Swiss Re likely to make ~$151m recovery from mortality cat bonds

According to Artemis’ sources, Swiss Re now looks likely to make just under $151 million in reinsurance recoveries from its mortality catastrophe bonds, with a 100% recovery anticipated for the $120 million Vita Capital VI deal and a recovery already thought made under the Matterhorn Re mortality cat bond notes.

As we reported in January, the threat of loss to investors in these mortality catastrophe bonds had been rising.

At that time, the the secondary market price for the Vita Capital VI Limited (Series 2021-1) had fallen to bids of less than 3 cents on the dollar, so indicating that the market already anticipated a near or total loss of the $120 million of principal.

These Vita Capital VI 2021-1 cat bond notes could be triggered by an increase in a mortality index, weighted by age and gender, if it rises above a predefined trigger point, covering certain mortality losses in Australia, Canada, the UK and the United States for Swiss Re, up to the end of 2025.

In addition, the $80 million Class A tranche of notes from the Matterhorn Re Ltd. (Series 2020-2) cat bond sponsored by Swiss Re that provided similar mortality retro reinsurance protection, had seen their value marked down for bids as low as in the 30’s, suggesting the market was also anticipating a loss of principal to these notes as well.

The Class A notes from this Matterhorn Re cat bond issuance cover losses from both northeast U.S. named storms on an industry loss trigger basis and also extreme mortality events in Australia, Canada and the UK, on a mortality index trigger basis.

Artemis has now learned from sources that there have been event calculation updates in relation to each of these mortality risk exposed catastrophe bonds.

First, the $120 million Vita Capital VI 2021-1 notes, which were already marked down and seen as likely to face a total loss of principal by the market.

We’re now told that the latest calculation report shows the mortality index level as being above the attachment point for Canada, the United Kingdom and the United States.

It’s unclear to us how the calculation gets weighted to the index, but our sources tell us that the conclusion of this is that 100% of the $120 million of principal has been triggered for recovery.

As a result, we understand that the collateral, which was invested in an IBRD puttable note, is now set to be redeemed, which will pay for a retrocessional reinsurance recovery Swiss Re is expected to make from these Vita Capital VI mortality cat bond notes.

With the $80 million Matterhorn Re 2020-2 Class A notes, we are told by sources that a calculation has been undertaken for the Canadian mortality exposure and that this has triggered an expected 38.56% reduction in the notional outstanding, with that reduced to $49.15 million and so it is assumed roughly $30.85 million is set to be recovered.

Which takes the total recovery expectation, for Swiss Re across these two mortality cat bonds, to almost $151 million, we understand.

Given the reduction in notional, it seems the recovery may already have been made for the Matterhorn Re notes, but we aren’t certain of the timeline. We also don’t have visibility of the timeline for the Vita Capital VI recovery, so cannot be certain when that will actually be made.

But, according to sources, these recoveries now seem assured and so Swiss Re will benefit from the reinsurance protection these mortality cat bonds provide, with the capital markets then helping the reinsurer to recoup some of its claims costs for elevated mortality experience in some of the countries covered by the transactions.

It’s also worth noting that the recoveries under the Matterhorn Re mortality cat bond could still rise, with the remaining notional from the notes still on-risk as the maturity date had been extended through to January 2027 to allow for further calculations of risk periods to be made.

Both of these mortality cat bonds are included in our directory of cat bonds defaulted, triggered or deemed at-risk of attaching.