An embedded value life securitization transaction has been launched on behalf of Aurigen Reinsurance who are seeking through this Vecta I Ltd. deal to monetise the cash flows associated with life insurance and mortality business it has reinsured. Embedded value life securitization transactions enable sponsors to realise the present value of future cash flows by releasing future profits from portfolios of in-force life reinsurance business.
The transaction covers life policies which Aurigen Reinsurance acquired through 12 reinsurance transactions with six separate life insurance companies. The business covered in this securitization includes some 447,444 term, permanent, and universal life (UL) policies on Canadian lives with an aggregate face value of approximately C$22 billionn in 2010.
The transaction involves Aurigen Reinsurance Ltd. (ARL) entering into a retrocession agreement with Vecta I Ltd., a newly formed Bermuda domiciled SPV, after which ARL will retrocede the life business to Vecta for which Vecta pays a ceding commission. ARL has also entered into a reinsurance agreement with Aurigen Reinsurance Company and the Vecta notes will cover Vecta’s obligations to ARL under the retrocession agreement.
This transaction provides a way for Aurigen to realise the value of this book of life business and also smooth profits which could otherwise be impacted by fluctuations in mortality and policy renewal lapse risk.
EV or embedded value transactions are complicated securitizations and as such we recommend you head over to the Standard & Poor’s website and look up the pre-sale documentation for the deal. S&P rated the as yet unsized single tranche of Vecta I Ltd. Series 2011-1 notes ‘BBB+’.
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