Arch's new mortgage ILS deal shows signs of post-COVID rebound

Arch Capital Group's US mortgage insurance operation  Arch Mortgage Insurance Company (Arch MI) has completed its second mortgage insurance linked note (MILN) deal of 2021, at the "best pricing" and broadest investor participation for any Bellemeade programme so far.

Arch MI obtained over $616 million of indemnity reinsurance on a pool representing approximately $36 billion of mortgages from Bellemeade Re 2021-2, a special purpose reinsurer.

The coverage was obtained by issuing approximately $523 million in bonds and $93 million in direct reinsurance. It covered a portfolio of MI policies issued by Arch MI and affiliates between December 2020 and March 2021.

The deal represented Bellemeade’s 16th since the programme’s inception in 2015. It was the second Bellemeade transaction to use the Secured Overnight Financing Rate (SOFR) as the benchmark rate for pricing instead of the London Inter-Bank Offered Rate (LIBOR).

The company explained that the market for mortgage ILN has recovered from the risks associated with the pandemic.

“This transaction’s execution represents the broadest investor participation at the best pricing for current exposure in the Bellemeade program’s history,” said Jim Bennison, EVP, Alternative Markets for Arch MI. “We believe investors have concluded that the risks associated with the COVID-19 pandemic are behind us.”

Bellemeade Re 2021-2 is funding its reinsurance obligations through the issuance of five classes of amortising notes with 10-year legal final maturities. These included $194,532,000 class M-1A notes with a coupon equal to one-month SOFR plus 120 basis points; $93,334,000 class M-1B notes with a coupon equal to one-month SOFR plus 150 basis points; $97,265,000 class M-1C notes with a coupon equal to one-month SOFR plus 185 basis points; $105,704,000 class M-2 notes with a coupon equal to one-month SOFR plus 290 basis points; and $31,972,000 class B-1 notes with a coupon equal to one-month SOFR plus 415 basis points.

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