Vita Capital IV Ltd.

This deal entry refers to four series of notes issued by Vita Capital IV. Series I, II, III, IV.

The first two Vita Capital IV tranches of mortality catastrophe bond notes, Series I and Series II used a trigger derived from the risk of an increase in age and gender-weighted mortality rates that exceeds a specified percentage of a predefined index (the mortality index value; MIV). Both tranches were scheduled to mature in January 2014.

The Series I issuance in November 2009 saw $75m of mortality-linked notes issued to cover U.S. and UK mortality risk. The notes had an attachment point of 105% in the U.S., 112.5% in the UK and an exhaustion point of 110% in the U.S. and 120% in the UK.

The Series II issuance in May 2010 saw $50m of mortality-linked ILS notes issued to cover extreme mortality in the U.S. and U.K. These notes had an the same attachment and exhaustion points as the Series I tranche.

Series III and IV:

These two series of notes will add to the two series Swiss Re issued through Vita Capital IV in the last twelve months.

The $100m series III Class E notes will be exposed to increases in age and gender weighted mortality rates which exceed a predefined index point (mortality index value) in the U.S. and Japan.

The $75m series IV Class E notes will be exposed to increases in age and gender weighted mortality rates which exceed a predefined index point (mortality index value) in Germany and Canada.

Collateral for the transaction will be invested in securities issued by the International Bank for Reconstruction and Development (IBRD) which are rated ‘AAA’ which is the same collateral arrangements as the series II Vita Capital IV Ltd. notes issued by Swiss Re last year.

This transaction will provide Swiss Re with further protection against events which could cause mass mortality such as pandemics, epidemics, war, natural and man-made catastrophes and even terrorist attacks.

For the notes to be triggered there needs to be a large jump in mortality rates in one of the covered countries. For the series III notes to be triggered, the reference mortality index would need to jump by over 5% for the U.S. and by at least 7.5% for Japan over any two consecutive-year measurement periods during the covered period. For the series IV notes , the reference mortality indices would have to increase by at least 10% for Germany and 11.5% for Canada.

Risk Management Solutions performed the risk modelling for this transaction using a range of their models including terrorism, disaster and infectious disease models.

The transaction provides Swiss Re with risk protection through to the last quarter of 2014.

Update: (28th December 2012)

Swiss Re chose to redeem the Series 1 and Series 2 tranches of notes a year early. All of Swiss Re’s Vita Capital mortality insurance-linked security transactions contain a clause allowing them to redeem the notes earlier than the scheduled maturity, but only within the last year of the deal.

Swiss Re Capital Markets told us that they exercised the early redemption feature and this includes them paying a ‘call premium’ to investors. We understand that the investors have been paid 101 cents per dollar for the redemption of the $125m Vita Capital IV notes.