Arch seeks first Bellemeade Re mortgage ILS issuance in over a year

Bermuda headquartered re/insurer Arch Capital is back for the first time in over one year to sponsor a new series of mortgage insurance-linked securities (ILS) to boost its reinsurance arrangements, targeting $186.6 million or more in coverage from this Bellemeade Re 2023-1 Ltd. issuance, Artemis can reveal.

Arch Capital has been the most prolific of sponsors in the mortgage insurance-linked securities (ILS), or mortgage insurance-linked notes, sector.

In total, the company has sponsored 17 mortgage ILS deals prior to this one, bringing it a total of almost $7.85 billion of collateralized mortgage reinsurance from the capital markets.

View details on every Bellemeade Re mortgage ILS sponsored by Arch in our Deal Directory.

If the company is successful in seeking the additional $186.6 million of mortgage reinsurance with this new Bellemeade Re 2023-1 (BMIR 2023-1) mortgage ILS issuance, it will surpass a new milestone of $8 billion of mortgage reinsurance secured from the capital markets across the Bellemeade program.

Arch’s last Bellemeade Re mortgage ILS deal was completed in September 2022. Since then we’ve seen three new mortgage ILS deals hit the mortgage, all since August this year.

One driver for the resurgence of activity in the mortgage ILS space has been a calming in certain capital markets, after a period of volatility. But there’s also the fact recent deals have priced more keenly and upsized, which is now helping interest to build again amongst sponsors, as the spread to pay for capital markets backed mortgage reinsurance is perceived to have fallen somewhat.

Arch Capital has registered a new Bermuda vehicle for its latest mortgage ILS issuance, Bellemeade Re 2023-1 Ltd.

The company will be registered as a special purpose insurer (SPI) for the issuance of insurance-linked securities (ILS) linked to mortgage insurance risk, and Aon Insurance Managers (Bermuda) Ltd. is managing the vehicle for the sponsor.

There are five rated tranches of mortgage insurance-linked notes being issued by Bellemeade Re 2023-1, which if successfully sold will provide Arch Capital’s mortgage insurance entities, Arch Mortgage Insurance Company (AMIC) and United Guaranty Residential Insurance Company (UGRIC), with at least $186.6 million of mortgage reinsurance from the capital markets.

Each of the five tranches of notes that Bellemeade Re 2023-1 will issue are backed by reinsurance premiums, eligible investments, and related account investment earnings, relating to a pool of mortgage insurance policies linked to residential loans in each case.

They are exposed to the risk of losses the ceding insurer pays to settle claims on the underlying mortgage insurance policies.

The subject pool of insured mortgage loans consists of 98,926 fully amortizing first-lien fixed- and variable-rate mortgages, all underwritten to a full documentation standard, with original loan-to-value ratios less than or equal to 100.0%, and never having been reported to the ceding insurer as 60 or more days delinquent.

The mortgage loans all have insurance policies that came into force from January 2022 to September 2023.

Details of the five tranches of notes being offered, which all have a 10-year term, and their DBRS Morningstar ratings can be seen below:

$49.8 million Class M-1A at BBB (low) (sf)
$54.7 million Class M-1B at BB (high) (sf)
$42.3 million Class M-1C at BB (low) (sf)
$27.4 million Class M-2 at B (high) (sf)
$12.4 million Class B-1 at B (sf)

When the issuance of mortgage ILS notes by Bellemeade Re 2023-1 is completed, the SPI will enter into a reinsurance agreement with the ceding insurer, Arch’s MI entities, and they will receive reinsurance protection for the funded portion of the mortgage insurance losses.

At the moment, the target is for each tranche to 80% fund a corresponding layer of reinsurance, but we understand that could change if investor appetite is strong enough for Arch to secure more reinsurance than first anticipated.

Arch will make premium payments related to the underlying insured mortgage loans to the issuer and the proceeds from the sale of the notes will be used to purchase eligible investments that will be held in the reinsurance trust account, much like any other ILS transaction.

This Bellemeade Re 2023-1 mortgage ILS transaction will transfer the credit risk associated with the mortgage insurance policies across a defined pool of mortgages to the capital markets for Arch.

The sponsor will bear a first loss layer sitting beneath these tranches, after which the notes would take losses in order of priority.

You can read all about the Bellemeade Re 2023-1 Ltd. mortgage insurance-linked securities transaction and every other mortgage ILS deal in our specific directory of mortgage ILS deals, as well as in our all-encompassing Artemis Deal Directory.