Risk management shift among mortgage insurers could accelerate: USMI

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An increase in credit risk transfer activity since 2015 signifies a sea change for private mortgage insurers that may be about to intensify, according to an industry trade group.

"There is a quiet transformation happening in our industry," USMI President Lindsey Johnson said in an interview. "Over the last couple years in particular there's been a move toward mortgage insurance companies not just being part of transactions that the GSEs are doing, but doing risk sharing for themselves."

Since 2015, MI companies have transferred more than $30 billion in risk on over $1 trillion of insurance-in-force, according to a USMI press release. This includes $25 billion in risk on over $530 billion in IIF transferred through reinsurance deals, and $7.8 billion in risk on more than $730 billion in IIF shifted through insurance-linked notes, Johnson said in a presentation shared at the Structured Finance Association's residential mortgage conference.

Those numbers could get even larger as the government-sponsored enterprises prepare to share more risk with the private market, Johnson said, noting that this could have a knock-on effect on MIs' risk-sharing activity levels.

The two main types of transfer activity mortgage insurers have gravitated to in recent years mark the outcome of a post-crisis evolutionary process in which they and the GSEs have tested different forms of risk management. Some of these efforts to share risk were better received than others, and even some of the more popular forms of CRT have their limits. But credit risk transfers nevertheless put the mortgage insurance industry in a better position to manage risk than it was precrisis, said Johnson.

"These transactions may not be there through all market cycles and they don't replace equity-based capital, but using them when they are available is such an important asset to the entire industry," she said. "They makes us stronger counterparties."

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PMI Risk management GSEs Secondary market Credit risk transfers