Reinsurance Case Study: Reinsurance Company Leverages Javelin Whole Loan (JWL) Platform and Javelin Structured Products (JSP) to Analyze GSE Credit Risk Transfer (CRT) Structures

Client’s Challenge

  • A reinsurance company was looking to invest in Fannie Mae and Freddie Mac credit risk sharing transactions but did not have expertise in developing analytic models to understand the credit and prepayment risk associated with the underlying collateral
  • The firm partnered with FBA to leverage the Javelin Whole Loan (JWL) Platform and JSP to generate bids for active deals

Our Solution

  • The Javelin Whole Loan (JWL) Platform and Javelin Securities Platform(JSP) were selected by the risk management team to be the analytic backbone for risk analysis of the underlying mortgage collateral of CRT deals for the reinsurer
  • The FBA team worked with the reinsurance company’s risk staff to set upJWL for use in modeling each deal’s structure leveraging the loan level capabilities of JWL and also JSP’s integration with Intex for deal structuring
  • FBA mortgage analytic experts helped guide the reinsurer’s risk team through the mechanics of mortgage credit and prepayment risk analytics as well as provided input on how to use JWL and JSP for valuation exercises.
  • JWL’s analytic flexibility enabled the reinsurer’s risk analysts to examine the impact of alternative economic scenarios on various tranches of prospective investments providing for greater understanding of how the investment could perform under alternative economic outcomes

Outcome

  • By using JWL and JSP the reinsurer has successfully entered the GSE credit risk transfer market
  • The company has found additional uses for JWL and JSP in its portfoliomanagement process for GSE CRT investments by updating theperformance of the underlying collateral and structures as well as forgenerating loss projections over time