Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

RMS on their innovative approach to modelling the Vita Capital V mortality bond


Risk modelling firm Risk Management Solutions (RMS) are providing both risk modelling and calculation agent services to the recently completed Vita Capital V Ltd. mortality-linked security transaction which completed this week. The transaction provides sponsor Swiss Re with a $275m source of extreme mortality cover via a catastrophe bond type securitization. RMS have published some details of their innovative approach to modelling mortality risk for this transaction.

RMS conducted the expert risk analysis necessary to get the deal to market (and it upsized significantly in the process) and will act as calculation agent should the deal become at-risk because mortality rates exceed a set percentage on a mortality index.

“We are extremely pleased to continue to be involved in the VITA Series and to support the expansion of excess mortality in the ILS market,” said Dr. Molly Sullivan, Senior Director of Model Development at RMS LifeRisks. “We are committed to providing the most robust risk quantification possible, and this issuance expands geographically to cover Australia and incorporates a country and gender-specific stochastic longevity model to better quantify baseline mortality trend and uncertainty.”

As well as adding a new country to the Vita series, this is the first time Australian mortality risk has been included, RMS say that this was the first mortality bond to use both the RMS longevity risk model with RMS excess mortality risk models, to provide a holistic view of the risk using science-based modeling.

Previous issuances under the Vita Capital series of deals used conventional statistical methods for projecting baseline mortality, said RMS. By utilising the RMS longevity model in the risk analysis for Vita Capital V it has enabled causes of future mortality improvements to be fully explored in the trend risk assessment. The RMS suite of LifeRisks models for excess mortality risk includes pandemic influenza, emerging infectious disease, terrorism, and natural catastrophe. These models simulate highly realistic scenarios in a fully probabilistic framework to assess the risk of a high mortality event in each country.

RMS have provided Swiss Re with a robust modelling framework allowing extreme mortality risks to be well understood and therefore documented, indexed and transferred to the capital markets. It will be interesting to see if any other reinsurers follow Swiss Re’s use of mortality bonds, as with their long track record of issuing these types of deals they are now well proven within the ILS marketplace.

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