Arch completes fourth Bellemeade mortgage ILS of 2020 at $321m

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Arch Capital Group Ltd., the Bermuda headquartered specialty insurance and reinsurance firm, has now completed its fourth mortgage insurance-linked securities (ILS) issuance of 2020, closing the Bellemeade Re 2020-4 Ltd.  issuance at $321 million in size.

arch-capital-logoArch Capital returned to the capital markets for a fourth Bellemeade Re mortgage insurance-linked securities (ILS) issuance of 2020 earlier this month, as we revealed at the time.

It appeared the company was looking to secure around $337 million of capital market’s backed mortgage reinsurance capacity through the issuance of three tranches of notes by special purpose vehicle Bellemeade Re 2020-4 Ltd.

It now transpires that Arch secured that much protection, but that the mortgage insurance-linked notes component of the issuance was only $321 million of the total, with just under $16 million of traditional reinsurance also added to bring it up to target size.

Now concluded, Arch said that the $337 million of indemnity reinsurance it has secured covers risks on a pool representing approximately $33.3 billion of mortgages.

As we explained in our first article on this issuance, the transaction largely covers the same portfolio of mortgage insurance policies as Arch’s Bellemeade Re 2020-1 Ltd. mortgage ILS issuance, with policies primarily bound in the second half of 2019.

Arch was the first mortgage insurer to complete a mortgage ILS deal in the COVID-19 era and adding on this 2020-4 issuance takes the combined coverage from the four executions to over $1.8 billion of indemnity reinsurance. Details on all of these are available in our Deal Directory.

Arch remains the most prolific sponsor of mortgage ILS, using a catastrophe bond like structure to secure mortgage reinsurance with the backing of capital market investors.

Bellemeade Re 2020-4 Ltd. funded its reinsurance obligations from this latest transaction through the issuance of three classes of amortizing notes, which each have 10-year legal final maturities.

The most senior M-2A class of mortgage ILS notes issued has received a Ba3 rating from Moody’s Investor Service and BB from DBRS Morningstar. The M2B class of notes received a B (low) from DBRS Morningstar. The B1 class of notes was not rated.

The tranches break out as follows, including their coupon pricing:

  • $136,264,000 class M-2A notes with a coupon equal to one-month LIBOR plus 260 basis points.
  • $152,646,000 class M-2B notes with a coupon equal to one-month LIBOR plus 360 basis points.
  • $32,483,000 class B-1 notes with a coupon equal to one-month LIBOR plus 500 basis points.

On top of this, a total of $15,620,000 of additional coverage was placed with a panel of reinsurers.

“Closing four of these transactions in the past six months while our economy was significantly affected by COVID-19 is an impressive accomplishment and reflects improving investor sentiment regarding mortgage credit risk,” commented Jim Bennison, EVP, Alternative Markets for Arch MI.

“It is also notable that this is the first time coverage has been placed on pool of loans with inforce Bellemeade coverage. By placing 2020-4 on the same vintage as 2020-1, we improved our capital efficiency and transferred credit risk at terms more favorable than when we restarted the MILN market in June.”

You can read all about this new Bellemeade Re 2020-4 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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