Arch is targeting $ 523 million in mortgage reinsurance with Bellemeade Re 2021-2 ILS
Arch Capital Group, the Bermuda-based specialty insurance and reinsurance company, is back on the capital markets with its second mortgage-linked securities transaction (ILS) of the year, as this Bellemeade Re 2021-2 brings reinsurance volume of around $ 523 million strives for Ltd. Deal.
This marks the sixteenth Mortgage Linked Notes (ILN) issue under the Bellemeade Re-Deal since inception and the fourteenth for Arch Capital since the purchase of United Guaranty, which provides the company with a flexible source of secured reinsurance to support its expanding mortgage insurance business.
Right now, it appears that Arch Capital is aiming for around $ 523 million in secured mortgage reinsurance from the capital markets as part of this latest deal with Bellemeade Re 2021-2.
The transaction comprises five tranches of valued ILS mortgage bonds, which are sold to capital market investors and the proceeds are used to secure the necessary reinsurance contracts between Bermuda SPI Bellemeade Re 2021-2 Ltd. and Arch’s mortgage insurance subsidiaries Arch Mortgage Insurance Company and United Guaranty Housing Insurance Company.
All debt securities issued are exposed to the risk of losses, which Arch mortgage insurers pay to settle claims from an underlying pool of mortgage insurance policies.
Rating agency DBRS Morningstar said the transaction will cover a pool of insured mortgage loans consisting of 123,224 fully amortizing senior fixed and adjustable rate mortgages.
The five tranches of Mortgage Linked Notes cover various pending levels of risk for Arch Capital, but they are all relatively distant and the company maintains a significant level of coverage before they are challenged.
Bellemeade Re 2021-2 Ltd. will attempt to issue the following tranches:
- $ 194.5 million M-1A class bonds (BBB (high) (sf) rating from DBRS Morningstar; A1 (sf) from Moody’s).
- $ 93.3 million M-1B class bonds (BBB (sf) rating from DBRS Morningstar; Baa1 (sf) from Moody’s).
- $ 97.3 million M-1C Class Notes (rated Baa3 (sf) by Moody’s).
- $ 105.4 million Moody’s class M-2 bonds (B1 (sf) rating).
- $ 32 million class B-1 notes (rating B3 (sf) by Moody’s).
Moody’s explained the risk profile of the mortgage insurance pool as follows: “We expect the total exposed capital balance of this insurance pool to cause losses of 1.68% in a base scenario and 15.13% in an Aaa stress scenario. The aggregate principal exposed balance is the aggregate product of (i) unpaid credit balance, (ii) the MI coverage percentage of each loan, and (iii) one minus the existing quota reinsurance percentage. Almost all loans (except 31 loans) have an existing quota reinsurance of 7.5% or 8.75%, which is covered by unaffiliated third parties, so that 92.5% and 91.25% of the proportionate MI losses of these third parties Loans can be taken through this transaction. For the remainder of the loans without existing quota reinsurance, the transaction bears 100% of your MI losses. “
Since losses would be applied to the underlying mortgage insurance policies and those notes would trigger after all of the deductibles were used up, the reinsurance would pay from the B-1 tranche and cause capital losses.
The class B-1 tranche will finance 98.6% of a reinsurance stratum, while each overlying tranche will gradually finance a little less, up to the class M-1A bonds, which finance only 80% of the reference cover stratum.
Including this new transaction, Arch Capital is on track to have nearly $ 7 billion in reinsurance through its ILS mortgage business to date.
In the Artemis Deal Directory you can find out everything about this new Bellemeade Re 2021-2 Ltd. Read Arch Capital’s Mortgage Insurance-Linked Securities (ILS) deal and every ILS mortgage deal ever issued.