Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

ALPS Capital II embedded value life ILS gets its upgrade


ALPS Capital II plc, originally issued in December 2005, is an Embedded Value Life-Insurance-Linked Securitization backed by a closed block of life insurance policies. As we wrote in December, the deal had been reassessed for a possible rating upgrade by ratings agency Moody’s. Moody’s now report that it has upgraded the ratings on it’s B, C and D tranches of notes.

ALPS Capital II’s Series A tranche has been paid in full and the Series B notes have paid down around 47% making those tranches pretty much safe according to Moody’s. Moody’s also note that the actuarial experience of the block of life insurance business has been better than expected, generating more cash than was originally projected.

The improvement is primarily driven by favourable mortality experience and ‘a higher than expected persistency in the Subject Business, in each case relative to the original projections’ according to Moody’s. In the latest reported period mortality was only 92% of the expected amount and premiums were $4.5m higher than expected.

It’s possible that the positive outcome for ALPS Capital II could help to interest other issuers in this kind of life insurance-linked security transaction. The deal, which was issued on behalf of Swiss Re, allowed them to securitize future profits from a portfolio of US life insurance policies. It was a balance sheet deal which allowed Swiss Re to realise the cash value of what are intangible assets until they matured. By transferring the block of life insurance to capital markets investors Swiss Re essentially speed up their balance sheet and realised the benefits earlier.

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