Euclid Mortgage secures BDA reinsurance backing to begin actively quoting

Euclid Mortgage has secured initial backing from three Bermudian reinsurers with more capacity being lined up as it prepares to begin quoting and accepting submissions in the month ahead, with Milliman’s Ken Bjurstrom also added as chief risk officer, The Insurer can reveal.

The new Joe Monaghan-led venture remains in discussions with reinsurers in the US, Europe and Bermuda and is thought to be at the closing stages of due diligence with a handful of them to bring additional capacity online by year-end.

The mortgage MGU has already received submissions, with an eye towards providing authorisations later this month on reinsurance deals for mortgage insurers, along with deals backing government-sponsored enterprises Fannie Mae and Freddie Mac.

According to sources, Euclid Mortgage expects to begin binding business by October and into November.

In addition to establishing a US entity, Euclid Mortgage is finalising an application with the Bermuda Monetary Authority to set up an agency on the island.

Bjurstrom has joined Euclid Mortgage after a 26-year career at Milliman, where he served as managing consultant on mortgage credit risk transfer, mortgage credit risk management, underwriting, capital modelling and housing policy initiatives.

The new Euclid outfit has launched at an opportune time amid surging mortgage originations, with 30-year mortgage rates having fallen nearly 150 basis points from their October 2023 peak and the Federal Reserve poised to slash interest rates.

Aiming to be “a leading market” for mortgage re

It is understood that the new MGU’s ambitious targets include hitting 10-20 percent market penetration over time.

A spokesperson for Euclid confirmed the broad outlines of the new MGU’s launch in a statement to The Insurer.

“Our objective is to be a leading market for mortgage reinsurance,” said Monaghan, who serves as Euclid Mortgage’s CEO, in a statement.

“That requires experience, best-in-class analytics and capacity. I believe we’re market leading on the first two and with our growing panel, we believe that we’ll be able to provide leading capacity too,” he added, as he affirmed Euclid Mortgage is “ready to write business”.

Monaghan said that so far, the new MGU has received “great feedback” from cedants, brokers and markets.

“Markets are responding positively to the turnkey access we provide to this profitable and diversifying class of business,” Monaghan explained.

“But even more so, they like that our approach gives them the benefits of being a market leader but without the expense or risk,” he continued.

“They also take great confidence from our partnership with Euclid Insurance Services given their decades long track record and stellar reputation,” he added.

Monaghan said that cedants have responded favourably to the new business, given established market relationships with its founding management team, adding that buyers “see the value we will create in delivering innovation at scale and counterparty diversification”.

“And brokers have been supportive because they see us delivering more choice for their clients via a leading platform led by highly experienced professionals,” he added.

US housing market “fundamentally strong”

The Euclid Mortgage founding CEO said the US housing market is fundamentally strong, with home values underpinned by undersupply and high demand nationally, alongside high credit quality driven by continued strong mortgage underwriting, which has resulted in continued low defaults.

Monaghan said that a diversified portfolio of mortgage risk can still deliver “high-teens returns”, adding that the reinsurance opportunity “remains strong”, and demand is likely to grow as mortgage originations increase with lower interest rates.

In an interview with The Insurer in June, Monaghan revealed Euclid Mortgage will be looking to deploy between $500mn and $600mn in capacity over time, with plans to expand to other capital relief-type deals internationally.

Before Euclid, Monaghan spent 26 years with Aon, spearheading the development of Aon’s mortgage reinsurance offering while serving as CEO of public sector partnership, and then global growth leader, where he worked with governments to bolster their resiliency.

In July Euclid Mortgage formed an advisory panel that includes Andrew Bon Salle, former head of Fannie Mae’s single family business; Claudia Merkle, former CEO of US mortgage insurer National MI; and Ivy Zelman, founder of Zelman & Associates, one of the leading housing market research firms.

Euclid’s partner model

John Colis-led Euclid Insurance Services has a strong track record in the MGA sector for luring top talent for the incubation of specialist MGAs where staff retain significant equity stakes.

Euclid Program Managers runs a partner model, with the company typically taking a 51 percent stake with investing managers in the individual program administrators or MGAs holding the rest.

The parent takes a long-term view on its ownership of the MGAs launched on its structure, but also provides a platform for growth and potential liquidity events if the owner-managers are looking to sell.

Euclid provides significant support in taking the start-ups to market to secure capacity from an insurance carrier, as well as helping with the negotiation of the agreement that governs the relationship.

It also provides administrative services such as accounting, IT and HR, freeing the owner underwriting teams up to focus on running the individual MGAs.

The MGAs it forms are typically set up as separate corporations.

Among its top performing launches to date are Euclid Transactional, Euclid Public Sector, Euclid Design Underwriters, Euclid Financial, Euclid Life Science Specialty, Euclid Surety, Euclid Security and Euclid Marine.