Arch Capital Group, the Bermuda headquartered insurance and reinsurance firm, has now secured roughly $3.5 billion of reinsurance for its U.S. mortgage insurance book from the capital markets, thanks to the completion of another $621 million Bellemeade Re 2019-2 Ltd. ILS transaction.
Arch Mortgage Insurance (Arch MI), the U.S. mortgage focused arm of the company, has become the largest proponent of the use of insurance-linked securities (ILS) transaction structures for the transfer of mortgage insurance risk to the capital markets.
These transactions, which are structured akin to any catastrophe bond or other 144A ILS deal, provide the company with fully collateralized reinsurance protection against losses to its mortgage insurance book.
Arch has been rapidly expanding its mortgage insurance business, making the acquisition of efficient reinsurance capital key to support that growth. These Bellemeade Re mortgage ILS (or ILN, as some term them insurance-linked notes), are a key component of Arch’s long-term mortgage insurance growth plan.
With the completion of this Bellemeade Re 2019-2 mortgage ILS transaction, Arch has secured $621,022,000 of indemnity reinsurance coverage across a pool of insurance risk representing $35.58 billion of mortgages.
The reinsurance covers certain losses to a portfolio of mortgage insurance policies linked to 143,840 loans issued by Arch MI and its affiliates primarily during the second half of 2018.
This is Arch’s second mortgage ILS deal of the year, following the near $342 million Bellemeade Re 2019-1 Ltd., which was issued in March.
Including this latest Bellemeade ILS transaction, which is Arch’s 8th in the series, the company has benefitted from aggregate reinsurance coverage of approximately $3.5 billion through the capital markets deals.
Bellemeade Re 2019-2 Ltd. has issued and sold five classes of amortizing notes with 10-year legal final maturities to capital market investors, with the proceeds from the sale collateralizing the underlying reinsurance obligations between the special purpose insurer (SPI) and Arch.
The transaction featured five classes of notes:
- $133,076,000 class M-1A notes with a coupon equal to one-month LIBOR plus 100 basis points.
- $133,076,000 class M-1B notes with a coupon equal to one-month LIBOR plus 145 basis points.
- $168,563,000 class M-1C notes with a coupon equal to one-month LIBOR plus 200 basis points.
- $164,127,000 class M-2 notes with a coupon equal to one-month LIBOR plus 310 basis points.
- $22,180,000 class B-1 notes with a coupon equal to one-month LIBOR plus 410 basis points.
“These Bellemeade transactions are an important part of managing the capital and risk positions of our mortgage business,” explained Jim Bennison, EVP, Alternative Markets for Arch Capital Group (U.S.) Inc.
“Since our initial Bellemeade issuance in 2015, we’ve seen a significant increase in global investor interest in this asset class. We believe that ILN transactions will continue to be a benefit to our entire industry,” he continued.
Arch’s cessions to Bellemeade Re ILS transactions have been on a steady rise, with 2019 likely to see at least three transactions, perhaps more making it the most active year in mortgage ILS for the firm to-date.
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