Milestone reached after completion of record $788m re/insurance transactions
Aon Risk Solutions and Aon Benfield, the global risk management businesses of Aon plc (NYSE: AON), have assisted U.S. mortgage guarantor Freddie Mac to reach an important issuance milestone in credit risk transfer.
The USD5bn milestone comes with the inception of three new re/insurance policies under Freddie Mac’s successful Agency Credit Insurance Structure (ACIS®) program, representing the largest aggregate transaction to date.
Together, these three policies provide up to a combined maximum limit of approximately USD788m 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 this year, STACR 2016-DNA2, STACR 2016-HQA2, and STACR 2016-DNA3. These transactions are transferring a significant portion of mortgage credit risk on approximately USD75bn of unpaid principal balance (UPB) on single-family mortgages.
Through ACIS, Freddie Mac obtains policies that transfer to insurance and reinsurance companies around the globe a portion of the credit risk associated with its STACR debt note reference pools. Freddie Mac has placed over USD5bn in re/insurance coverage through 20 ACIS transactions since the program’s inception in 2013.
In a long-standing and successful partnership with Freddie Mac, Aon Risk Solutions and Aon Benfield have played a key role in generating ongoing re/insurance market capacity for the transactions, as well as in the educational process necessary for re/insurers to begin writing this line of business.
Kevin Palmer, senior vice president of single-family credit risk transfer for Freddie Mac, said: “We could not have achieved this USD5bn ACIS milestone without the support of Aon. Their work to educate reinsurers about this evolving market is helping to bring new sources of capital into the credit risk transfer arena – that’s good news for U.S. taxpayers and investors worldwide.”
Eric Andersen, CEO of Aon Benfield, added: “We are excited that our strong and long-standing relationship with Freddie Mac has allowed us to reach this important milestone. After initially generating awareness and understanding of U.S. mortgage credit business across the re/insurance industry, we continue to work with re/insurers across the globe to assist them to develop the skills and capabilities necessary to underwrite this type of risk. 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. 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.”