The first extreme mortality insurance-linked security transaction of 2013 is coming to market, a deal which will be welcomed by many investors seeking diversification. Atlas IX Capital Limited (Series 2013-1) is being launched for sponsoring French reinsurer SCOR and will provide it with retrocessional protection.
Extreme mortality is a peril which has seen a number of issuances in the ILS market. The transactions feature very similar structures to a typical catastrophe bond, in fact are often dubbed mortality cat bonds, and Atlas IX Capital Ltd. is no different. This is the first catastrophe bond from SCOR which covers mortality risks, its other transactions having covered natural catastrophes. SCOR has however secured mortality protection via retrocessional reinsurance and also a mortality swap in the past.
The transaction will seek to provide sponsor SCOR Global Life SE with a multi-year source of extreme mortality protection, which will provide it with a fully-collateralized, capital markets backed source of protection against mortality events. The types of events which could cause excess mortality on such a scale to threaten a mortality cat bond like this would likely be pandemics, such as influenza outbreaks, earthquakes causing large loss of life, pandemics, disease outbreaks, terrorist events, nuclear accidents or an outbreak of war.
As we understand it at this early stage, the transaction only launched to the market yesterday, the Atlas IX Capital mortality bond is offering two tranches of notes to investors and hopes to raise at least $125m of retrocessional reinsurance protection for SCOR. The transaction will provide SCOR with extreme mortality protection over roughly a 5 year period, with a risk period that runs from the start of 2013 through to the end of 2018.
Atlas IX Capital will protect SCOR against extreme mortality events across the U.S. and the District of Colombia. The transaction will use a mortality index trigger based on data from the U.S. CDC (Center for Disease Control). The index will be weighted by both age and gender.
A Class A tranche of notes is being marketed with a preliminary size of $75m, with an attachment probability of 0.74%, an expected loss of 0.58% and offering a coupon in the range of 2.5% to 3.25%. This tranche triggers at an index level of 104% we are told.
The second, Class B, tranche of notes is marketed at $50m in size, with an attachment probability of 1.16%, an expected loss of 0.92% and offering investors a coupon return in the range of 3.25% to 4%. This tranche triggers at an index level of 102%. The Class B tranche is a little more risky than Class A.
So to determine if the notes are triggered by an extreme mortality event, an index will be created utilising the CDC data on the mortality event and the calculation agent will establish whether the number of mortalities is above the trigger point or not.
We understand that Aon Benfield Securities are structuring this transaction for SCOR and that RMS are providing risk modelling and calculation services.
It’s also worth noting that this is Atlas IX (or nine). The last SCOR sponsored catastrophe bond was Atlas Reinsurance VII (seven), which does leave us wondering what has happened to the number VII (eight) in its series of deals. Perhaps there is another transaction to come from SCOR?
That’s all the information we have for now on Atlas IX Capital Limited (Series 2013-1), the first ILS or cat bond type transaction in 2013 to provide cover for extreme mortality events. The transaction has been added to our Deal Directory and we’ll bring you more details as they become available.