December 6, 2023

Arbol, an underwriter of technology-led parametric risk transfer, climate and weather insurance or reinsurance businesses, has become the latest company to establish a mortgage insurer class in Bermuda, called Arbol Re Ltd.

tree signThe Bermuda registered and regulated class of mortgage insurers has become an increasingly popular structure for those looking to link investors with a source of insurance or reinsurance risk-linked returns.

Arbol Re Ltd., now registered with the Bermuda Monetary Authority (BMA), now provides Arbol with a platform through which it can continue to underwrite its parametric risks, but they can be backed by capital market capabilities or fully-collateralized .

Hong Guo, Arbol’s Executive Vice President and Chief Insurance Officer, explained to Artemis: “Arbol Re Ltd. represents an evolution of Arbol’s ability to facilitate reinsurance transactions, with a particular emphasis on parametric reinsurance transactions involving capital markets.

“As a mortgage insurer, Arbol Re’s role is not to take risk, but to facilitate fully mortgaged transactions.

“This ensures that both Arbol and the capital markets have a safe and efficient platform to manage and mitigate climate-related risks.”

This is the latest development for Arbol’s platform, which will now be able to tap into third-party investors’ sources of risk capacity and facilitate transactions within its regulated mortgage underwriting vehicle.

Bermuda’s regulator, the Bermuda Monetary Authority (BMA), developed the limited purpose insurer (LPI) mortgage insurance and reinsurance categories in response to the growing complexity and scope of the insurance-linked securities (ILS) market.

It provides a structure that can be used for multi-transaction purposes, underwriting mortgage reinsurance, retrocession and other forms of ILS transactions, while handling numerous capital sources due to the ability to isolate units or transactions from each other.

For Arbol, this will enable the company to funnel parametric risk transfer transactions into Arbol Re Ltd., enabling investors to link these risks.

That should bolster Arbols’ risk appetite, as the company can more easily capitalize on capital market investor interest in its underwriting risks.

Mortgage insurers can also face off with many types of counterparties, giving their originators a lot of flexibility.

This provides a wider scope for the types of cedents and transactions an ILS structure can participate in than the more common but more limited use cases of special purpose insurer (SPI) vehicles.

Arbol reported earlier this year that it will more than double the gross premiums it writes in 2022, taking the full-year total to $170 million.

The establishment and launch of Arbol Re Ltd., a mortgage insurance platform, should help the company continue to expand its premium volume while providing access to diversified sources of venture capital.

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