Arch returns with largest Bellemeade Re mortgage ILS to-date

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Bermudian insurance and reinsurance group Arch Capital has returned to the insurance-linked securities (ILS) market to source collateralized reinsurance for its mortgage insurance book, with its largest mortgage ILS transaction to-date, a $374.5 million Bellemeade Re 2018-1 Ltd. deal.

Subsidiary Arch Mortgage Insurance Company said that it will benefit from $374.5 million of indemnity reinsurance protection thanks to the issuance from Bellemeade Re 2018-1 Ltd., a newly formed special purpose insurer.

Bellemeade Re 2018-1 has issued three tranches of notes, each with a ten-year term, which have been sold to ILS investors in order to collateralize indemnity reinsurance agreements between the SPI and Arch Mortgage Insurance.

It’s the second time Arch has accessed the capital markets directly for mortgage reinsurance through an ILS issuance, although previously, United Guaranty which was acquired by Arch from AIG in 2016, had completed two Bellemeade mortgage ILS deals.

Across the four Bellemeade Re mortgage ILS transactions, more than $1.3 billion of reinsurance protection has been sourced from the capital markets for home loans representing more than $117 billion of unpaid principal balance.

The two transactions completed under United Guaranty’s mortgage insurance arm were an almost $300 million Bellemeade Re Ltd. (Series 2015-1) and a similarly sized Bellemeade Re II Ltd. (Series 2016-1). Then Arch sponsored its first deal last year, a $368 million Bellemeade Re 2017-1 Ltd. transaction.

In this 2018-1 mortgage ILS deal from Arch, the reinsurance protection will cover a portfolio of mortgage insurance policies underwritten by Arch primarily from July through December of 2017.

The three tranches of ten-year term Bellemeade Re 2018-1 insurance-linked securities (ILS) will provide Arch with fully-collateralized reinsurance coverage against potential losses on a portion of its 2017 mortgage insurance portfolio.

Andrew Rippert, CEO of Arch’s Global Mortgage Group, commented on the deal, “Executing transactions like this on a programmatic basis is a critical part of running a sustainable mortgage guaranty business.” Rippert added, “Not only does it provide us with catastrophic risk protection, it also gives us timely feedback from unbiased third parties on how they view the risk in the U.S. mortgage market.”

As with its last Bellemeade Re 2017 transaction, Arch is tapping the capital markets and ILS investors to provide reinsurance for recently underwritten mortgage insurance policies, not legacy portfolios which the first two Bellemeade Re’s under United Guaranty had done.

These transactions provide an efficient way to access the capital markets for fully collateralized reinsurance protection for a mortgage insurance book, locking in multi-year protection while also enabling Arch to test reinsurance market appetite and pricing, while diversifying its sources of protection.

It will be interesting to see where Arch can find a way to add Bellemeade to the panel of reinsurers that back its recently announced arrangement with Freddie Mac, which could result in a particularly effective way to lower mortgage insurance costs for consumers through the use of efficient risk capital.

Further details on the transaction remain scarce at this time, but we have added the $374.5 million Bellemeade Re 2018-1 Ltd. mortgage insurance ILS transaction to our Deal Directory, where you can also read about every other ILS and cat bond transaction.

Register now for our upcoming ILS conference, July 12th 2018, SingaporeILS Asia 2018

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