Investors pump $500M into new mortgage insurer
by Michael Rudnick

A group of well-heeled investors is backing the launch of a mortgage insurance company, Essent Guaranty Inc., with a $500 million investment.

The group includes New York private equity firm Pine Brook Road Partners LLC, Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and Bermuda reinsurers PartnerRe Ltd. and RenaissanceRe Holdings Ltd., according to the parent, based in Radnor, Pa.

Essent will focus exclusively on insuring prime mortgages from private mortgage lenders and government-sponsored lenders including Fannie Mae and Freddie Mac, the spokeswoman said. The business will operate as a subsidiary of Radnor-based Essent U.S. Holdings Inc., whose parent is Essent Group Ltd. of Bermuda. (It is unrelated to Essent NV in
the Netherlands.)

An official launch date has not been announced. The firm is awaiting the necessary approvals to write coverage from the Commonwealth of Pennsylvania Insurance Department.

An Essent spokeswoman declined to say how the investors divvied up the stakes. Representatives of the investor group did not return calls.

Mark Casale, former president of Philadelphia mortgage insurer Radian Guaranty Inc., has been hired to serve as president and CEO of the new venture. A senior management team is in place under Casale, and the company expects to be fully staffed with about 100 employees by year's end. The spokeswoman would not disclose the identities of the other senior managers.

Like its peers, Casale's former company, Radian, which he left in November 2007, has taken a beating. Corporate ratings of its parent, Radian Group Inc., along with mortgage insurers MGIC Investment Corp. of Milwaukee and PMI Group Inc. of Walnut Creek, Calif., were slashed to junk by Moody's Investors Service in February, which said the insurers were dangerously close to breaching statutory risk-to-capital requirements within 18 months without new capital injections.

Because Essent is entering the mortgage insurance sector with a clean balance sheet and a prime-mortgage focus, the company should avoid the fate of its peers. Essent can differentiate itself on its strong capitalization, solid management team and "risk-centric model," the spokeswoman said.

"Despite the [mortgage] dislocation, we believe the introduction of fresh private capital through Essent will help revitalize the private mortgage insurance industry," she added.

Following its launch, Essent could seek to raise additional capital. "Capital needs will depend on the growth trajectory of the business," the spokeswoman said.