturing ACIS programme continues to attract a growing amount of capital from domestic and foreign insurers and reinsurers, as evidenced by the record number of counterparties who helped to make today's announcement possible. We continue to work to strengthen our credit risk transfer programmes to shift additional mortgage credit risk away from taxpayers and provide new opportunities for investors.”
Aon subsidiaries Aon Risk Solutions and have a long-standing relationship with Freddie Mac, as well as its sister organisation Fannie Mae, and they once again assisted the government sponsored enterprise in obtaining the latest protection.
“We have a strong and long-standing relationship with Freddie Mac, and are excited to have helped them to reach this important milestone in credit risk transfer,” said Aon Benfield’s chief executive, Eric Anderson.
“After a period of educating insurers and reinsurers on US mortgage credit risk, we have found they have become comfortable and very receptive to this new line of business. We are pleased to have the opportunity to continue to work alongside Freddie Mac to create sustainable re-insurance capacity in this sector, and consequently an ever more stable US housing market environment.”
Anderson’s colleague, Bryon Ehrhart has been an important figure in the re/insurance industry’s move into the mortgage credit space. As Ehrhart told Reactions last year, the mortgage credit industry could represent some $40bn of premium to the re/insurance industry over the next six or seven years (www.reactionsnet.com Oct 1, 2015).
Since 2013, more re/insurers have moved into the space, although firms such as Arch Reinsurance, PartnerRe, Everest Re and RenaissanceRe are those who are considered the leading market players.
“We believe that this sector represents a key opportunity for re/insurers, especially given that growth in many traditional business lines is becoming more difficult to achieve,” added Anderson. “Those re/insurers that have made investments in the requisite talent and technology to participate have reaped the benefits of a diversified business line, and we look forward to bringing even more markets into this area in the coming months and years.”