Aurigen Capital Limited has completed its second embedded value life insurance securitization, in a $175m (CAD $210m) deal issued through Valins I Limited. The firm has also redeemed in full its previous deal, the 2011 issued CAD$120m Vecta I Ltd.
Valins I Limited, a Bermuda domiciled special purpose vehicle, has issued and privately placed $175m (CAD $210m) of embedded value life insurance linked notes, in the second life insurance securitization featuring Canadian risk. Part of the proceeds have been used to redeem the Vecta I Ltd. notes, perhaps due to the new transaction providing a more efficient and cheaper source of capital. The remainder of the proceeds are to be used for general corporate purposes.
“This transaction further extends and diversifies Aurigen’s capital structure”, said Alan Ryder, President and CEO of Aurigen Capital Limited. “The transaction demonstrates Aurigen’s leadership, innovation and access to the capital markets. Its creative structure enables ongoing access to capital funding to continue the development of our business.”
The life ILS issuance was sponsored by Aurigen Reinsurance Limited (ARL) and covers a closed block of Canadian life insurance policies reinsured by ARL between 2008 and 2013. ARL enters into a retrocession agreement with Valins I Limited, which then issues and sells the notes to fund it.
The Valins I notes are linked to the future profits of the subject business, which consists of twenty-six life reinsurance treaties underwritten by Aurigen Reinsurance Company, an affiliate, from twelve cedent life insurance companies. So if the subject business does not perform principal repayment can be cut, which effectively means that the notes main risk is linked to the mortality experience of the block of closed life business, although policy lapse risk is also involved.
The transaction benefits Aurigen by allowing it to securitize the mortality and lapse risk associated with the defined block of reinsured life policies as well as being able to monetise the cash flows associated with life insurance and mortality business upfront.
The Valins I Limited notes have a 6-year term and offer the investors a floating rate coupon set at three month CDOR plus 3.65%. The offering structure differs a little to the previous Vecta I deal, by allowing for the issuance to be increased and the notes to be extended, which provides Aurigen with additional flexibility to add future new business to the structure and provides continuous access to capital funding to support its growth.
The Valins I Limited transaction was issued with the help of BNP Paribas who acted as structuring and placement agent, while Oliver Wyman provided independent third-party risk analysis.
The Valins I Limited Notes have been offered as a Private Placement and have not been rated. This likely saved Aurigen on the transaction costs, compared to the Vecta I Ltd. deal which was a 144A issuance and had a rating. That, the tweaks to the structure and the fact that ILS and reinsurance capital is cheaper now than in 2011 when Vecta I was issued, have likely made this Valins I Limited issuance a much more cost-effective and efficient solution for Aurigen.