According to a report published by Asian Investor, investment bank Société Générale is planning to launch a new capital markets focused longevity risk transfer product similar to an insurance-linked security or catastrophe bond structure. Société Générale is said to be ready to launch the first deal in July and is already lining up investors to the transaction.
With the new product Société Générale hopes to create a longevity risk equivalent of the cat bond market, where longevity risks are packaged up and sold to syndications of capital market investors, who will take on the risk in return for an interest payment. It is being marketed as having near zero correlation to traditional asset classes and should prove very attractive to the growing ILS and third-party reinsurance capital markets investor space.
According to the article a $262m deal is set to launch in July and investors are being lined up, with at least one Asian investor due to participate in the transaction.
Société Générale’s Jeff Mulholland is reported to be one of the people behind the deal. SG are said to be working hard to make the transactions documentation and structure as transparent as possible in the hopes of creating standards that will encourage more deals to follow and result in active secondary market trading. Société Générale is said to be working with risk modeller RMS on this first transaction.
The deal slated for July is said to Dutch longevity risk and U.S. mortality exposures, which is particularly interesting if the transaction has found a way to combine longevity and mortality from two different pools into the same instrument. That dual hedge approach may help to make it much more accessible to a wider range of investors.
This sounds encouraging and appears, from the limited information available, to be just what the longevity risk transfer market needs. It appears to be an effort to securitize longevity risk, perhaps not that dissimilar to Swiss Re’s Kortis Capital Ltd. transaction or to issue longevity linked notes which would have transferability. Given the current appetite for ILS and securitized, liquid risk instruments, any successful longevity risk deals are likely to be very well received by the market if they can overcome the hurdles of a transparent trigger and reducing basis risk to investors.
We hope to bring you more on this transaction as and when it comes to market.