According to Artemis’ sources, the issuance of a $100 million mortality catastrophe bond, sponsored by Securian Financial Group life insurance subsidiary, Minnesota Life Insurance Company, has now been cancelled after investor feedback related to concerns over COVID-19 pandemic related exposure.
We’re not certain whether this is a complete cancellation of the issuance of the La Vie Re Limited (Series 2021-1) mortality catastrophe bond at this time, or whether it could come back with some tweaks in due course after a period back at the drawing board.
But we’re told investors have responded negatively to the proposed pricing and the inclusion of coverage for increased mortality due to the COVID-19 pandemic and so the issuance has been pulled from the market for the moment.
The second La Vie Re mortality catastrophe bond was launched to investors in November and saw sponsor Minnesota Life seeking at least $100 million of extreme mortality protection from the capital markets, on an indemnity stop loss basis, with the reinsurance coverage triggered based on its loss ratio.
La Vie Re Limited would have sold the notes and then used the proceeds to collateralize an excess-of-loss reinsurance agreement between it and Securian Finacial’s captive reinsurer 1880 Reinsurance, which is based in Vermont.
1880 Reinsurance would then have passed on the protection to ceding company Minnesota Life through the quota share reinsurance arrangements the pair enter into.
Our sources explained that the continuing effects of the COVID-19 pandemic on life insurance books, as well as the recent development of a new variant in Omicron, were both key drivers for this mortality cat bond failing to gain investor acceptance.
We’re told some investors requested a clear COVID-19 exclusion be inserted in the deal terms, but this wasn’t agreed to.
We understand that the mortality ratio being reported by the sponsor of the La Vie Re cat bonds was already looking quite high in recent months, which made investors nervous about supporting this second arrangement.
Securian, the parent to Minnesota Life Insurance, had reported elevated COVID-linked mortality experience through 2020 and we understand this has continued through 2021 as well.
In fact, the mortality loss ratio rose well-above 100% in recent months, actually rising above where the pre-defined trigger point would have been set in one month, we understand.
The annual loss ratio attachment point for both the first and this new La Vie Re mortality cat bond had been set at 110%.
So, to see investor nerves over COVID-19 is not surprising, particularly as we’re told this was especially the case given the Omicron variant has amplified uncertainty about the eventual impact of COVID-19 on books of life insurance business.
We’re also told there is a growing aversion to life insurance-linked securities (ILS) because the impact of COVID-19 to the life insurance portfolios of sponsors of these deals has seemed to be more significant than modelling suggests it should really have been, which is resulting in a dwindling of support for life ILS deals carrying exposure to the COVID-19 coronavirus pandemic.
Omicron may have been the nail in the coffin though, as timing was not on the side of the sponsor of the La Vie Re mortality cat bond this time around.
We’ll update you should we hear any more news about the La Vie Re Limited (Series 2021-1) mortality catastrophe bond being relaunched to investors.