Arch completes third mortgage ILS deal of COVID-19 era

Arch Capital Group's US mortgage insurance operation Arch Mortgage Insurance Company (Arch MI) has confirmed a $452 million of indemnity reinsurance from special purpose reinsurer Bellemeade Re 2020-3 in an insurance-linked note (MILN) transaction.

The transaction, which covers a pool representing approximately $31 billion of mortgages, is Arch’s third of 2020. The coverage was obtained by issuing approximately $418 million in bonds and $34 million in direct reinsurance.

The reinsurance is for a portfolio of MI policies linked to 112,274 loans insured by Arch MI and affiliates primarily from June through August of 2020.

Arch was the first mortgage insurer to complete a mortgage credit risk transfer (CRT) in the COVID-19 era and, combined, the three executions have netted over $1.5 billion of indemnity reinsurance in 2020.

Bellemeade Re 2020-3 is funding its reinsurance obligations through the issuance of five classes of amortizing notes with 10-year legal final maturities.

“Given the circumstances of 2020, completing our third Bellemeade transaction of the year was no small feat," said Jim Bennison, EVP, alternative markets for Arch MI. "I’m pleased that we were able to restart the MILN market in June and am encouraged by the recent offerings by other mortgage insurers.”

“Each subsequent Bellemeade deal of 2020 has had a lower attachment point than the previous, signaling that investors are increasingly comfortable taking on mortgage credit risk as they get more clarity on COVID-19’s effect on the housing market.”