Swiss Re’s Vita Capital mortality bond seen at-risk of attaching

According to our sources, the Vita Capital VI Limited (Series 2021-1) mortality catastrophe bond transaction that was sponsored by global reinsurance firm Swiss Re, is viewed as at-risk of attaching after preliminary data showed an increase in weighted mortality rates in 2022 for the US and the UK.

This excess, or extreme, mortality cat bond transaction was sponsored around the mid-point of 2021, becoming the first such 144a insurance-linked securities (ILS) issuance during the COVID pandemic.

It also became the first mortality cat bond issuance to explicitly include coverage for COVID-19 deaths, even though that was only effective from 2022.

$120 million of notes were issued by Vita Capital VI Limited, to provide a source of multi-year mortality retrocessional reinsurance to Swiss Re.

The notes can be triggered by increases in a mortality index, weighted by age and gender, were it to rise above a predefined trigger point, covering certain mortality losses in Australia, Canada, the UK and the United States for Swiss Re, up to the end of 2025.

As we said, mortality from the COVID-19 pandemic was excluded for the calendar year of issuance 2021, but included beyond that.

We must note here that for these mortality cat bond notes to face any losses, two countries need to experience sufficient excess mortality, as measured by the population weighted indices. So a single country experiencing excess mortality cannot trigger these notes alone.

On that basis, we’re now told by our sources, that preliminary estimated mortality data for 2022 has been released by the reporting agencies for the UK and US.

With this data it is possible to analyse and estimate whether there could be any impact to these mortality cat bond notes, and at this stage analysis suggests the potential for these notes to attach, face an impairment and for investors in them to experience an erosion of their invested principal.

These notes would erode on a sliding scale, as the weighted mortality indices are combined into an aggregate, so as it rises reducing the outstanding principal gradually.

We’re told that the notes are currently viewed as potentially facing as much as a 50% loss of principal, being marked down to as low as 50 cents on the dollar by some investors that have performed an analysis on the mortality data that has been released.

The notes were already priced a few points below par, as much of the outstanding cat bond market has been.

However, it’s important to note that the mortality data remains preliminary at this stage, so any analysis and marking of the Vita Capital VI notes is still based on estimations.

Although it does seem the possibility of some erosion of principal can be considered relatively high, while subject to uncertainty.

While 2022 mortality rates were reported to be lower than 2021, by both UK and US agencies, they were higher than long-term averages and COVID-19 related deaths remained one factor increasing this.

But it’s important also to note that there are a wide-range of mortality factors that appear to have shortened life spans, with the US and UK particularly affected by this, as we explained in a recent Swiss Re report on longevity trends.

At the moment we understand that no official triggering of the Vita Capital VI mortality cat bond notes has been reported by the issuer or sponsor. It seems possible this may come in time, as the mortality data gets firmed up and final figures released by reporting agencies.

That could take a while though, so we will update you if we hear anything in future.

You can read all about this Vita Capital VI Limited (Series 2021-1) transaction from Swiss Re and every other catastrophe bond issued in our Artemis Deal Directory.

We’ve added the Vita Capital VI mortality cat bond to our directory of cat bonds defaulted, triggered or deemed at-risk of attaching.