Secquaero completes EUR60m securitization of inforce life policies

by Artemis on June 6, 2011

Secquaero Advisory Ltd., has announced the successful completion of  a €60m securitization of a closed block of existing in-force unit-linked life insurance policies. The transaction was issued via Secquaero’s Guernsey domiciled entity SQ ReVita. The life insurance securitization was sponsored by ATLANTICLUX Lebensversicherung S.A., Luxembourg, an affiliate of the Munich based FWU Group and syndicated by Novium AG, Zollikon, Switzerland.

Secquaero say the securitization is particularly attractive to investors becuse of the attractive net return of 10% on a euro denomicated asset, its relatively short duration of four years and expected maturity of ten years as well as the way the transaction has been structured as self-amortizing with repayments of principal and interest on a monthly basis. They also note that the uncorrelated nature of the notes to risks typically found in fixed income or equity investments added to the attractiveness to investors.

The deal offers a high degree of security, said Secquaero, as the notes have recieved a rating of ‘BBB-‘ with a stable outlook from Fitch Ratings and have been overcollateralized for repayment of interest and principal. The underlying bucket of over 100,000 life policies also add to the security of the transaction as they are well diversified and sourced from five different European markets.

Secquaero structured the transaction and also act as manager until it matures. They also participated in the investment of the transaction through their Secquaero ILS Fund. The notes were issued in a private placement and were taken up by institutional investors such as pension funds, pensions insurers and insurance-linked securities specialist investment funds.

Dirk Lohmann, Chairman of Secquaero Advisors Ltd., said: “It has always been our firm belief that the development of new products for investors and new solutions for potential sponsors is mandatory for the continued growth and success of insurance-linked securities as a viable alternative asset class. This transaction has some truly unique features that represent new terrain, which will help to expand the potential for further collaboration between the insurance and capital markets. Secquaero was established with precisely this objective in mind.”

Jas Thind, Head Institutional Desk/Sales at Novium AG said: “Together with the actuarial and structuring skills from Secquaero, we created a pioneering life securitisation transaction with unique risk mitigation features for investors. We took investors on a steep learning curve to understand how the embedded mortality and lapse risk impacted the underlying reinsurance cash flows and projected amortization – at the same time we listened to their input to provide a financing tailored to suit the client’s and investor’s needs. It is my view that no investment bank would have provided the resources necessary to execute such a relatively small and complex transaction requiring the dedicated teamwork that this deal demanded.”

Frank Wolf, CFO of ATLANTICLUX and Arne Reif, CFO of FWU AG said: “Capital market access was a strategic goal for ATLANTICLUX as well as its parent FWU AG. This transaction marked our first entry into this market by offering a unique product to investors. We commend Secquaero and Novium on their respective contributions towards structuring and distributing the transaction. Their continuous support and deep market knowledge were crucial factors for success.”

The notes from this transaction have been listed on the Channel Islands stock market, details here.

This interesting private market ILS transaction demonstrates the growing trend for boutique banking, investment and risk houses to create transactions which allow interested investors to access unique ILS investment opportunties. As Secquaero said, this type of deal is vital for the ILS market to mature and grow and we expect to see more private transactions issued in the near future.

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