Arch seeks up to $358m of mortgage reinsurance with new Bellemeade Re ILS

Bermuda headquartered re/insurer Arch Capital is seeking up to $358.4 million of capital markets backed mortgage reinsurance protection with its latest ILS issuance, a Bellemeade Re 2022-2 Ltd. deal.

This will be Arch Capital’s second issuance of mortgage insurance-linked notes under the Bellemeade Re program of deals in 2022.

In total, this will be Arch’s seventeenth directly sponsored mortgage ILS transaction and the nineteenth in the Bellemeade Re series of issues since 2015.

Arch Capital has established Bellemeade Re 2022-2 Ltd. as a new Bermuda based special purpose insurer (SPI) for this issuance and the SPI will issue and sell four tranches of mortgage insurance-linked notes to capital market investors.

Each tranche represents a different level of risk and the proceeds from the sale of the notes will collateralize underlying mortgage reinsurance agreements between the issuer, Bellemeade Re 2022-2 Ltd. and Arch’s mortgage insurer entities Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company.

Depending on the level of funding secured for each layer of risk corresponding to a tranche of mortgage ILS notes to be issued by Bellemeade Re 2022-2, Arch Capital could secure as much as $358.4 million of mortgage reinsurance protection from this deal.

That would be at a 100% funded level for each of the four tranches of notes, but sources suggest the minimum issuance being sought is actually nearer to $251.2 million.

So, it appears Arch could settle for anything above the lower amount, with traditional reinsurance expected to pick up any slack in funding the layers of risk within the Bellemeade Re 2022-2 arrangement, we understand.

Depending on the notes’ priority, each tranche could incur principal and interest losses should the ceding insurer make claims payments on the mortgage insurance policies covered by this deal.

The notes have a ten-year term and will amortise alongside the mortgage loans and covered insurance policies.

The covered pool of insured mortgage loans consists of 152,768 fully amortizing first-lien fixed- and variable-rate mortgages, rating agency DBRS Morningstar explained.

The notes, once funded and issued, will collateralize excess of loss mortgage reinsurance agreements between Bellemeade Re 2022-2 Ltd. and Arch’s mortgage insurer entities.

How much this deal will be funded looks likely to depend on investor appetite, with a larger deal nearer the full-funded size of $358.4 million perhaps a sign investor appetite for mortgage ILS is recovering after a slow year so far.

DBRS Morningstar lists the deal at its fully-funded size of $358.4 million million and will rate all four tranches of notes issued by Bellemeade Re 2022-2:

$85.1 million Class M-1A at BBB (high) (sf)
$192.7 million Class M-1B at BB (high) (sf)
$40.3 million Class M-2 at BB (low) (sf)
$40.3 million Class B-1 at B (high) (sf)

Moody’s meanwhile will only rate the first three tranches and also shows a funded percentage for each tranche, which would shrink the size of the issuance to the $251.2 million size:

$65.97 million Class M-1A, Assigned (P)Baa3 (sf)
$134.86 million Class M-1B, Assigned (P)Ba3 (sf)
$25.2 million Class M-2, Assigned (P)B3 (sf)
$25.2 million Class B-1, Unrated

So we’ll need to wait to find out the exact size of this new mortgage ILS deal from Arch Capital, with anything from $251.2 million to as much as $358.4 million seemingly possible.

You can read all about this new Bellemeade Re 2022-2 Ltd. mortgage insurance-linked securities (ILS) transaction from Arch Capital and every other mortgage ILS deal ever issued in our Artemis Deal Directory.