Arch’s record $701m mortgage ILS puts it at “forefront of managing capital & risk”

The completion of Bermuda-based re/insurer Arch Capital Group Ltd.’s latest and largest mortgage insurance-linked securities (ILS) transaction seen to-date, a $701 million Bellemeade Re 2019-3 Ltd. shows the firm is at the “forefront” when it comes to managing capital and risk, an executive said today.

Arch Capital Group has become a significant user of capital markets backed reinsurance protection for its growing mortgage insurance book underwritten by Arch Mortgage Insurance (Arch MI).

Arch Capital has now successfully placed its third mortgage insurance-linked notes issuance of the year, tapping the capital markets to expand its collateralized mortgage reinsurance protection to now just under $4 billion.

Bellemeade Re 2019-3 Ltd. was established to issue four tranches of mortgage insurance-linked notes, each of which have now been priced and sold to institutional investors, with the proceeds used to collateralize underlying reinsurance agreements between the issuer and Arch Capital itself.

The transaction achieved its targeted size of $700.92 million, making this Bellemeade Re 2019-3 mortgage ILS transaction the largest from Arch to-date and also the largest mortgage ILS transaction we’ve recorded so far (details on all the mortgage ILS we’ve covered can be found here).

Commenting on the successful issuance, Jim Bennison, EVP, Alternative Markets for Arch Capital Group (U.S.) Inc., explained, “Since the inception of the Bellemeade ILN program, one of our goals has been to transfer a portion of the risk across the entire U.S. mortgage insurance portfolio, which we’ve now largely achieved.

“With over four billion dollars of aggregate reinsurance protection on our portfolio, we believe we’re at the forefront of managing capital and risk in the mortgage insurance industry.”

This is without a doubt the case, as Arch and its mortgage insurance subsidiaries have now issued close to $4.2 billion of mortgage ILS transactions across nine transactions (details on all the mortgage ILS we’ve covered can be found here), with still just a little under $4 billion of collateralized reinsurance still in-force from these catastrophe bond like deals.

We actually think the way Arch has set up its mortgage insurance business, to source risk efficiently and pass it off to the most appropriate capital, leveraging the capital markets and using technology as well, is a sign of the future for other lines of business.

Arch noted the transaction is the “the largest individual ILN ever conducted by a mortgage insurance company.”

The deal provides Arch with exactly $700,920,000 of indemnity reinsurance on a pool representing $49.6 billion of mortgages, with the portfolio of MI policies linked to 219,994 loans issued by Arch MI and affiliates in 2016.

Arch also disclosed the pricing of the four tranches of mortgage insurance-linked notes, explaining that the $222.809 million of class M-1A notes priced with a coupon of one-month LIBOR plus 110 basis points, the $278.511 million of class M-1B notes at LIBOR plus 160 basis points, the $176.39 million of class M-1C notes at LIBOR plus 195 basis points, and the $23.21 million of class B-1 notes priced at LIBOR plus 250 basis points.

You can read all about this new Arch sponsored Bellemeade Re 2019-3 Ltd. mortgage insurance-linked securities (ILS) transaction to our Deal Directory.