Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Goldman Sachs issues mortality linked CDS under Signum Finance


Goldman Sachs has been involved in an interesting structured finance transaction recently. Through its special purpose vehicle, the Cayman Islands based, Signum Finance Cayman Ltd. Goldman Sachs has issue $200m of Series 2010-09 notes designed to provide it with a mortality hedge for a defined block of life insurance.

This transaction works through use of a CDS (credit default swap) type structure. Signum Finance Cayman Limited was established to issue these $200m notes and uses the proceeds of the sale of the notes to purchase collateral in the form of 15-year unsecured bonds issued by Goldman Sachs. At the same time the SPV enters into a CDS agreement with Goldman Sachs as the swap counterparty. Through this CDS arrangement the SPV will provide mortality protection on a defined block of U.S. level-term life insurance policies. Signum Finance will make payments to Goldman Sachs if the actual mortality experience of the defined block of life insurance exceeds a specified trigger level, while Goldman Sach makes fixed payments to the SPV who passes that on to the investors.

The $200m secured variable-rate notes due 2025 have been rated ‘A+sf’, Outlook Negative by Fitch Ratings. The outlook is negative purely because Goldman Sachs is considered the highest risk factor in the transaction and has itself a negative outlook rating from Fitch.

This deal seems a good structure to achieve the mortality risk transfer for Goldman Sachs. If well accepted by investors we’d expect to see other cedents (such as life reinsurers) attempt to replicate similar structures to hedge their mortality risks.

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