Arch Capital returns for fourth Bellemeade Re mortgage ILS issuance of 2020

Arch Capital Group Ltd., the Bermuda headquartered specialty insurance and reinsurance firm, has returned to the capital markets for a fourth Bellemeade Re mortgage insurance-linked securities (ILS) issuance of 2020.

We understand this fourth mortgage ILS transaction from Arch Capital is in the early stages of being marketed to investors at this time.

Arch has registered a new Bermuda special purpose insurer (SPI) named Bellemeade Re 2020-4 Ltd. for the deal.

Bellemeade Re 2020-4 is marketing three tranches of notes, two of them rated, totalling around $337 million in size. However the overall size of the issuance may be different, depending on the amount of funding of each level of coverage achieved.

We also understand Arch is likely seeking traditional reinsurance to tie into the coverage provided by the Bellemeade Re 2020-4 mortgage insurance-linked notes, so could elect to purchase more coverage from the traditional market, or capital market, depending on pricing.

This issuance will feature: a roughly $142.1 million tranche of Class M-2A notes that have been rated at BB (sf) by DBRS Morningstar and rated Ba3 (sf) by Moody’s; a roughly $162.4 million tranche of Class M-2B notes rated B (low) (sf) by DBRS Morningstar; and an almost $32.5 million tranche of Class B-1 notes which are unrated.

The notes will be sold to investors and the proceeds used to collateralize reinsurance agreements between Bellemeade Re 2020-4 Ltd. and the ceding insurers which are Arch Mortgage Insurance and United Guaranty Residential Insurance, Arch Capital’s two main mortgage insurance subsidiaries.

Interestingly, rating agency DBRS Morningstar explained that the Bellemeade Re 2020-4 Notes are backed by the same pool of mortgage insurance policies that were also reinsured in the Bellemeade Re 2020-1 Ltd. transaction earlier this year.

Losses from subject policies that are reinsured in this transaction will be allocated first to the 2020-4 coverge levels and these three tranches of notes before they are then allocated to the coverage level B-1 of the Bellemeade Re 2020-1 transaction.

As a result, it seems these notes will sit beneath that earlier transaction, which was the first mortgage ILS deal to come to market successfully after the COVID-19 pandemic broke out.

Arch’s third mortgage ILS deal of 2020 completed in November, a $418 million issuance of insurance-linked notes via special purpose insurer Bellemeade Re 2020-3 Ltd.

That took Arch’s capital markets backed mortgage reinsurance secured in 2020 to over $1.5 billion, so this deal will take the total to (it seems) around $1.8 billion or so.

Arch sponsored four mortgage ILS deals in 2019 as well, so the company continues to display its appetite for the capital markets to play a significant role in supporting its rapidly expanding mortgage underwriting business.

We’ll update you as further details of this new Bellemeade Re 2020-4 Ltd. mortgage insurance-linked securities (ILS) transaction from Arch Capital. You can read about every mortgage ILS deal ever issued in the Artemis Deal Directory.