Arch MI Secures Over $203 Million of Indemnity Reinsurance through Bellemeade Re Insurance-Linked Note Transaction and Related Reinsurance

Rhea-AI Summary

Arch Mortgage Insurance Company (Arch MI) has secured over $203 million of indemnity reinsurance through Bellemeade Re 2024-1 , covering a $30.5 billion mortgage portfolio. This transaction, Arch's first Mortgage Insurance-Linked Note (MILN) of 2024, was achieved by issuing $163 million in bonds and $41 million in direct reinsurance. The coverage primarily applies to MI policies issued from September 2023 through July 2024.

Bellemeade Re 2024-1 is funding its obligations through five classes of amortizing notes with 10-year legal final maturities, rated by DBRS Morningstar. Since 2015, Arch has completed 21 Bellemeade transactions, securing over $9.7 billion in indemnity reinsurance. This program remains a important component of Arch's risk and capital management strategy.

Positive

• Secured over $203 million in indemnity reinsurance
• Coverage for a substantial $30.5 billion mortgage portfolio
• Successful issuance of $163 million in bonds
• Additional $41 million secured through direct reinsurance
• Continuation of successful Bellemeade program with 21 transactions to date
• Total of $9.7 billion in indemnity reinsurance secured since 2015

Negative

• None.

Insights

Financial Analyst

Arch MI's latest reinsurance transaction is a strategic move to manage risk and capital efficiently. The $203 million indemnity reinsurance on a $30.5 billion mortgage pool demonstrates the company's commitment to financial stability. This deal, being Arch's 21st since 2015, bringing their total secured reinsurance to over $9.7 billion, showcases a consistent risk management approach.

The structure of the deal, with five classes of notes and additional direct reinsurance, allows Arch MI to spread risk across different investor profiles. The varying coupon rates, from SOFR plus 2.15% to 5.55%, reflect the risk levels of each tranche. This diversified approach could potentially lower Arch MI's overall cost of capital and improve its financial flexibility.

However, investors should note that the ratings of these notes, ranging from BBB (low) to B, indicate a moderate to high level of risk. The success of this transaction amid market volatility suggests continued investor appetite for mortgage insurance-linked securities, which is a positive sign for Arch MI's future capital management strategies.

Market Research Analyst

The Bellemeade Re 2024-1 transaction reflects the ongoing evolution of the mortgage insurance market. By securing reinsurance on policies issued from September 2023 through July 2024, Arch MI is proactively managing its risk exposure on recent mortgages. This forward-looking approach could be particularly beneficial given the current uncertain economic climate and housing market fluctuations.

The transaction's structure, covering a 0.67% layer of a $30.5 billion mortgage pool, indicates a relatively low expected loss rate. This suggests Arch MI's confidence in the quality of its underwritten mortgages. However, the higher coupon rates on the lower-rated tranches imply that investors are demanding greater compensation for perceived risks in the housing market.

The continued success of the Bellemeade program, now in its ninth year, demonstrates the maturity of the mortgage insurance-linked securities market. This established market provides Arch MI with a reliable avenue for risk transfer, potentially giving it a competitive edge in pricing and capacity within the mortgage insurance industry.

Legal Expert

The Bellemeade Re 2024-1 transaction showcases the complex legal structure underpinning modern reinsurance deals. The use of a special purpose reinsurer, Bellemeade Re 2024-1 , allows Arch MI to transfer risk off its balance sheet while providing investors with exposure to mortgage insurance performance. This structure likely involves intricate contractual arrangements to ensure proper risk transfer and regulatory compliance.

The 10-year legal final maturities of the notes provide long-term protection for Arch MI, aligning with the typical duration of mortgage loans. This extended timeframe also necessitates careful legal drafting to account for potential changes in market conditions, regulatory environments and mortgage performance over the next decade.

Investors should be aware that these insurance-linked notes, while offering potentially attractive yields, come with unique legal considerations. The ratings from DBRS Morningstar provide some guidance on the risk levels, but investors would need to carefully review the legal documentation to fully understand their rights and the conditions under which they might incur losses.

GREENSBORO, N.C.--(BUSINESS WIRE)-- Arch Mortgage Insurance Company (Arch MI) announced it has obtained over $203 million of indemnity reinsurance on a pool representing approximately $30.5 billion of mortgages from Bellemeade Re 2024-1 Ltd., a special purpose reinsurer. The coverage was obtained by issuing approximately $163 million in bonds and $41 million in direct reinsurance. This transaction largely covers a portfolio of MI policies issued by Arch MI and affiliates primarily from September 2023 through July 2024 and closed on Aug. 15.

This Mortgage Insurance-Linked Note (MILN) transaction is Arch’s first of 2024. Since the Bellemeade program began in 2015, Arch has completed 21 transactions that have secured over $9.7 billion in indemnity reinsurance.

Bellemeade Re 2024-1 Ltd. is funding its reinsurance obligations through the issuance of five classes of amortizing notes with 10-year legal final maturities.

The notes received ratings from DBRS Morningstar as follows: Class M-1A was BBB (low)(sf), Class M-1B was BB (high)(sf), Class M-1C was BB (low)(sf), Class M-2 was B (high)(sf) and Class B-1 was B (sf).

Pricing detail for the five classes of offered notes is below:

• $34,964,000 class M-1A notes with a coupon equal to one-month SOFR plus 2.15%.
• $53,612,000 class M-1B notes with a coupon equal to one-month SOFR plus 3.20%.
• $37,294,000 class M-1C notes with a coupon equal to one-month SOFR plus 3.95%.
• $25,640,000 class M-2 notes with a coupon equal to one-month SOFR plus 4.60%.
• $11,654,000 class B-1 notes with a coupon equal to one-month SOFR plus 5.55%.

Additionally, a total of $40,793,000 was placed with a panel of reinsurers.

“Bellemeade continues to be a key element of Arch’s risk and capital management strategy. Despite current market volatility, we are pleased with this execution,” said Jennifer Weiss, VP of Structured Capital and Reinsurance for Arch MI.

About Arch MI

Arch MI, a wholly owned subsidiary of Arch Capital Group Ltd., is a leading provider of private insurance covering mortgage credit risk in the U.S. Headquartered in Greensboro, North Carolina, Arch MI's mission is to protect lenders against credit risk, while extending the possibility of responsible home ownership to qualified borrowers. Arch MI’s flagship mortgage insurer, Arch Mortgage Insurance Company, is licensed to write mortgage insurance in all 50 states, the District of Columbia and Puerto Rico. For more information, visit archmi.com.

About Arch Capital Group Ltd.

Arch Capital Group Ltd. (Nasdaq: ACGL) is a publicly listed Bermuda exempted company with approximately $23.4 billion in capital at June 30, 2024. Arch, which is part of the S&P 500 Index, provides insurance, reinsurance and mortgage insurance on a worldwide basis through its wholly owned subsidiaries.

Cautionary Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward−looking statements. This release or any other written or oral statements made by or on behalf of Arch Capital Group Ltd. and its subsidiaries may include forward−looking statements, which reflect the Company’s current views with respect to future events and financial performance. All statements other than statements of historical fact included in or incorporated by reference in this release are forward−looking statements.

Forward−looking statements can generally be identified by the use of forward−looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or their negative or variations or similar terminology. Forward−looking statements involve the Company’s current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. A non-exclusive list of the important factors that could cause actual results to differ materially from those in such forward-looking statements includes the following: adverse general economic and market conditions; increased competition; pricing and policy term trends; fluctuations in the actions of rating agencies and the Company’s ability to maintain and improve its ratings; investment performance; the loss of key personnel; the adequacy of the Company’s loss reserves, severity and/or frequency of losses, greater than expected loss ratios and adverse development on claim and/or claim expense liabilities; greater frequency or severity of unpredictable natural and man-made catastrophic events, including pandemics such as COVID-19; the impact of acts of terrorism and acts of war; changes in regulations and/or tax laws in the United States or elsewhere; ability to successfully integrate, establish and maintain operating procedures as well as integrate the businesses the Company has acquired or may acquire into the existing operations; changes in accounting principles or policies; material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements; availability and cost to the Company of reinsurance to manage the our gross and net exposures; the failure of others to meet their obligations to the Company; a disruption caused by cyber-attacks or other technology breaches or failures on the Company or the Company’s business partners and service providers, which could negatively impact the Company’s business and/or expose the Company to litigation; and other factors identified in our filings with the U.S. Securities and Exchange Commission (“SEC”).

The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein or elsewhere. All subsequent written and oral forward−looking statements attributable to us or persons acting on the Company’s behalf are expressly qualified in their entirety by these cautionary statements. The Company’s forward-looking statements speak only as of the date of this press release or as of the date they are made, and the Company undertakes no obligation to publicly update or revise any forward−looking statement, whether as a result of new information, future events or otherwise.

Tag: arch-mortgage

View source version on businesswire.com: https://www.businesswire.com/news/home/20240815242671/en/

Media Contact:

Greg Hare

ghare@archgroup.com

Source: Arch Capital Group Ltd.

FAQ

How much indemnity reinsurance did Arch MI secure in its latest Bellemeade Re transaction?

Arch MI secured over $203 million of indemnity reinsurance through the Bellemeade Re 2024-1 transaction.

What is the size of the mortgage portfolio covered by Arch MI's latest reinsurance transaction?

The reinsurance transaction covers a portfolio of approximately $30.5 billion of mortgages.

When did Arch MI's Bellemeade Re 2024-1 transaction close?

The Bellemeade Re 2024-1 transaction closed on August 15, 2024.

How many Bellemeade transactions has Arch completed since the program began?

Since the Bellemeade program began in 2015, Arch has completed 21 transactions.

What is the total amount of indemnity reinsurance Arch has secured through the Bellemeade program?

Through the Bellemeade program, Arch has secured over $9.7 billion in indemnity reinsurance since 2015.