Arch seeks third mortgage ILS of 2021, $511.5m Bellemeade Re 2021-3

Arch Capital Group, the Bermuda headquartered specialty insurance and reinsurance company,has returned to the capital markets and insurance-linked securities (ILS) in search of more mortgage reinsurance protection, launching its third mortgage ILS deal of the year, a $511.5 million Bellemeade Re 2021-3 Ltd. transaction.

arch-capital-logoArch is the most prolific sponsor of mortgage insurance-linked notes (ILN’s) or mortgage ILS’, having visited the market at least once since 2017.

This new Bellemeade Re 2021-3 Ltd., with which Arch is hoping to secure at least $511.5 million of reinsurance from the capital markets, is actually the fifteenth directly sponsored by the company.

But it is the seventeenth mortgage ILS issuance under the Bellemeade Re program, as the first two were sponsored by AIG subsidiary United Guaranty, which Arch Capital later acquired and so inherited the program.

This third Bellemeade Re issuance of 2021 is just slightly smaller than the previous two, which were the $580 million Bellemeade Re 2021-1 Ltd. in March and the $523 million Bellemeade Re 2021-2 Ltd. in June.

The Bellemeade Re 2021-3 Ltd. mortgage ILS transaction seeks just over $511.5 million of excess-of-loss reinsurance protection for Arch Capital’s mortgage insurance books underwritten by its Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company subsidiaries.

The transaction will feature six tranches of rated mortgage ILS notes, each of which will be sold to capital market investors and the proceeds used to collateralize the necessary reinsurance agreements between Bermuda SPI Bellemeade Re 2021-3 Ltd. and Arch’s mortgage underwriting subsidiaries.

The notes issued will all be exposed to the risk of losses Arch’s mortgage insurer entities pay to settle claims on an underlying pool of mortgage insurance policies.

The six tranches of mortgage-insurance linked notes will cover different attaching layers of risk for Arch Capital, but all are relatively remote and the company retains a significant layer of coverage before any of these would face claims against them.

Bellemeade Re 2021-3 Ltd. will seek to issue the following tranches:

  • $157.4 million Class A-2 notes (rated A2 (sf) by Moody’s).
  • $104.9 million Class M-1A notes (rated A2 (sf) by Moody’s; A (low) (sf) by DBRS Morningstar).
  • $60.3 million Class M-1B notes (rated Baa2 (sf) by Moody’s; BBB (high) (sf) by DBRS Morningstar).
  • $76.1 million Class M-1C notes (rated Baa3 (sf) by Moody’s; BBB (low) (sf) by DBRS Morningstar).
  • $97.1 million Class M-2 notes (rated B1 (sf) by Moody’s; BB (low) (sf) by DBRS Morningstar).
  • $15.7 million Class B-1 notes (rated by DBRS Morningstar).

The Class A-2 notes are a notable feature in this latest mortgage ILS deal from Arch Capital, the rating agencies explained, as this class will be locked out for principal payments until certain conditions are met, such as the payment date being on or after April 2025, or credit enhancement to an A-1 coverage layer reaching at least 10.0%, or a delinquency percentage falls below a pre-defined level.

The covered pool of insured mortgage loans consists of 93,138 fully amortizing first-lien fixed- and variable-rate mortgages, DBRS Morningstar said, with all the mortgage insurance policies being effective on or after January 2020 and on or before June 2021.

Moody’s also said on the subject business, “We expect this insured pool’s aggregate exposed principal balance to incur 2.08% losses in a base case scenario, and 15.87% losses under loss a Aaa stress scenario. The aggregate exposed principal balance is the aggregate product of (i) loan unpaid balance, (ii) the MI coverage percentage of each loan, and (iii) one minus existing quota share reinsurance percentage. Nearly all of loans (except 54 loans) have 7.5% or 8.75% existing quota share reinsurance covered by unaffiliated third parties, hence 92.5% or 91.25%, respectively, pro rata share of MI losses of such loans will be taken by this transaction. For the rest of loans having zero existing quota share reinsurance, the transaction will bear 100% of their MI losses.”

Including this new Bellemeade Re 2021-3 transaction, Arch Capital will have secured almost $7.4 billion of reinsurance through its mortgage ILS deals so far, while the Bellemeade Re program including the two deals when AIG was the ultimate beneficiary will amount to almost $8 billion of reinsurance coverage secured.

You can read all about this new Bellemeade Re 2021-3 Ltd. mortgage insurance-linked securities (ILS) transaction from Arch Capital and every other mortgage ILS deal ever issued in our Artemis Deal Directory.

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Arch seeks third mortgage ILS of 2021, $511.5m Bellemeade Re 2021-3 was published by: www.Artemis.bm
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