Swiss Re completes Kortis Capital Ltd; first longevity catastrophe bond

by Artemis on December 23, 2010

Swiss Re has announced the completion of the first ever longevity trend catastrophe bond with the completion of Kortis Capital Ltd. The deal transfers $50m of longevity trend risk over to the capital markets for Swiss Re using the familiar structure more commonly utilised for natural catastrophe risk.

The catastrophe bond and insurance-linked securities market are coming to a positive end this year and this transaction (and others in the pipeline) show the market is maturing as cedents seek to transfer new classes of risk to the capital market. The longevity risk transfer market has the potential to be huge and this deal could broaden the scope of the market and open it up to further transactions.

While this transaction is only $50m in size we believe Swiss Re have used it to test the markets appetite for this new class of risk and to see if they can open or create a demand for longevity risk bonds. It appears to have been well received and we hope to see other cedents seeking to replicate the transaction.

The $50m Series 2010-I Class E principal at-risk variable rate notes are due 15 January 2017 and have been admitted to the Cayman Islands Stock Exchange.

Further details on the structure of Kortis Capital ltd. are available in our earlier article and in our Deal Directory. Swiss Re;s press release is below.

Swiss Re completes first longevity trend bond, transferring USD 50 million of longevity trend risk to the capital markets

Swiss Re today announced the transfer of USD 50 million of longevity trend risk to the capital markets through the Kortis Capital Ltd. (“Kortis”) securitisation programme.

This transaction marks an innovative transfer of longevity trend risk to the capital markets. Kortis Capital Ltd. provides cover to Swiss Re against a divergence in mortality improvements experienced between two selected populations. The bond is based on population data and would trigger in the event there is a large divergence in the mortality improvements experienced between male lives aged 75-85 in England & Wales and male lives aged 55-65 in the US. The single tranche Series 2010-I Class E Notes are rated BB+ (sf) by Standard & Poor’s.

“The global longevity issue is already huge and will continue to grow as the result of ageing populations and higher risk awareness. We are uniquely positioned to help develop new and flexible solutions for clients with longevity or mortality exposures, given our core mortality expertise,” said Brian Gray, Swiss Re’s Chief Underwriting Officer. “Swiss Re’s longevity strategy focuses on providing our clients with indemnity protection, while supporting the development of efficient capital market solutions on an indexed basis as a source of future long-term capacity.”

Swiss Re has a strong track record of developing the capital markets for insurance perils, initially with natural catastrophe bonds and more recently by periodically securitising its life risks. Swiss Re has obtained over USD 1.5 billion in extreme mortality risk protection from its Vita programme since 2003.

“The Kortis programme is of particular note as it provides protection against adverse deviation in mortality improvements for both Swiss Re’s mortality and longevity portfolios, whilst taking into account the complementary nature of the two risks,” said Christian Mumenthaler, Swiss Re’s Head of Life & Health.

Swiss Re Capital Markets acted as sole manager and bookrunner on the notes issuance. Risk modelling and analysis were performed by Risk Management Solutions Inc. (RMS). Collateral for the Kortis notes consists of securities issued by the International Bank for Reconstruction and Development.

The Kortis notes were sold in a private placement pursuant to Rule 144A of the U.S. Securities Act of 1933, as amended, (the “Securities Act”) and have not been registered under the Securities Act or any state securities laws; they may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.

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