Vita Capital VI Limited (Series 2021-1)

Global reinsurance firm Swiss Re has returned to the capital markets with the eighth extreme mortality catastrophe bond under its Vita Capital series of deals.

Swiss Re is aiming to secure capital markets backed protection for its life reinsurance business, with $75 million or more of extreme mortality protection the target.

According to our sources, this new Vita Capital mortality cat bond is particularly interesting as deaths due to COVID-19 are excluded for calendar year 2021 under the terms of the deal, but we’re told appear to be included and therefore covered for future years while the deal remains in-force.

Vita Capital VI Limited, a Cayman Islands based special purpose vehicle, will issue a single tranche of Class B notes, currently targeting $75 million of protection for Swiss Re.

The notes will be sold to investors and the proceeds used to collateralize a retro reinsurance arrangement between the special purpose issuance vehicle and Swiss Re itself.

The transaction will provide Swiss Re with excess (or extreme) mortality retrocessional reinsurance protection, based on a mortality index trigger.

As a result, the notes could be triggered by an extreme mortality event that raises the mortality index, which will be weighted by age and gender, above a predefined trigger point.

Meaning that the investors in these notes will be at risk of an increase in age and gender-weighted mortality rates, exceeding a specified percentage of the predefined index across the covered areas.

The covered areas are Australia, Canada, the UK and the United States, we’re told, which is an expansion on the last Vita Capital mortality cat bond from Swiss Re, which did not cover excess mortality in the US.

We understand the mortality retro reinsurance protection will run from the beginning of 2021 to the end of 2025, with the notes maturity slated for early 2026, so providing five years of coverage.

The $75 million of Series 2021-1 Class B notes to be issued by Vita Capital VI Ltd. are said to have an initial attachment probability of 1.06%, an initial exhaustion probability of 1.16% and an initial expected loss of 0.75%.

The notes are being marketed with a suggested coupon of 3%, we’re told.

Update 1:

Swiss Re is aiming to upsize its new Vita Capital VI Limited (Series 2021-1) mortality catastrophe bond transaction, with the target for the issuance now lifted to between $100 million and $125 million of extreme mortality protection, we’re told.

At the same time the pricing has not changed, with sources telling us the now larger offering of notes continue to come with a coupon of 3%.

Update 2:

Swiss Re eventually secured $120 million of excess mortality protection from its latest Vita Capital VI mortality cat bond transaction.

The $120 million of notes sold to investors priced at the marketed coupon level of 3%.

Update – May 2023:

Sources said elevated preliminary mortality data from the UK and US for 2022 suggests a possible attachment of these notes, with an impairment of as much as 50% suggested by the way investors have marked the bonds down.

Update – January 2024:

These Vita Capital VI mortality cat bond notes have continued to be marked down and are currently marked as if facing a near or total loss of principal.

As recently as mid-November, the Vita Capital VI 2021-1 Class B notes were marked for bids of around 40, but in December that fell further to bids of around 20, then again to bids of less than 3 cents on the dollar before the end of 2023.

At that level of price discount and with the full $120 million of principal still outstanding, it is increasingly looking like the investors holding the Vita Capital VI mortality cat bond are facing losses, perhaps a near-total loss of their invested capital with this cat bond.