Capital markets and third-party investors have shown their approval of the first mortality-linked catastrophe bond of the year, Atlas IX Capital Limited (Series 2013-1) an extreme mortality insurance-linked security sponsored by French reinsurer SCOR, helping it to grow in size and pushing pricing expectations down.
The Atlas IX Capital Ltd. transaction, which sees SCOR Global Life SE looking for retrocessional reinsurance protection against extreme mortality losses, through the sale of two tranches of notes linked to the mortality experience of its portfolio on a two-year aggregate basis over a six-year period.
The transaction launched offering $125m of notes in the two tranches, but we understand has been upsized while marketing by 40% to now offer $175m of mortality linked notes. At the same time the pricing expectation on both tranches has been lowered.
The Class A tranche of notes launched with a preliminary size of $75m and offered investors a coupon in the range of 2.5% to 3.25%. This tranche remains at $75m in size and the price guidance has fallen to the bottom end of that range with expectations that it will close offering a 2.5% return to investors.
The second, Class B, tranche of notes launched with a preliminary size of $50m and offering investors a coupon return in the range of 3.25% to 4%. This tranche has doubled in size to now offer $100m of notes and the price guidance has dropped to below the original range and narrowed to now offer an expected coupon in the range of 3% to 3.25%.
The Class B tranche is riskier, hence the higher pricing, which shows that investors are more prepared to support the higher returning tranche of notes. The Class B notes would be triggered first if the underlying mortality experience hits 102% on the mortality index, should it rise to 104% or higher the Class B notes collateral would be exhausted and the Class A noteholders would begin to be impacted.
We understand that this mortality bond will be priced later this week and is expected to close next week, bringing a welcome source of diversification to the ILS market. For SCOR, the reduced coupon on this deal suggests that the retrocessional cover it will receive from Atlas IX Capital is going to be very cost-effective for the reinsurer.
You can read all about Atlas IX Capital Limited (Series 2013-1) in our recent article on the transaction as well as in our catastrophe bond and ILS Deal Directory. We will update you once the transaction has completed.