Best's Special Report: AM Best Updates Net Capital Charges Associated With Fannie-Freddie Mortgage Risk Transfers.

ENPNewswire-July 29, 2021--Best's Special Report: AM Best Updates Net Capital Charges Associated With Fannie-Freddie Mortgage Risk Transfers

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Release date- 28072021 - AM Best has updated tables of net capital charges associated with a representative sample of mortgage-related transactions from Fannie Mae and Freddie Mac's credit risk transfer (CRT) programs, Freddie Mac's Agency Credit Insurance Structure (ACIS) and Fannie Mae's Credit Insurance Risk Transfer (CRT).

These tables also highlight some of the key components of the factor-based method used to calculate net capital charges in the Best's Capital Adequacy Ratio (BCAR) model.

The Best's Special Report, 'Updated Net Capital Charge Tables for ACIS/CIRT Reinsurance Transactions,' notes the net capital charge of CRT transactions is represented as B5m-mortgage-related net loss and LAE reserves risk-in the net required capital formula that is part of Best's Capital Adequacy Ratio (BCAR). It is based on unexpected losses and premiums associated with the transactions and are represented as a fraction of the original exposures. For this report, the fifth one on net capital charges, AM Best has selected approximately half the 120 CRT transactions effective through June 2021 to calculate the net capital charges associated with individual layers of the CRT transactions.

These CRT ACIS/CIRT transactions are having higher realized losses due to the pandemic, according to the report. Ultimately, this will erode at least a portion of the first loss layers in the transactions; the losses may also erode the upper layers, depending on the structure of the transaction. Forbearance, loan...

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