Anima Re ViF life insurance-linked securitisation readied for Atlanticlux

FWU Group subsidiary, Luxembourg based life insurance company Atlanticlux is to tap the capital markets once again in a proposed €55 million value in force (ViF) life insurance linked securitisation through incorporated cell vehicle Anima Re A IC Limited.

The transaction will see Atlanticlux leveraging third-party reinsurance capital to take on certain French and German life insurance policyholder lapse risks, while the deal will also allow the insurer to transfer certain French and German mortality risks to a traditional reinsurer through a retrocession contract via the Anima Re vehicle.

According to rating agency Fitch Ratings, responsible for rating the transaction, Anima Re is recently launched incorporated cell of Guernsey-based cell company Anima Re ICC Limited which has been specifically set up to issue these ViF notes. The cell, Anima Re, acts as a transformer vehicle for this transaction, entering into a reinsurance contract with Atlanticlux.

This reinsurance contract will see Atlanticlux cede one-third of the remaining mortality risk of a German block of life insurance policies and around 55% of the remaining mortality risk of a French block of life policies to Anima Re as well as part of the lapse risk from a designated block of existing French and German life insurance policies.

At the same time, Anima Re will enter into a retrocessional reinsurance agreement with reinsurer Partner Reinsurance Europe Ltd. for all of the mortality risk in the portfolio, meaning that Anima Re itself will only be left with the life insurance policyholder lapse risk.

Fitch Ratings said that the proceeds from this transaction will be used by Atlanticlux to pay back existing financing of acquisition costs covered by a factoring agreement with its parent FWU AG as well as to finance market development activities together with FWU AG. The proceeds will also likely be used to collateralise the Anima Re cell as well.

Fitch says that the expected rating of ‘BBB(EXP)’ that it has assigned to the Anima Re notes, as well as the existing SQ ReVita notes and Salam III Sukuk programme, are rated at the same level as Atlanticlux’s Issuer Default Rating. Despite their structured features, Fitch treats the Anima Re transaction as effectively having the same credit characteristics as a senior unsecured corporate obligation of Atlanticlux.

Atlanticlux has used the ILS market, securitisation and collateralized reinsurance structures a number of times to offload different life insurance risks to investors or reinsurers. Two of its previous deals, SQ ReVita ViF transaction and the Salam III Sukuk (Islamic bond or Sukuku) programme have both been affirmed with ‘BBB’ ratings by Fitch.

Atlanticlux is effectively using these transactions to free up capital, by financing it using the cell structures and securitisation techniques, which allows it to put capital that would otherwise have been locked up in the underlying life policies back to work while also offloading the policyholder lapse risk to the investors in the cell.

In this way Atlanticlux is using the ILS techniques as a form of capital management, while also enabling the transfer of specific risks to other parties. Now on its third such structure, that we know of, we’d expect Atlanticlux to continue to leverage securitisation as a form of reinsurance and capital protection.