Global reinsurance firm Swiss Re’s latest catastrophe bond, the Vita Capital VI Limited (Series 2015-1) extreme mortality transaction, has remained at $100 million in size and the coupon pricing has been fixed at just below the middle of initial guidance.
Swiss Re’s new Vita Capital deal, its first mortality cat bond since 2012 and actually its first catastrophe bond of any kind (that we know of) since mid-2013, launched at the beginning of the month.
Vita Capital VI is set to issue a single tranche of Series 2015-1 notes to investors. At launch the deal was sized at $100 million and according to our sources that figure has not grown, so will still provide Swiss Re with a $100 million source of retrocessional reinsurance protection for certain extreme or excess mortality scenarios.
Investors in the notes will be exposed to extreme mortality events in Australia, the UK and Canada, the locations Swiss Re is seeking the protection for, over a 5 year term from January 2016. The notes can be triggered by an extreme mortality event that raises a mortality index above predefined trigger points. The mortality index will be weighted by age and gender.
The risk assumed is of an increase in age and gender-weighted mortality rates exceeding a specified percentage of a predefined index in the covered areas. Should mortality rates exceed the trigger point the noteholders would be subject to losses.
When the Vita Capital VI 2015 deal launched it was offered to investors with coupon price guidance of 2.75% to 3.25%. We understand that the pricing has now been set at 2.9%, so just below the mid-point of initial price guidance.
With the notes expected loss of 0.99% and the 2.9% coupon, the multiple investors will benefit from is 2.93 times the expected loss. So, while the pricing declined slightly from the middle of guidance, the multiple to be paid to investors is above average for 2015’s cat bond deals.
Standard & Poor’s gave these notes a preliminary rating of ‘BB(sf)’ and explained:
These notes are sponsored by Swiss Reinsurance Co. Ltd. (Swiss Re), which is the risk transfer counterparty.
The noteholders will be exposed to extreme mortality events in Australia, Canada, and the U.K. They will be at risk from an increase in age- and gender-weighted mortality rates that exceeds a specified percentage of a reference mortality index value specific to a given country, and over five calendar years. These mortality indices will be constructed from information obtained from The Australian Bureau of Statistics, Statistics Canada, and the U.K. Office for National Statistics, or their successors.
We have based our preliminary rating on the lower of our ‘bb’ implied risk factor on the mortality risk; our long-term ‘AAA’ issuer credit rating on the International Bank for Reconstruction and Development (IBRD) as the issuer of the assets in the collateral accounts; and the rating on Swiss Re (AA-/Stable/A-1+) as the risk premium payer. Standard & Poor’s will rate the underlying assets in the collateral accounts.
The preliminary rating is subject to our full analysis of the operational, legal, and counterparty risks.
Read more about the transaction in our previous article.
This is the first Vita Capital mortality cat bond since Vita Capital V Ltd. in June 2012. Swiss Re also sponsored Mythen Re Ltd. (Series 2012-2), which featured UK extreme mortality risk in November 2012 as well. In fact this Vita Capital VI mortality cat bond is the first deal Swiss Re has sponsored since Mythen Re Ltd. (Series 2013-1) in July 2013, so it’s encouraging to see the firm back.