Arch partners with Capsicum Re for first mortgage ILS deal of COVID-19 era

Arch Mortgage Insurance Company (Arch MI), a wholly owned subsidiary of Arch Capital Group, has obtained $528 million of indemnity reinsurance on a pool representing approximately $44 billion of mortgages from special purpose reinsurer Bellemeade Re 2020-1.

The coverage was obtained by issuing approximately $450 million in bonds and $78.5 million in direct reinsurance. The transaction covers a portfolio of MI policies linked to 163,292 loans and issued by Arch MI and affiliates primarily in the second half of 2019.

Specialist reinsurance broker Capsicum Re partnered with Arch MI to raise and place its first reinsurance capacity of 2020, which is also the first mortgage credit risk transfer (CRT) completed by any company in the COVID-19 era.

“We’re pleased that we were able to bring this transaction to market during this period of uncertainty related to COVID-19,” said Jim Bennison, EVP, alternative markets for Arch MI. “The response from both fixed income investors and reinsurers speaks to the attractiveness of our program. This is our eleventh Bellemeade transaction and the program remains an important tool for managing the risk and capital requirements of our U.S. Mortgage Insurance business.”

Freddie Scarratt, account executive at Capsicum Re, who managed and placed the reinsurance capacity of the transaction, said: “We are extremely pleased to represent Arch MI and to have succeeded in raising the required direct reinsurance capacity for its Bellemeade program. Despite the macroeconomic headwinds and financial market volatility of recent months, reinsurers have demonstrated their openness to new transactions and willingness to work in collaborative partnership with specialist brokers and clients on their risk transfer needs. We hope this transaction will prove to be just the start of a long relationship between Arch MI and reinsurers in providing diversified counterparty capital to Bellemeade.

“The fact that this is the first mortgage indemnity insurance-linked note (ILN) transaction since the onset of COVID-19 – and the first to incorporate direct reinsurance capacity – also underlines the importance of reinsurance as a capital source in the marketplace.”

Steve Rance, managing partner of mortgage indemnity reinsurance at Capsicum Re, added: “This is the second large mortgage insurance placement our specialist team has placed in the US post-COVID. Raising in excess of the required capacity in today’s challenging environment is an exceptional result. It is testament to both the quality of Arch MI’s mortgage book and the deep expertise and strong market relationships of our team.”