Bellemeade Re 2022-2 Ltd.

This Bellemeade Re 2022-2 Ltd. (BMIR 2022-2) transaction is the latest mortgage insurance-linked securities (ILS) issuance from Bermuda based insurance and reinsurance firm Arch Capital.

Arch Capital is seeking more collateralized mortgage reinsurance protection from the capital markets to cover its Arch Mortgage Insurance (Arch MI) business.

The Bellemeade Re 2022-2 Ltd. (BMIR 2022-2) issuance of mortgage insurance-linked notes will be Arch’s second of 2022, but its seventeenth directly sponsored mortgage ILS transaction and the nineteenth in the Bellemeade Re series of issues since 2015.

Arch Capital has established Bellemeade Re 2022-2 Ltd. as a new Bermuda based special purpose insurer (SPI) for this issuance and the SPI will issue and sell four 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 2022-2 Ltd. and Arch’s mortgage insurer entities Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company.

Depending on the level of funding secured for each layer of risk corresponding to a tranche of mortgage ILS notes to be issued by Bellemeade Re 2022-2, Arch Capital could secure as much as $358.4 million of mortgage reinsurance protection from this deal.

That would be at a 100% funded level for each of the four tranches of notes, but sources suggest the minimum issuance being sought is actually nearer to $251.2 million.

So, it appears Arch could settle for anything above the lower amount, with traditional reinsurance expected to pick up any slack in funding the layers of risk within the Bellemeade Re 2022-2 arrangement, we understand.

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

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

The covered pool of insured mortgage loans consists of 152,768 fully amortizing first-lien fixed- and variable-rate mortgages, rating agency DBRS Morningstar explained.

The notes, once funded and issued, will collateralize excess of loss mortgage reinsurance agreements between Bellemeade Re 2022-2 Ltd. and Arch’s mortgage insurer entities.

DBRS Morningstar lists the deal at its fully-funded size of $358.4 million million and will rate all four tranches of notes issued by Bellemeade Re 2022-2:

• $85.1 million Class M-1A at BBB (high) (sf)
• $192.7 million Class M-1B at BB (high) (sf)
• $40.3 million Class M-2 at BB (low) (sf)
• $40.3 million Class B-1 at B (high) (sf)

Moody’s meanwhile will only rate the first three tranches and also shows a funded percentage for each tranche, which would shrink the size of the issuance to the $251.2 million size:

• $65.97 million Class M-1A, Assigned (P)Baa3 (sf)
• $134.86 million Class M-1B, Assigned (P)Ba3 (sf)
• $25.2 million Class M-2, Assigned (P)B3 (sf)
• $25.2 million Class B-1, Unrated

Update 1:

We understand that Arch Capital opted for a smaller level of funding for the four tranches than either of the rating agency documents had suggested.

The final tranche sizes are below, which add up to a $201 million issuance of notes from Bellemeade Re 2022-2 Ltd., along with their pricing:

• $52.86 million Class M-1A notes, SOFR + 400 bps
• $105 million Class M-1B notes, SOFR + 750 bps
• $21.57 million Class M-2 notes, SOFR + 925 bps
• $21.57 million Class B-1 notes, SOFR + 1200 bps

So, in the end, Arch Capital secured $201 million of collateralized excess-of-loss mortgage reinsurance from capital market investors with its latest mortgage ILS deal.

Arch secured a further roughly $157 million in traditional mortgage reinsurance alongside the issuance of mortgage insurance-linked notes, so still received the full $358 million of coverage it had been looking for.