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The Actuary The magazine of the Institute & Faculty of Actuaries

Swiss Re obtains %24400 million of mortality risk coverage

Swiss Re has successfully sponsored its first-ever insurance-linked security relating to life insurance risk, and has obtained $400m (£220m) of coverage from institutional investors.As part of the transaction, Swiss Re entered into a financial arrangement with Vita Capital Ltd to provide up to $400m of payments to Swiss Re in certain extreme mortality risk scenarios. In turn, to fund potential payments under this arrangement, Vita Capital issued $400m of principal at-risk variable rate notes.

The structure of the Vita Capital risk coverage is based on a combined mortality index similar to other index-based insurance-linked securities. The mortality index measures annual general population mortality in five select countries by applying predetermined weights to publicly reported mortality data from each country. The principal of the Vita Capital notes will be at risk if, during any single calendar year in the risk coverage period, the combined mortality index exceeds 130% of its baseline 2002 level. The bond matures on 1 January 2007.

Swiss Re Capital Markets Corporation structured the Vita Capital securities and acted as the sole bookrunner in the distribution to institutional investors according to Rule 144A. The Vita Capital securities were rated A+ by Standard & Poor’s and A3 by Moody’s Investor Service. Investors will be paid a quarterly coupon rate of USD three-month Libor plus a spread of 135 basis points for the principal at risk.