Arch’s latest mortgage ILS completes, covers “unique” subject portfolio

Bermudian insurance and reinsurance firm Arch Capital Group Ltd. has successfully sponsored its first mortgage insurance-linked securities (ILS) transaction of 2019, with a $341.8 million Bellemeade Re 2019-1 Ltd. deal that covers what the company terms a “unique subject portfolio.”

Arch has become a particularly expansive mortgage insurance specialist and part of its growth in the mortgage risk space has been thanks to its access to efficient indemnity reinsurance capacity from the capital markets through its Bellemeade Re series of transactions.

Arch completed three Bellemeade Re mortgage ILS transactions that amounted to $1.534 billion of reinsurance protection from the capital markets, covering mortgage insurance policies representing over $136 billion of unpaid loan principal balance in 2018 alone.

This latest mortgage ILS from Arch, which we covered in much more detail a few weeks ago here, is the first to feature a subject portfolio containing mortgage policies linked to loans that have been modified under government sponsored entity (GSE, of Fannie and Freddie) or servicer modification programs.

“This subject portfolio is unique in that it contains policies covering loans originated during the crisis, some of which have been modified,” explained Jim Bennison, EVP, Alternative Markets for Arch Capital Group (U.S.) Inc.

“Those policies, plus the pre- and post-crisis collateral in the pool, resulted in a transaction that was very appealing to investors and demonstrates Arch’s continued efforts to creatively manage capital and risk positions in our mortgage business,” he continued.

Bellemeade Re 2019-1 has issued four classes of amortizing notes, each with 10-year legal final maturities, which were sold to inevstors and the resulting collateral used to fund the reinsurance obligations under this transaction.

As a result, Arch will benefit from the near $341.8 million of collateralized excess-of-loss reinsurance coverage for potential losses on this specific subset of its mortgage insurance portfolio.

The transaction covers a portfolio of mortgage insurance policies issued by Arch Mortgage Insurance and its affiliates through 2015, although over 70% of the policies covered in the transaction were actually issued prior to 2009.

Arch said that the ILS issuances under Bellemeade Re have now become a “programmatic issuance” for the company, suggesting that there are likely to be more to come in 2019 and beyond, as the company increasingly leverages the capital markets for collateralized mortgage reinsurance capacity to fund growth in this sector and as capital to manage its Private Mortgage Insurer Eligibility Requirements (PMIERs).

This latest Arch sponsored Bellemeade Re 2019-1 Ltd. mortgage insurance-linked securities (ILS) transaction has been added to our Deal Directory where you can find more detail on the transaction structure.

Also read: Bellemeade ILS help Arch manage growing mortgage risk profile: Grandisson.