Bellemeade Re 2021-1 Ltd.

This Bellemeade Re 2021-1 mortgage ILS deal will be Arch Capital Group’s thirteenth mortgage insurance-linked securities (ILS) issuance under the Bellemeade Re program of deals.

The BMIR 2021-1 issuance features six tranches of mortgage insurance-linked notes which are being offered to investors and the proceeds set to be used for collateralizing underlying mortgage reinsurance agreements between Bermuda based special purpose insurer (SPI) Bellemeade Re 2021-1 Ltd. and Arch’s mortgage insurer entities Arch Mortgage Insurance Company (AMIC) and United Guaranty Residential Insurance Company (UGRIC).

The notes issued will all be exposed to the risk of losses Arch’s mortgage insurer entities pay to settle claims on an underlying pool of mortgage insurance policies.

DBRS Morningstar explained the subject business:

“As of the cut-off date, the pool of insured mortgage loans consists of 131,501 fully amortizing first-lien fixed- and variable-rate mortgages. They all have been underwritten to a full documentation standard, have original loan-to-value ratios (LTVs) less than or equal to 100%, and have never been reported to the ceding insurer as 60 or more days delinquent. As of the Cut-Off Date, these loans have not been reported to be in payment forbearance plan. The mortgage loans have MI policies effective on or after January 2019. On March 1, 2020, a new master policy was introduced to conform to government-sponsored enterprises’ (GSEs’) revised rescission relief principles under the Private Mortgage Insurer Eligibility Requirements (PMIERs) guidelines (see the Representations and Warranties section in the related Presale Report for more detail). Approximately 99.3% of the mortgage loans were originated under the new master policy.”

Bellemeade Re 2021-1 Ltd. will issue the six tranches of mortgage insurance-linked notes and enter into a reinsurance agreement with the ceding insurers, Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company.

The two ceding insurers will get reinsurance protection for the funded portion of mortgage insurance losses, in exchange for which they will make premium payments related to the underlying insured mortgage loans to the issuer, which in turn makes coupon payments to the investors.

Interestingly, this Bellemeade Re 2021-1 mortgage ILS issuance is the first transaction where the coupon rates are based on the Secured Overnight Financing Rate (SOFR), instead of Libor which previous mortgage ILS deals had been pegged to.

The deal is structured into tranches as per the below, with their respective ratings alongside:

• $188.8 million Class M-1A, rated BBB (high) (sf) by DBRS Morningstar, A1 (sf) by Moody’s.
• $118.2 million Class M-1B, rated BBB (sf) by DBRS Morningstar, A3 (sf)  by Moody’s.
• $138.6 million Class M-1C, rated Baa3 (sf) by Moody’s.
• $112 million Class M-2, rated Ba3 (sf) by Moody’s.
• $21.3 million Class B-1, rated B3 (sf) by Moody’s.
• $85.8 million Class B-2, unrated.

As losses would be applied to the underlying mortgage insurance policies and trigger these notes after eroding all retention, the reinsurance would pay out, causing principal losses, from the B-2 tranche upwards.

The B-2 notes cover 100% of losses across a layer of the reinsurance, while each tranche above covers a progressively smaller percentage, up to the M-1A notes which cover 80% of losses across a $235.9 million layer of mortgage reinsurance protection.

Update 1:

The Class B-2 tranche of notes was not issued in the end, bringing the overall mortgage ILS deal size down to $580m.

Arch secured $64 million in direct reinsurance alongside this Bellemeade Re 2021-1 ILS note issuance, taking the total mortgage reinsurance secured to over $643 million.

Now completed, the $580 million of notes issued by Bellemeade Re 2021-1 Ltd. break down like this:

• $188,782,000 class M-1A notes with a coupon equal to one-month SOFR plus 175 basis points.
• $118,203,000 class M-1B notes with a coupon equal to one-month SOFR plus 220 basis points.
• $138,583,000 class M-1C notes with a coupon equal to one-month SOFR plus 295 basis points.
• $112,021,000 class M-2 notes with a coupon equal to one-month SOFR plus 485 basis points.
• $21,324,000 class B-1 notes with a coupon equal to one-month SOFR plus 675 basis points.

Arch said that 30 investors supported its latest mortgage ILS deal.