Bellemeade Re 2020-1 Ltd.

This is the eleventh mortgage insurance-linked securities (ILS) transaction to be sponsored by entities of Arch Capital Group, the Bermuda headquartered specialist insurance and reinsurance carrier.

Bellemeade Re 2020-1 Ltd. is a Bermuda domiciled special purpose insurer (SPI), established for the purpose of issuing series of mortgage insurance-linked notes (ILN).

Arch had tried to issue this transaction earlier in the year, but that first attempt coincided with the significant capital market volatility caused by the Covid-19 pandemic and had to be pulled.

At its second attempt, Arch Capital has managed to reopen the capital markets to mortgage insurance risk successfully with this new deal.

Originally, the transaction had been pre-sold as three tranches of mortgage insurance-linked notes (ILN) totalling $528.5 million, but at one stage that had fallen to a $410 million target and then at pricing yesterday we’re told that the three tranches eventually settled to secure some $450 million of mortgage reinsurance for Arch.

At this stage we’re not sure of the split across the three tranches, which are Classes M1-A (the least risky, which we understand to be the largest tranche), Class M1-B (the second largest, mid-risk layer) and Class B1 (much smaller than the other two and the riskiest tranche).

The transaction will provide Arch Capital with some $450 million of excess-of-loss mortgage reinsurance protection across its mortgage insurance portfolio.

The reinsurance coverage is for a portfolio of private mortgage insurance policies issued by Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company (UGRIC) and the notes are exposed to the risk of claims payments on the mortgage insurance policies.

The coverage is across a portfolio of mortgage insurance policies underwritten by Arch between Jul 1st 2019 to Dec 31st 2019.

The issuer Bellemeade Re 2020-1 Ltd. and Arch will enter into a reinsurance agreement to effect the coverage, with the investments in the three tranches of notes providing the collateral to underpin the agreement, as is typical of insurance-linked securities (ILS) deals such as catastrophe bonds.

It’s encouraging to see that Arch Capital has managed to get this new mortgage ILS transaction to market, as it is yet another sign that capital markets are reopening and ready to support more insurance-linked business.

Update:

We now have the tranche size information for this latest mortgage ILS deal from Arch.

The Class M-1A tranche of notes are $252.124m in size, the Class M-1B are almost $171.5m and Class B1 are $26.43m.