Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Kortis Capital Ltd.

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Kortis Capital Ltd. – At a glance:

  • Issuer: Kortis Capital Ltd.
  • Cedent / sponsor: Swiss Re
  • Placement / structuring agent/s: Swiss Re Capital Markets are arranging the deal
  • Risk modelling / calculation agents etc: RMS
  • Risks / perils covered: Longevity risk
  • Size: $50m
  • Trigger type: Longevity index
  • Ratings: S&P: 'BB+'
  • Date of issue: Dec 2010

Kortis Capital Ltd. – Full details:

Kortis Capital Ltd., a Cayman Islands domiciled SPV, issued a series of longevity-linked insurance-linked securities (or catastrophe bonds) on behalf of cedent Swiss Re. This is the first cat bond type structure used to transfer longevity risks to the capital markets.

Kortis Capital Ltd. transfers longevity risks (risk of people living longer) to the capital markets for Swiss Re. “However, they do this in relative, rather than absolute terms through the differential performance of different age-groups in different countries” said S&P credit analyst Paul Bradley in their press release about this deal.

Noteholders who invested in this transaction will be bearing the risk of an increase in the ‘difference between the annualized mortality improvement in a U.K. age group and the annualized mortality improvement in a U.S. age group, over eight years of mortality improvements from Jan. 1, 2009, to Dec. 31, 2016.’ The two geographical age-groups are U.S. males age 55 to 65 and UK males age 75 to 85.

The trigger is defined at the start of the transaction and based on the eight year total risk period for the deal. Probability of loss and magnitude of loss depend on how large the divergence in mortality improvements is between the geographical age-groups and how much it exceeds a set attachment point.

The index of longevity that the deals trigger will use was constructed from population mortality data from the U.S. Centers for Disease Control and Prevention and the UK Office for National Statistics (England & Wales only).

Proceeds from the sale of the notes from this deal will be invested in AAA rated International Bank for Reconstruction and Development notes and deposited in a collateral account.

If the longevity index divergence index value exceeds the specified trigger level some of the collateral will be sold to make payment to Swiss Re and as such the principal of the notes will be reduced (and investors see losses).

The notes are listed on the Cayman Islands Stock Exchange.

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