Swiss Re have begun marketing for two new series of mortality catastrophe bond notes to be issued by the Vita Capital IV Ltd. special purpose vehicle which is domiciled in the Cayman Islands. These two series of notes will add to the two series Swiss Re issued through Vita Capital IV in the last twelve months.
The two series of notes will be exposed to different mortality factors. The series III Class E notes will be exposed to increases in age and gender weighted mortality rates which exceed a predefined index point (mortality index value) in the U.S. and Japan. The series IV Class E notes will be exposed to increases in age and gender weighted mortality rates which exceed a predefined index point (mortality index value) in Germany and Canada.
Collateral for this transaction will be invested in securities issued by the International Bank for Reconstruction and Development (IBRD) which are rated ‘AAA’ which is the same collateral arrangements as the series II Vita Capital IV Ltd. notes issued by Swiss Re last year.
This transaction will provide Swiss Re with further protection against events which could cause mass mortality such as pandemics, epidemics, war, natural and man-made catastrophes and even terrorist attacks. For the notes to be triggered there needs to be a fairly large jump in mortality rates in one of the covered countries. For the series III notes to be triggered, the reference mortality index would need to jump by over 5% for the U.S. and by at least 7.5% for Japan over any two consecutive-year measurement periods during the covered period. For the series IV notes , the reference mortality indices would have to increase by at least 10% for Germany and 11.5% for Canada.
Risk Management Solutions performed the risk modelling for this transaction using a range of their models including terrorism, disaster and infectious disease models.
The transaction is expected to close during October and provide Swiss Re with risk protection through to the last quarter of 2014. Standard & Poor’s have given both series of Vita Capital IV notes a preliminary rating of ‘BB+’.
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