Swiss Re Insurance-Linked Fund Management

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RMS performs risk analysis for Vita Capital IV swine flu cat bond


Risk Management Solutions have released a few more details about their role in the recent Swiss Re mortality transaction Vita Capital IV Ltd. The transaction gives Swiss Re more coverage to allow for any increased mortality which results from H1N1 swine flu.  It’s the first deal of its kind being a mortality transaction which uses a probabilistic catastrophe model. This kind of attention to detail is vital in the risk analysis for any insurance-linked security and especially so when dealing with something so unpredictable as a pandemic. The press release from RMS is below.

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RMS Performs Analysis for Catastrophe Bond Covering H1N1 Flu Pandemic

First Excess Mortality Catastrophe Bond Structured Using Probabilistic Catastrophe Model

London – November 24, 2009 – Risk Management Solutions (RMS) has conducted the expert risk analysis for an innovative new catastrophe bond providing Swiss Reinsurance Company Ltd with $75 million of coverage against higher-than-expected mortality rates in the U.S. and U.K. until the end of 2013. This is the first time an excess mortality securitization has been structured using a probabilistic catastrophe model rather than simply relying on historical data and is unique in covering an existing event ― the H1N1 flu pandemic ― that already poses an insurance risk.

Issued by Vita Capital IV Ltd., a Cayman Island special purpose vehicle (SPV), the securities provide fully collateralized coverage against all excess mortality risk including infectious disease, terrorism, and earthquake. The program was solely structured and placed by Swiss Re Capital Markets Corporation.

Pandemic flu risk was assessed using the RMS® Infectious Disease Model, which was first released in 2007 and is the only model of its type available in the market. A specific model for the ongoing H1N1 pandemic was also incorporated, taking account of possible mutations and antiviral resistance. “Catastrophe risk models allow us to capture extreme events impacting today’s population which are not adequately addressed by historical data,” commented Dr. Maura Sullivan, epidemiologist in the Emerging Risk Solutions division at RMS. “Even though infectious disease scenarios in the model may share the same viral characteristics as past pandemics they are not mirrored by the same medical conditions, as we can look at factors like today’s vaccine development and government response measures, which will dramatically affect mortality rates.” The model scenarios are developed using scientific data and mathematical and empirical models, as well as the experience of epidemiologists, virologists and medical doctors.

“While insurance linked securities had a slow start in 2009, the Vita bond demonstrates that interest in this asset class is alive and accelerating and there’s appetite for new approaches to modeling risk for transactions covering perils like pandemic flu,” said Peter Nakada, managing director of RiskMarkets, RMS’ dedicated insurance-linked securities team. “RMS is leading the way in researching emerging risks, and will continue to facilitate the broadening of the risks that can be securitized in the future.”

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