French reinsurer SCOR has successfully completed its latest catastrophe bond issuance, a mortality linked deal issued through Irish limited company Atlas IX Capital Limited The transaction provides SCOR with a multi-year source of fully-collateralized retrocessional reinsurance for extreme mortality events such as pandemics.
This first issuance through Atlas IX Capital does not seem to have been the most straightforward issuance, the deal was launched with two tranches of notes, but one was cancelled and the remaining tranche had increased in size when we last wrote about this deal. However the end result appears to have been successful and SCOR has upsized the remaining tranche again slightly before close.
The single tranche of Series 2013-1 Class B notes issued by Atlas IX Capital Ltd. ended up at $180m in size, meaning that it eventually secured all of the capacity it required but at the riskier, lower trigger tranche level (the tranche that was pulled from the issuance was lower risk, with a higher trigger). Pricing on the notes finished at 3.25%, which is the bottom of the range this tranche launched with.
So SCOR has secured a $180m layer of U.S. extreme mortality cover protecting it against risks such as pandemics, natural catastrophe events and terrorist attacks. The risk period runs from 1st January 2013 to 31st December 2018, a particularly long term. Within that risk period are five overlapping two-year periods during which mortality losses can aggregate towards the trigger point. More on that structural feature can be found in this article.
The transaction involved SCOR Global Life SE, a subsidiary of the reinsurer that incorporates all of its worldwide Life & Health reinsurance operations, entering into a risk transfer contract with Atlas IX Capital. Atlas IX Capital collateralizes that risk transfer contract through the sale of the mortality-linked notes.
The risk transfer contract is based on a U.S. population mortality index that has been weighted by age and gender in order to reflect SCOR Global Life’s portfolio. A payment will be triggered under the risk transfer contract if the mortality index value exceeds the defined attachment point of 102%. The deal features an exhaustion point of 104% on the mortality index and Atlas IX Capital Limited will pay SCOR a pro-rata amount of the notional USD amount depending on what the index level is observed as (from the attachment up to the exhaustion point).
The transaction has not yet settled, SCOR’s announcement from Friday is regarding its entering into the risk transfer agreement with Atlas IX Capital. The final offering of the notes and execution of the risk transfer contract will happen this week (week commencing the 9th September).
Gilles Meyer, Chief Executive Officer of SCOR Global Life, commented; ”The Series 2013-1 note offering of Atlas IX has created tremendous interest, enabling SCOR Global Life to secure substantial protection against its increased pandemic exposure following the strong growth of its portfolio, with the acquisition of Generali U.S. being the latest example. In combination with the innovation of an exceptionally low attachment point, the secured protection represents a very cost efficient risk mitigation tool.”
Denis Kessler, Chairman & Chief Executive Officer of SCOR, said; “Series 2013-1 of Atlas IX represents a first step in the implementation of SCOR’s recently released new three-year strategic plan “Optimal Dynamics”. The secured pandemic protection will in particular address two of the cornerstones of the SCOR group – a controlled risk appetite and a robust capital shield. In addition the transaction underlines the Group’s aim to leverage the increasing convergence between reinsurance and capital markets.”
With this deal SCOR in the end cleared the target amount of protection it wanted from this mortality deal, but all of it was at the lower trigger level, which actually may be a better result for the reinsurer. It has secured a $180m layer of retro reinsurance cover, for a six year period, at a low trigger and for a low premium coupon to investors of just 3.25%.
Also read our article from last week about SCOR’s plans to launch two new Atropos ILS funds and ILS transformer operations.