Mortgage — Credit risk sharing analysis

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As a leading provider of mortgage credit risk analytics, Milliman assists parties participating in the credit risk sharing markets in the management of their existing portfolios and the analysis of emerging opportunities. Fannie Mae’s Credit Insurance Risk Transfer (CIRT) and Freddie Mac’s Agency Credit Insurance Structure (ACIS) are providing increasing opportunities for insurance and reinsurance companies to assume mortgage credit risk through credit insurance transactions.

Leveraging its industry leading actuarial and mortgage credit risk modeling expertise, Milliman provides insurance and reinsurance companies with meaningful, independent evaluation of these structures. In addition, Milliman’s focus on transparency gives companies a deeper understanding of the performance drivers underlying credit risk. Milliman provides its credit risk sharing clients with a diverse array of consulting support, including:

  • Evaluation of CIRT and ACIS transactions
    The government-sponsored enterprise (GSE) credit risk sharing space is continuously evolving with new opportunities for insurance and reinsurance companies to assume mortgage credit risk. As these opportunities evolve, Milliman provides its clients with analysis tailored to the unique characteristics of the emerging risks.

    Using a framework developed through extensive analysis of mortgage collateral performance and insurance contract evaluation, Milliman evaluates existing and upcoming CIRT and ACIS transactions through loan-level collateral analysis, deterministic econometric modeling techniques, and Monte Carlo stochastic simulations. Through this framework, insurance and reinsurance companies can evaluate expected and probabilistic loss and premium emergence, assumed risk evolution, and pro-forma returns associated with these structures.

  • Portfolio analytics
    Milliman provides insurers and reinsurers with existing credit insurance portfolios with the tools to analyze their existing portfolios. Credit insurance risk sharing performance is driven by large pools of mortgage loans subject to temporal and geographic correlation. Quantifying exposure and expected performance related to these portfolios can require monthly evaluation of the underlying collateral. Leveraging available performance data and Milliman’s credit risk performance models, insurance and reinsurance companies can monitor credit risk portfolios to support risk management and financial reporting.

  • Integration with existing risk management frameworks
    Many insurance and reinsurance companies participating in the credit risk sharing market have sophisticated risk management frameworks tailored to a diverse variety of risks; however, mortgage collateral performance is driven by unique underwriting and economic phenomena.

    Milliman’s credit risk sharing analytics can be tailored to integrate with existing risk management frameworks through custom deterministic analyses or value-at-risk (VaR) and tail value-at-risk (TVaR) reporting.

  • Actuarial support and training
    Milliman has provided consulting services, including actuarial reserve opinions, to the mortgage insurance space for over 20 years and understands the unique risk profile, premium emergence patterns, and loss emergence patterns of mortgage credit risk. The emergence of GSE credit risk sharing transactions has broadened actuarial interest in this field.

    Milliman offers its clients on-site training sessions discussing the evolution of the credit risk sharing market, risk profiles of mortgage credit risk, and actuarial support for analyzing transactions.

Next Steps

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