Freddie Mac taps private insurance capacity
Arch Reinsurance has provided a $77.4 million insurance policy covering credit losses associated with the Federal Home Loan Mortgage Corporation in the US, the organisation known as Freddie Mac.
The deal, being described as a ground-breaking move for the body, can be seen as the latest step in a growing trend in the US of risks being moved from the public sector to the private sector. Discussions are ongoing around the potential to potentially move certain layers of terrorism risk, flood risk and aviation war risk insurance into the private sector.
Freddie Mac, which was formed by the US government in 1970, helps stabilise the US residential mortgage markets by purchasing mortgage-related securities and by issuing guaranteed mortgage-related securities.
The policy will cover credit losses for a portion of the credit risk associated with a pool of single-family loans funded in the third quarter of 2012.
The organisation said the policy demonstrates Freddie Mac's innovation in developing and introducing new ways to share credit risk with the private market. It allows new sources of private capital from non-mortgage guaranty insurers and reinsurers to assume a portion of the credit risk on specified parts of its portfolio.
“This is part of our business strategy to expand risk-sharing with private firms, thus reducing taxpayers' exposure to losses from mortgage foreclosures,” said David Lowman, executive vice president of single-family business for Freddie Mac.
