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Innovative Benu Capital deal is largest excess mortality ILS since 2007


Insurer AXA Global Life hailed the completion of its new mortality bond issuance Benu Capital Limited as an innovative transaction providing it with capital markets backed collateralized mortality reinsurance protection, the largest such deal since 2007.

The newly formed Irish special purpose vehicle named Benu Capital issued €285 million of excess mortality notes to institutional investors and insurance-linked securities (ILS) funds. The deal featured two different classes of notes, both with a scheduled maturity in January 2020 providing five years of protection.

The Class A tranche of notes provide €135 million of excess mortality reinsurance protection, while the Class B notes provide €150 million, with each tranche providing AXA Global Life with protection at different risk levels.

The 5-year protections cover the insurer against losses due to extreme mortality event risk in France, Japan, and the United States. The issued notes use an index trigger specific to each covered country, with each country index based on mortality data published by official statistical agencies and weighted by gender and age bands to as closely as possible replicate the risk of the AXA Group’s portfolio.

AXA Global Life hailed the innovative features in this mortality catastrophe bond, particularly the protection trigger level which is structured on a calendar year basis, resulting in both an increased sensitivity to short duration events as well as an acceleration of the counterparty payment process.

The Benu Capital deal also featured a dropdown mechanism on the Class A notes, which increases the sensitivity of the protection to extreme mortality events for the last year of the transaction and therefore improves its efficiency for the sponsor.

“This issuance confirms the Group’s ability to manage proactively and dynamically its risks, in a supportive market environment, using both traditional reinsurance and alternative risk transfer instruments such as Insurance Linked Securities. It also demonstrates AXA Group’s continuous drive to innovate, not only in terms of technical engineering but also by being the sole insurer to have issued such instruments to protect itself against extreme mortality,” commented Jean-Christophe Ménioux, CEO of AXA Global Life.

Swiss Re Capital Markets successfully led the issuance of the Benu Capital deal, which it said is the largest excess mortality issuance into the ILS market since 2007. Swiss Re Capital Markets underwrote the transaction which used a putable note, issued by the European Bank for Reconstruction and Development and underwritten by Swiss Re Capital Markets, as collateral for each Class.

Jean-Louis Monnier, Head of ILS Europe at Swiss Re Capital Markets, stated; “We are pleased to provide continued support to AXA Group’s strategy in accessing capital markets. This transaction is the largest excess mortality issuance since 2007 and breaks new grounds in terms of structure and risk. AXA Global Life and Swiss Re jointly developed an innovative trigger which more flexibly captures mortality events occurring in any one year or across two calendar years. Moreover, the Class B expands the boundaries of the ILS excess mortality market to higher loss probabilities.”

The transaction is the sixth ILS sponsored by an AXA Group subsidiary and the second that the insurance group has sponsored covering excess mortality, since its 2006 $450 million Osiris issuance.

BNP Paribas Corporate and Institutional Banking, who acted as joint bookrunner, said that the Benu Capital transactions successful completion made it the largest ever Sub-Investment grade offering in the history of the mortality bond market.

Explaining some of the unique features of the transaction, BNP Paribas said; “The offering includes for the first time an enhanced mortality index calculation which provides protection against a sharp one year elevation in mortality experience. The Class A notes also feature a unique trigger adjustment in the final calendar year of the risk period which aims to maintain the hedging protection profile provided to AXA Global Life whilst the Class B notes represent the highest ever risk transferred to the capital markets on a mortality bond.”

Rishi Naik, who leads ILS Sales and Trading at BNP Paribas commented; “The success of Benu Capital underscores the strength of investor interest in sub-investment grade life securitizations. Through Benu Capital, AXA Global Life has introduced evolutionary risk transfer technology to the capital markets, setting the benchmark for a new generation of mortality bonds.”

Guillaume Autier, DCM and Insurance Solutions originator at BNP Paribas added; “The success of this transaction demonstrates BNP Paribas’ high level commitment to innovative solutions for insurance companies as well as its global investor reach and placement capacity. Benu Capital is an important breakthrough for the capital markets, and represents a great achievement for AXA Global Life and BNP Paribas’ financial institutions client franchise.”

Risk modeller RMS provided the third-party risk assessment and modelling for the Benu Capital transaction, which involved the us of its LifeRisks Infectious Disease, Probabilistic Terrorism, Earthquake Casualty, Residual Risk, Longevity Risk and Global Tsunami Scenario Models.

RMS said; “RMS guided AXA Global Life through complex data gathering, hedge effectiveness and cost benefit analysis to develop the insurance program and its tuning of the payout mechanism and measurement of hedge effectiveness continues to enable sponsors to issue deals knowing that hedges are quantifiably effective and can be monitored over the risk period of the transaction.

“The Benu index enables investors to take on this risk in isolation without taking on the complex financial risks associated with life insurance portfolios. A large event could trigger the index in a single year, thus reducing the time to settle excess mortality transactions post-event and simplifying capital calculations.”

“We are delighted to have assisted AXA Global Life with this successful placement, and to bring another unique structure to market,” commented Dominic Smith, senior manager, RMS LifeRisks. “The recent Ebola outbreak in West Africa is a reminder of the preparedness of the world for infectious disease epidemics and their potential threat to the life (re)insurance industry. The 2011 Tohoku Earthquake’s death toll of more than 15,000 showed that some natural catastrophe perils can cause significant excess mortality. Being prepared for the impact of a major future pandemic or large scale mortality shock is important in ensuring the future the industry.”

“The Benu transaction shows once again that RMS’s continued innovation of new models covering new perils promotes further innovation within the insurance industry, making the world more resilient against catastrophic events,” Smith added.

Read all about AXA Global Life’s €285m Benu Capital Limited mortality catastrophe bond in the Artemis Deal Directory.

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