Arch Demands $ 523M Mortgage Reinsurance in Bellemeade Re 2021-2 ILS

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Arch Capital Group, a specialist insurance and reinsurance company headquartered in Bermuda, is back in the capital markets with its second Mortgage-linked Securities (ILS) deal of the year as it plans to reinsure around USD 523 million … Bellemeade Re 2021-2 Ltd. to deal with.

arch-cap-logoThis will in fact be the sixteenth ILN bond issue under the Bellemeade Re deal program since its inception, and the fourteenth for Arch Capital since the United Guaranty acquisition, through which the company provides a flexible source of secured reinsurance to support the expansion of the underwriting business. mortgage insurance.

For now, it looks like Arch Capital is targeting about $ 523 million in reinsurance of secured mortgages in capital markets in the latest Bellemeade Re 2021-2 deal.

The deal will include five tranches of ILS-rated mortgage bonds to be sold to capital market investors and the proceeds will be used to secure the necessary reinsurance agreements between Bermuda SPI Bellemeade Re 2021-2 Ltd. and Arch mortgage underwriting subsidiaries Arch Mortgage Insurance Company and United Guaranty Home Insurance Company.

The promissory notes issued will be subject to the risk of losses that Arch mortgage insurer organizations pay to settle claims under the underlying mortgage insurance policy pool.

Ratings agency DBRS Morningstar said the deal will cover a pool of insured mortgages of 123,224 fully amortized fixed and variable rate mortgages.

The five tranches of mortgage-backed bonds will cover varying levels of risk for Arch Capital, but they are all relatively distant, and the company maintains a significant level of coverage before any of them face claims against them.

Bellemeade Re 2021-2 Ltd. will seek to issue the following tranches:

  • US $ 194.5 million M-1A bonds (rated BBB (high) (sf) from DBRS Morningstar; A1 (sf) from Moody’s).
  • M-1B class bonds worth $ 93.3 million (rating BBB (sf) from DBRS Morningstar; Baa1 (sf) from Moody’s).
  • Bonds of M-1C class in the amount of $ 97.3 million (Moody’s Baa3 (sf) rating).
  • Bonds of M-2 class in the amount of USD 105.4 million (Moody’s rating – B1 (sf)).
  • Bonds of class B-1 in the amount of $ 32 million (Moody’s rating – B3 (sf)).

Moody’s explained the risk profile of the mortgage pool, stating: “We expect the aggregate unsecured principal of this insured pool to suffer 1.68% loss in the base case and 15.13% loss in the Aaa stress scenario. The aggregate unprotected principal balance is the aggregate product of (i) the outstanding loan balance, (ii) the percentage of MI coverage for each loan, and (iii) one minus the reinsurance percentage of the existing quota share. Almost all loans (excluding 31 loans) have 7.5% or 8.75% of the existing reinsurance quota of the share covered by unaffiliated third parties, therefore 92.5% or 91.25%, respectively, the proportional share of MI losses on such loans will be accepted for this deal. For the rest of the loans that have zero quota share reinsurance, the deal will bear 100% of their losses from MI. ”

Since the losses will apply to the underlying mortgage insurance policies and will trigger those promissory notes after the destruction of the entire lien, reinsurance will pay out causing principal losses from tranche B-1 and up.

The B-1 tranche will fund 98.6% of the reinsurance layer, while each of the above tranches will gradually fund slightly less, down to M-1A bonds, which will fund only 80% of the base coverage layer.

Including this new deal, Arch Capital plans to obtain about $ 7 billion in reinsurance through its ILS mortgage deals.

You can read all about this new Bellemeade Re 2021-2 Ltd. Arch Capital Mortgage-linked Securities (ILS) transaction and every ILS mortgage transaction ever entered into Artemis deals catalog

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