Arch closes new mortgage ILS at best pricing, broadest investor participation

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Arch Capital Group, the Bermuda headquartered specialty insurance and reinsurance company, said today that its mortgage insurer arm, Arch Mortgage Insurance Company (Arch MI), has secured $616 million of reinsurance across its latest $523 million Bellemeade Re 2021-2 Ltd. mortgage ILS deal and a direct placement of another $93 million of cover.

arch-capital-logoThe company explained that capital markets conditions for mortgage insurance-linked notes issuance has recovered from the pandemic, resulting in the best pricing and broadest investor participation of any Bellemeade Re deal so far.

We explained earlier this week that Arch Capital was back in the capital markets in search of its second mortgage insurance-linked securities (ILS) transaction of the year, Bellemeade Re 2021-2 Ltd.

It is actually the sixteenth mortgage insurance-linked notes (ILN) issuance under the Bellemeade Re program of deals since it began.

But the fourteenth for Arch Capital, since it purchased AIG’s United Guaranty, through which the company secures a flexible source of collateralized reinsurance to support its expanding mortgage insurance underwriting business.

Now, Arch Capital has successfully closed its latest mortgage ILS deal, securing the $523 million of collateralized mortgage reinsurance from the capital markets through Bermuda based issuer Bellemeade Re 2021-2 deal.

At the same time, Arch added $93 million in direct mortgage reinsurance, taking the total amount of coverage secured to $616 million of indemnity protection.

The indemnity reinsurance will cover a pool representing approximately $36 billion of mortgages and largely covers a portfolio of MI policies issued by Arch MI and affiliates from December 2020 through March 2021, the company explained.

Bellemeade Re 2021-2 Ltd. is funding its reinsurance obligations through the issuance of five classes of amortizing notes with 10-year legal final maturities, which are being sold to capital markets investors to collateralize the reinsurance from the ILS portion.

Arch revealed pricing details for the five classes of mortgage ILS notes offered by Bellemeade Re 2021-2 Ltd.:

  • $194,532,000 class M-1A notes with a coupon equal to one-month SOFR plus 120 basis points.
  • $93,334,000 class M-1B notes with a coupon equal to one-month SOFR plus 150 basis points.
  • $97,265,000 class M-1C notes with a coupon equal to one-month SOFR plus 185 basis points.
  • $105,704,000 class M-2 notes with a coupon equal to one-month SOFR plus 290 basis points.
  • $31,972,000 class B-1 notes with a coupon equal to one-month SOFR plus 415 basis points.

The $93,214,000 of traditional indemnity reinsurance was placed with a panel of reinsurers, Arch said.

“This transaction’s execution represents the broadest investor participation at the best pricing for current exposure in the Bellemeade program’s history,” explained Jim Bennison, EVP, Alternative Markets for Arch MI.

Which led him to add, “We believe investors have concluded that the risks associated with the COVID-19 pandemic are behind us.”

Mortgage ILS market conditions have steadily improved as the pandemic effects have lessened across the United States.

With greater confidence now in how delinquencies will be affected by the pandemic, it seems investor confidence has returned and we could, as a result, see a wave of growing interest in these mortgage insurance-linked securities (ILS) deals.

You can read all about this new Bellemeade Re 2021-2 Ltd. mortgage insurance-linked securities (ILS) transaction from Arch Capital and every mortgage ILS deal ever issued in the Artemis Deal Directory.

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