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Arch sponsoring $577m Bellemeade Re 2019-4 mortgage ILS


Bermuda-headquartered re/insurer Arch Capital Group Ltd. is back in the capital market for another mortgage insurance-linked securities (ILS) deal, with its newest transaction set to be a $577.28 million Bellemeade Re 2019-4 Ltd. issuance.

arch-capital-logoArch Capital has steadily increased the amount of mortgage insurance risk it lays off to capital market investors through its Bellemeade Re series of mortgage ILS deals.

Its latest, a Bellemeade Re 2019-4 transaction, will see Arch looking to cede $577.28 million of risk from its mortgage insurance operation to capital market and ILS investors, through what will be its fourth transaction of 2019 so far.

This is also the first time Arch has sponsored four mortgage ILS deals in a single year, having sponsored three transactions in 2018, but just one per-year prior to that.

Once this latest Bellemeade Re 2019-4 mortgage ILS issuance is completed, Arch will have secured a huge $2.24 billion of fully collateralised mortgage reinsurance protection from the capital markets in 2019 alone.

Arch sponsored mortgage ILS transactions, including the first two Bellemeade’s sponsored by United Guaranty which it subsequently acquired, now account for $4.74 billion of mortgage insurance risk capital issued and mortgage reinsurance secured for the firm across ten issues.

Arch has established a newly registered Bermuda based special purpose insurer Bellemeade Re 2019-4 Ltd. for its latest mortgage ILS deal.

Bellemeade Re 2019-4 Ltd. has been established to issue five tranches of mortgage insurance-linked notes, each of which will be sold to institutional investors and the proceeds used to collateralize underlying mortgage reinsurance agreements between the issuer and Arch Capital itself.

The targeted issuance size is for $577.28 million across the five tranches of notes that Bellemeade Re 2019-4 will issue.

This transaction is split into $144.32 million of Class M1A notes, $144.32 million of Class M1B notes, $126.28 million of Class M1C notes, $144.32 million of Class M2 notes and $18.04 million of Class B1 notes.

The transaction will effectively transfer the risk related to private mortgage insurance (MI) in force on a reference mortgage pool sized at $29.3 billion of loans.

By allocating their capital to the mortgage ILS notes issued by Bellemeade Re 2019-4, the investors will be exposed to the risk that Arch’s mortgage insurance units suffer higher than expected insurance claims across the covered pool of mortgage loans.

The covered loans are largely newly originated, on average seasoned by just over 6 months, which shows that Arch continues to leverage these mortgage ILS deals as supporting capital for recent mortgage insurance underwriting, rather than just a way to secure reinsurance for its legacy books of business.

All of the notes issued will be floating-rate above LIBOR and will have a 10-year legal final maturity.

Noteholders will not take any losses until an almost $6.48 billion retained coverage level A layer of the mortgage insurance pool is eroded first.

So Arch Capital continues to ramp up its use of collateralized reinsurance from the capital markets to support its growing mortgage insurance book.

We’ll update you when this new Bellemeade Re 2019-4 Ltd. mortgage ILS deal from Arch Capital Group is completed.

The mortgage insurance-linked securities market has now witnessed over $8.4 billion of issuance since the first deal in 2015. Details of every mortgage insurance-linked notes issuance can be found here in our Deal Directory.

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