Best’s Special Report: AM Best Updates Net Capital Charges For Fannie Mae and Freddie Mac Mortgage Risk Transfer Programs

OLDWICK, N.J.–(BUSINESS WIRE)–As more of Fannie Mae’s and Freddie Mac’s mortgage risks continue to make their way to the reinsurance market, AM Best has published tables of net capital charges associated with a select group of transactions from these government-sponsored enterprises’ (GSEs) credit risk transfer (CRT) programs. These tables also highlight some of the key components of the factor-based method used to calculate net capital charges in Best’s Capital Adequacy Ratio (BCAR) model. This is the second report on net capital charges for a select group of CRT transactions.

U.S. mortgage insurance exposures, which as a product line had been relatively insignificant for reinsurance companies, today have become pronounced in some reinsurers’ lines of business. The GSEs began transferring mortgage credit risk to the reinsurance market around 2013 through their CRT programs—Freddie Mac through its Agency Credit Insurance Structure (ACIS) and Fannie Mae through Credit Insurance Risk Transfer (CIRT). As of December 2019, GSEs had transferred approximately $24.4 billion of initial limits to the reinsurance market.

The Best’s Special Report, “Updated Net Capital Charge Tables for ACIS/CIRT Reinsurance Transactions,” notes that net capital charge is represented as B5_m (Mortgage-related Net Loss and LAE Reserves Risk) in the net required capital formula that is part of the BCAR. AM Best’s determination of a reinsurer’s net capital charge is based on unexpected losses and premiums associated with the GSEs’ CRT programs, and takes into account each reinsurer’s portfolio of ACIS/CIRT transactions.

AM Best publishes the net capital charge tables semi-annually, using the most current performance data available from the GSEs’ websites. For this report, AM Best has included approximately half of the ACIS/CIRT transactions effective through December 2019. Future publications of the net capital charges will be dependent on the continued timely availability of the ACIS/CIRT data from the GSEs, among other factors.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=293929.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2020 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Contacts

Wai Tang, Ph.D.
Senior Director,
Insurance-Linked Securities
+1 908 439 2200, ext. 5633
wai.tang@ambest.com

Emmanuel Modu
Managing Director,
Insurance-Linked Securities
+1 908 439 2200, ext. 5356
emmanuel.modu@ambest.com

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Director, Public Relations

+1 908 439 2200, ext. 5644
james.peavy@ambest.com