As we wrote recently, Swiss Re are marketing the sixth issuance in their series of Vita mortality-linked catastrophe bond (or insurance-linked security) deals. The transaction, Vita Capital V Ltd. , which has been marketing for two weeks began as a $100m deal split into two tranches of mortality-linked notes according to the rating documentation and information from our market sources. We’ve now been told that the transaction has increased in size significantly, almost tripling in size during the marketing phase.
In the Series 2012-1 issuance which is being marketed, Vita Capital V Ltd. is seeking to issue two tranches of mortality-linked cat bond notes. The notes will provide Swiss Re with a fully-collateralized source of multi-year extreme mortality protection via risk transfer to the capital markets. The trigger for the deal is a mortality index and the notes investors will be at risk of an increase in age and gender weighted mortality rates that exceed a specified percentage of a predefined mortality index value for the term of the deal.
We’re told by sources that the transaction is now sized at $275m, a significant increase on the $100m it was first marketed at. We understand that the Class D-1 notes are $125m in size and the Class E-1 are $150m in size. The Class D-1 tranche of notes covers excess mortality in Australia and Canada while the Class E-1 notes provide cover in Australia, Canada and the U.S.
As a mortality risk ILS transaction offers a great diversification opportunity to investors and fund managers we always thought that this Vita Capital V deal would be popular. However we didn’t expect to hear that it had upsized quite so significantly. This will have provided a welcome opportunity to acquire some diversification for some ILS funds and for those who focus more on life related ILS it is a rare chance to acquire notes in a new transaction.
The deal will price right at the lower end of the expected range, we’re told, with the Class D-1 notes paying a coupon of 2.7% and the Class E-1 notes paying a coupon of 3.4%. It’s interesting that all of the recent ILS and cat bond deals have priced at the lower end of expectations, or even below, and shows that these risks are being accepted by capital market investors for a competitive price.
Despite growing in size almost by a factor of three, Vita Capital V is not the largest Vita ILS deal that Swiss Re have issued. Some of the earlier Vita Capital deals were much larger. You can read the details of all the other Vita ILS deals in our Deal Directory.