Bellemeade Re 2018-3 Ltd. – Full details:
Insurance and reinsurance specialist Arch Capital Group is to issue its third mortgage insurance-linked notes or insurance-linked securities (ILS) transaction of the year, with the securitisation of $506.11 million of mortgage insurance risk through Bellemeade Re 2018-3 Ltd.
The Bellemeade Re 2018-3 mortgage insurance securitisation is Arch Capital Group’s sixth mortgage insurance linked note or mortgage insurance linked securities (ILS) issuance in the Bellemeade series of transactions, the fourth in the series since it acquired AIG’s United Guaranty, which had sponsored the first two Bellemeade Re ILS deals.
This won’t be the largest, the last transaction was larger, but the return so quickly again to the capital markets for more mortgage reinsurance reflects Arch Capital’s increasing appetite to leverage fully collateralized mortgage reinsurance protection to better manage its risk and capital.
For this mortgage insurance-linked securities (ILS) transaction Arch registered a Bermuda domiciled special purpose insurer (SPI) in September named Bellemeade Re 2018-3 Ltd.
Four tranches of notes are set to be issued by Bellemeade Re 2018-3, with the least risky being a $107.6 million Class M-1A tranche, followed by a $211.2 million Class M-1B tranche, a $167.4 million Class M-2 tranche and the most risky being a $19.93 million Class B-1 tranche of mortgage insurance-linked notes.
The Class M-1A tranche has been given a preliminary A rating by Morningstar, the Class M-1B tranche a BBB rating, the Class M-2 tranche a BB- rating and the Class B-1 tranche a rating of B+.
The four tranche of notes all have 10-year maturities, as has become typical with Arch’s mortgage ILS deals.
The four tranches of notes will be sold to capital markets investors to collateralize the underlying mortgage reinsurance agreements that will protect the Arch Mortgage Insurance residential book of business on an indemnity basis, across the 10 year term.
Another two tranches, or coverage layers, are to be largely retained by Arch Capital, including the first loss layer associated with the covered portfolio of mortgage insurance risks.
The pool of insured mortgage loans that this transaction covers features geographically diverse, both fixed and variable rate, first-lien loans that have never been reported as in default, as of the deal cutoff date, transaction documents state.
While the last Bellemeade Re 2018-2 transaction was the first mortgage ILS to feature seasoned loans with an average of 42 months, being originated between April 1, 2013 and Dec. 31, 2015, this new transaction marks a return to seeking reinsurance for newer loans, having a weighted average seasoning across the portfolio of just 3 months.
Interestingly, analysts noted that this transaction has priced more competitively than previous mortgage ILS deals, with all-in pricing of Libor plus 209bps, according to Credit Suisse analysts.
This compares to recent deals from National Mortgage Insurance Corporation which priced all-in at Libor plus 226bps in July and the previous Bellemeade Re 2018-2 that priced at Libor plus 228bps in April.