Standard & Poor’s Ratings Services said that it assigned preliminary ratings to the $100 million principal-at-risk variable-rate mortality catastrophe-indexed series V class D notes and series VI class E notes to be issued by Vita Capital IV Ltd. (see list below).
The notes will provide Swiss Reinsurance Company Ltd. (Swiss Re; A+/Positive/A-1) with a degree of protection against extreme mortality events occurring to specified age and gender distributions in the U.S., Canada, Germany, and the U.K.
Swiss Re has previously securitized mortality risk through the Vita Capital Ltd., Vita Capital II Ltd., Vita Capital III Ltd., and earlier takedowns of the Vita Capital IV Ltd. transaction.
Vita Capital IV was created for the sole purpose of issuing one or more series of notes out of a mortality catastrophe shelf program. Standard & Poor’s has not assigned ratings to the shelf program.
The series V noteholders will be at risk from an increase in age and gender-weighted mortality rates that exceeds a specified percentage of a predefined index (the mortality index value; MIV) in Canada and Germany. The series VI noteholders will be at risk from an increase in age and gender-weighted mortality rates that exceeds a specified percentage of the MIV in Canada, Germany, the U.K. and the U.S. The risk period for both series runs from Jan. 1, 2011, to Dec. 31, 2015.
The MIV will be defined on a rolling two-year period, and the probability of a loss attaching and the magnitude of the loss in principal will depend on the extent to which the MIV for any country and measurement period (that is, two consecutive years) exceeds the attachment point for the notes. Index values corresponding to future measurement periods will be measured against the index value for 2010 for all four covered countries. Adjustments will be applied for changes in mortality over the risk period.
At closing, Swiss Re will enter into a contract with the issuer using standard International Swaps and Derivatives Association (ISDA) wording. Under this contract, Swiss Re will make payments to the issuer in exchange for extreme mortality protection. The issuance proceeds are to be invested in collateral in the form of ‘AAA’ rated notes issued by the International Bank for Reconstruction and Development. The coupon on the notes will be paid from the payments made by Swiss Re under the ISDA contract and from investment earnings on the collateral held in trust.
The ratings reflect:
– Standard & Poor’s qualitative assessments of the potential event risk;
– Our view of the modeled probability of default;
– The diversification of the underlying mortality risk exposure in terms of geographic location, age, and gender; and
– The application of Standard & Poor’s catastrophe bond criteria.
Source : Standard & Poor’s
