Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

S&P affirms ratings on mortality, longevity, life ILS transactions


Standard & Poor’s (S&P), the global credit rating agency, has affirmed the ratings on seven tranches of insurance-linked securities (ILS) from transactions which transferred mortality, longevity and life insurance risks to the capital markets.

The ratings on the mortality catastrophe bond type deals, from Swiss Re’s Vita Capital issues, and the longevity bonds, also from Swiss Re through issuer Kortis Capital have all been affirmed after their annual resets. This sees the transactions scrutinised by the rating agency responsible to assess whether the probability of attachment remains within expected bounds.

The reset allows the rating agency to check whether there have been any qualifying losses suffered to date, any changes to the underlying portfolio of risk or whether there is any difference in expectations for the cat bond due to the shortened time to maturity.

The mortality bonds issued by Vita Capital IV Ltd. and Vita Capital V Ltd. as well as the longevity catastrophe bond type deal, the only one of its kind issued by Kortis Capital Ltd., all had their attachment probabilities reappraised by S&P. In all cases, S&P said that it found that these probabilities of attachment remain commensurate with the current ratings on each tranche of notes.

S&P also reviewed the creditworthiness of the sponsor Swiss Re and the ratings on the collateral that will be used to redeem the principal on these notes, again finding no reason to adjust the notes ratings.

In the case of the life insurance linked securities, which were issued by Avondale Securities S.A. and designed to transfer a block of life insurance risk to the capital markets through securitisation for the Bank of Ireland, S&P reviewed the extent of the support agreement from the bank.

These notes were designed to allow the Bank of Ireland to capitalise on the expected value-in-force of a block of life insurance policies and so are weak-linked to the Bank of Ireland credit ratings. These notes have been on and off a negative watch at a number of credit rating agencies due to the sovereign crisis in Europe and its impact on Ireland and its banks.

The support agreement in the Avondale Securities life ILS deal obligates Bank of Ireland to meet payments due on the notes net of potential tax liabilities and costs from servicing the policies, under certain conditions. As such the rating of Bank of Ireland has a bearing on these notes and so for S&P to affirm the ratings suggests that the sovereign worries have lessened considerably.

A list of the all the affected mortality, longevity and life ILS or catastrophe bonds, along with links to more details from the Artemis Deal Directory on each transaction and the rating of each tranche, can be found below.

Vita Capital IV Ltd.
Series V Class D – BBB- (sf)
Series VI Class E – BB+ (sf)

Vita Capital V Ltd.
Series 2012-1 Class D-1 – BBB- (sf)
Series 2012-1 Class E-1 – BB+ (sf)

Kortis Capital Ltd.
Series VI Class E – BB+ (sf)

Avondale Securities S.A.
Class A-1 – BB+ (sf)
Class A-2 – BB+ (sf)

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