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Bellemeade Re 2022-1 Ltd.

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Bellemeade Re 2022-1 Ltd. – At a glance:

  • Issuer: Bellemeade Re 2022-1 Ltd.
  • Cedent / sponsor: Arch Capital Group Ltd.
  • Placement / structuring agent/s: Unknown
  • Risk modelling / calculation agents etc: Unknown
  • Risks / perils covered: Mortgage insurance risks
  • Size: $282m
  • Trigger type: Indemnity
  • Ratings: DBRS Morningstar & Moody's rated (details below)
  • Date of issue: Jan 2022

Bellemeade Re 2022-1 Ltd. – Full details:

This is the first Bellemeade Re mortgage insurance-linked securities (ILS) transaction of 2022 from global specialty insurance and reinsurance player Arch Capital Group.

It will be the eighteenth issuance of mortgage insurance-linked notes (ILN) under the Bellemeade Re program, since it began in 2015.

There’s some uncertainty over the eventual size of this transaction, according to our sources, but the issuance could be as large as $317 million, should Arch choose to fully-fund all five tranches of notes set to be issued.

Although other sources suggest it could be partially funded, which would bring the issuance closer to $277 million of notes, we’re told.

Arch Capital has established Bellemeade Re 2022-1 Ltd. as a new Bermuda based special purpose insurer (SPI) for this issuance and the SPI will issue and sell five tranches of mortgage insurance-linked notes to capital market investors.

Each tranche represents a different level of risk and the proceeds from the sale of the notes will collateralize underlying mortgage reinsurance agreements between the issuer, Bellemeade Re 2022-1 Ltd. and Arch’s mortgage insurer entities Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company.

Each of the five tranches of notes issued by Bellemeade Re 2022-1 notes are exposed to the risk of claims payments on the subject mortgage insurance policies.

Depending on the notes’ priority, the tranches could incur principal and interest losses should the ceding insurer makes claims payments on the mortgage insurance policies covered by the deal.

The notes have a ten-year term and will amortise alongside the mortgage loans and covered insurance policies.

We understand Arch aims to fund each tranche of notes by a minimum of 80%, but that the targeted coverage could be far higher if investor appetite allows the company to secure more reinsurance protection from this latest mortgage ILS deal, up to the maximum fully-funded issuance size of $317 million, while some sources say the target will be $277 million and additional traditional reinsurance will likely be procured alongside this deal.

Interestingly, rating agency DBRS Morningstar highlights something a little more unusual about this mortgage ILS transaction, saying, “In this transaction, there could be loans located in counties designated by the Federal Emergency Management Agency (FEMA) as having been affected by a non-coronavirus-related natural disaster. Mortgage insurance policies generally exclude physical damage in excess of $5,000.”

We haven’t seen that mentioned with respect to other mortgage ILS, suggesting that it could be that the subject mortgage loans cover an area where a recent major catastrophe event, such as the December tornadoes or Colorado wildfire occurred.

Rating agency Moody’s is only rating four tranches of notes from this transaction. Moody’s also sees the issuance as possibly fully-funded, which would be a $317 million issuance:

  • $79.2 million Class M-1A, Assigned (P)Baa2 (sf)
  • $63.4 million Class M-1B, Assigned (P)Baa3 (sf)
  • $126.7 million Class M-1C, Assigned (P)Ba3 (sf)
  • $31.7 million Class M-2, Assigned (P)B3 (sf)
  • $15.8 million Class B-1, Unrated.

DBRS Morningstar has opted for the less-funded deal size, of $277 million and will rate all five tranches of notes issued by Bellemeade Re 2022-1:

  • $63.4 million Class M-1A at BBB (high) (sf)
  • $53.8 million Class M-1B at BBB (sf)
  • $117.8 million Class M-1C at BB (sf)
  • $29.5 million Class M-2 at B (high) (sf)
  • $12.7 million Class B-1 at B (high) (sf)

Update 1:

Arch Capital eventually secured $282 million of reinsurance through the issuance of mortgage insurance-linked notes to investors through Bellemeade Re 2022-1 Ltd., while the company secured another $33 million of traditional mortgage reinsurance alongside it, taking the total protection secured to $315 million.

For this latest issuance, Bellemeade Re 2022-1 Ltd. has funded its reinsurance obligations through the issuance of five classes of amortizing notes with 10-year legal final maturities, totalling $282 million issued.

The final tranche sizes are detailed below along with their pricing:

  • $63,352,000 class M-1A notes with a coupon equal to one-month SOFR plus 175 basis points.
  • $58,284,000 class M-1B notes with a coupon equal to one-month SOFR plus 215 basis points.
  • $118,736,000 class M-1C notes with a coupon equal to one-month SOFR plus 370 basis points.
  • $29,458,000 class M-2 notes with a coupon equal to one-month SOFR plus 460 basis points.
  • $12,670,000 class B-1 notes with a coupon equal to one-month SOFR plus 550 basis points.

The additional $33,260,000 of mortgage reinsurance secured was placed with a panel of reinsurers.

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