Favorable home-pricing conditions is cited as one of the primary drivers
The global reinsurance industry is expected to continue increasing their exposure to US mortgage risk as the operating environment for the mortgage industry remains favorable, according to a new A.M. Best report.
A.M. Best described covering mortgage risk as a “lucrative business” for reinsurers, with the amount of exposure ceded to the global reinsurance industry continuing to grow. The benign mortgage loss environment, the increased capital requirements for private mortgage insurers, and the favorable home-pricing conditions are the main drivers of the sustained appetite for mortgage risk among reinsurers.
The mandate by the Federal Housing Finance Agency requiring Fannie Mae and Freddie Mac to “de-risk” their balance sheets is also another key factor. Supply and demand conditions have created a favorable outcome, with reinsurers being the beneficiaries of the insurance-reinsurance transactions of the government-sponsored enterprises’ mortgage credit risk-transfer programs.
A.M. Best said that the GSEs have transferred a combined $18.2 billion in limits to the reinsurance sector as of July 31. The rating agency said it expects reinsurers’ participation in the credit risk-sharing programs to remain elevated over the next few years.
The A.M. Best report also outlined the recent ramp-up of mortgage risk ceded by private mortgage insurers to third-party reinsurers, averaging 13.2% of gross premiums written from 2016 to 2017, compared with 5.1% from 2012 to 2015. Additionally, the report discussed the emergence of mortgage insurance-linked securities transactions for covering mortgage exposures. Approximately $2.89 billion in mortgage insurance limits has been transferred to investors as of August.
