Arch Capital Group Ltd., the Bermuda headquartered insurance and reinsurance firm with a growing mortgage insurance arm, successfully secured its second mortgage insurance-linked securities (ILS) transaction of 2020, upsizing the Bellemeade Re 2020-2 Ltd. transaction to $423 million at close.
The transaction launched at a smaller $363 million in the pre-sale documents, but investor demand for these mortgage insurance linked notes (ILN) is clearly recovering from the dent made by the pandemic, as Arch managed to close the deal at a larger size.
Adding to the reinsurance protection secured, Arch Capital also accessed the traditional market in tandem with its latest ILS deal, securing a further $25,747,000 of indemnity based mortgage reinsurance from a panel of reinsurers.
The deal settled with the following tranche sizes and coupons:
- $91,990,000 class M-1A notes with a coupon equal to one-month LIBOR plus 230 basis points.
- $95,564,000 class M-1B notes with a coupon equal to one-month LIBOR plus 320 basis points.
- $128,066,000 class M-1C notes with a coupon equal to one-month LIBOR plus 400 basis points.
- $89,834,000 class M-2 notes with a coupon equal to one-month LIBOR plus 600 basis points.
- $17,966,000 class B-1 notes with a coupon equal to one-month LIBOR plus 850 basis points.
The five classes of amortizing notes all have 10-year legal final maturities and their sale to investors has collateralised underlying mortgage reinsurance agreements between Bellemeade Re 2020 Ltd. and Arch’s mortgage insurance subsidiaries, Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company which both acted as ceding insurers for this mortgage ILS deal.
The total coverage provided, by the mortgage ILS and the traditional reinsurance, of $449 million, covers a pool representing approximately $32 billion of mortgages for the company.
“We’re pleased that we were able to bring our second Bellemeade transaction of 2020 to market. Investor interest was incredibly strong, as reflected in tighter credit spreads and a lower attachment compared to Bellemeade 2020-1,” explained Jim Bennison, EVP, Alternative Markets for Arch MI. “Investors have gotten much more comfortable with mortgage credit risk over the past several months as the effect of COVID-19 on the housing market becomes clearer.”