Swiss Re targets $75m Vita Capital VI mortality cat bond


Global reinsurance company Swiss Re is back in the capital markets in search of protection for its life reinsurance business, with a new Vita Capital VI Limited (Series 2021-1) mortality catastrophe bond deal that aims to secure $75 million or more of extreme mortality protection.

swiss-re-building-imageThis will be the eighth extreme mortality catastrophe bond issuance under Swiss Re’s series of Vita Capital deals.

The reinsurance firm first sought mortality retrocessional reinsurance from the capital markets through a Vita Capital arrangement back in 2003.

The last Vita Capital mortality cat bond was issued in 2015, a $100 million deal that provided Swiss Re with retro reinsurance against excess mortality events in Australia, Canada and the UK and that has now matured.

But Swiss Re also added $80 million of extreme mortality protection into one of its Matterhorn Re series of catastrophe bonds last year, demonstrating its appetite to continue tapping the capital markets for mortality retrocession.

According to our sources, this new Vita Capital mortality cat bond is particularly interesting as deaths due to COVID-19 are excluded for calendar year 2021 under the terms of the deal, but we’re told appear to be included and therefore covered for future years while the deal remains in-force.

Vita Capital VI Limited, a Cayman Islands based special purpose vehicle, will issue a single tranche of Class B notes, currently targeting $75 million of protection for Swiss Re.

The notes will be sold to investors and the proceeds used to collateralize a retro reinsurance arrangement between the special purpose issuance vehicle and Swiss Re itself.

The transaction will provide Swiss Re with excess (or extreme) mortality retrocessional reinsurance protection, based on a mortality index trigger.

As a result, the notes could be triggered by an extreme mortality event that raises the mortality index, which will be weighted by age and gender, above a predefined trigger point.

Meaning that the investors in these notes will be at risk of an increase in age and gender-weighted mortality rates, exceeding a specified percentage of the predefined index across the covered areas.

The covered areas are Australia, Canada, the UK and the United States, we’re told, which is an expansion on the last Vita Capital mortality cat bond from Swiss Re, which did not cover excess mortality in the US.

We understand the mortality retro reinsurance protection will run from the beginning of 2021 to the end of 2025, with the notes maturity slated for early 2026, so providing five years of coverage.

The $75 million of Series 2021-1 Class B notes to be issued by Vita Capital VI Ltd. are said to have an initial attachment probability of 1.06%, an initial exhaustion probability of 1.16% and an initial expected loss of 0.75%.

The notes are being marketed with a suggested coupon of 3%, we’re told.

It’s particularly interesting that the notes are said to cover COVID-19 related deaths from 2022 onwards.

With the vaccine program rollouts in the covered countries making rapid headway, the chances of a major excess mortality event from the current pandemic are certainly reducing quickly.

But it will be interesting to see how investors respond to the transaction, as it could provide an example of how the capital markets can be tapped for pandemic reinsurance cover, including against COVID-19 related mortality.

These excess or extreme mortality catastrophe bonds cover rising deaths from a wide range of events, including infectious diseases, pandemics, influenza, terrorism, wars, earthquakes and other risks that could cause a sharp increase in mortality rates in the covered countries.

We’ll update you as this new Vita Capital VI Limited (Series 2021-1) transaction from Swiss Re comes to market and you can read about this and every other catastrophe bond issued in our Artemis Deal Directory.

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