Arch Capital completes third mortgage ILS transaction of 2020

Arch Capital Group Ltd., the Bermuda headquartered insurance and reinsurance firm, has returned to the capital markets for its third mortgage insurance-linked securities (ILS) transaction of 2020, with a $418 million issuance of insurance-linked notes via special purpose insurer Bellemeade Re 2020-3 Ltd.

The new issuance follows quickly on the heels of a $423 million Bellemeade Re 2020-2 Ltd. transaction in September and a $450 million Bellemeade Re 2020-1 Ltd. transaction in June, as Arch continues to put the capital markets front and centre in its reinsurance program.

The $418 million Bellemeade Re 2020-3 mortgage insurance-linked securities (ILS) issuance has been completed alongside an additional $34 direct reinsurance arrangement, to provide a total of $452 million of indemnity mortgage reinsurance limit, the majority being from the capital markets.

“Given the circumstances of 2020, completing our third Bellemeade transaction of the year was no small feat. I’m pleased that we were able to restart the MILN market in June and am encouraged by the recent offerings by other mortgage insurers,” Jim Bennison, EVP, Alternative Markets for Arch MI explained.

Encouragingly for the state of investor appetite for these deals, Bennison added that, “Each subsequent Bellemeade deal of 2020 has had a lower attachment point than the previous, signaling that investors are increasingly comfortable taking on mortgage credit risk as they get more clarity on COVID-19’s effect on the housing market.”

The total $452 million of indemnity reinsurance covers a pool representing roughly $31 billion of mortgages  for Arch Capital, with the mortgage insurance policies linked to 112,274 loans insured by Arch Mortgage Insurance and its affiliates primarily from June through August of 2020.

Arch has now netted over $1.5 billion of indemnity reinsurance in 2020 through its three Bellemeade Re mortgage ILS deals.

Bellemeade Re 2020-3 Ltd. will fund its reinsurance obligations through the issuance of five classes of amortizing notes with 10-year legal final maturities.

The notes are being sold to investors and the proceeds used to collateralize reinsurance agreements to effect the coverage.

The Bellemeade Re 2020-3 Ltd.  mortgage ILS deal is structured in five classes:

• $83,412,000 class M-1A notes with a coupon equal to one-month LIBOR plus 200 basis points.
• $78,407,000 class M-1B notes with a coupon equal to one-month LIBOR plus 285 basis points.
• $134,696,000 class M-1C notes with a coupon equal to one-month LIBOR plus 370 basis points.
• $104,265,000 class M-2 notes with a coupon equal to one-month LIBOR plus 485 basis points.
• $17,378,000 class B-1 notes with a coupon equal to one-month LIBOR plus 635 basis points.

The Class M-1A notes were rated BBB (high) (sf) and the Class M-1B notes were rated BBB (sf), by DBRS Morningstar.

You can read all about this and every other mortgage ILS deal in the Artemis Deal Directory.