Portfolio Insurance Products
Portfolio insurance is mortgage insurance applied to a group of loans. Portfolio insurance can be used to obtain capital relief, credit enhance mortgage-backed securities, facilitate a whole loan sale, or correct a perceived portfolio risk imbalance. There are two main forms of portfolio insurance.
Pool Insurance
PMI Europe insures a portfolio of loans up to a fixed percentage (the stop loss) of the sum of all the original loan amounts. Individual loans in the pool are insured against loss. PMI Europe will pay individual losses until the portfolio stop loss level is reached. Depending on the stop loss limit chosen, pool insurance can be more cost efficient than primary insurance.
Excess of Loss
PMI Europe insures a portfolio of loans. Cumulative claim amounts are tracked until a predetermined claim level, or deductible, is reached. PMI then pays claims in excess of the deductible amount, normally up to an agreed claim level (or stop loss). Lenders preferring only to acquire coverage for catastrophic levels of losses can opt for a large deductible. This type of coverage is also known as excess of loss (“XOL”) insurance and can be the least expensive form of coverage.
