AXA Cessions, the reinsurance entity of financial protection and wealth management group AXA Group, completed a $442 million securitization of catastrophic mortality risk last week.

The 144A transaction, which closed on Nov. 9, is innovative in several ways. AXA is using a catastrophe bond structure to transfer extreme mortality risk from three countries - France, Japan and the U.S. - over a period of four years. Osiris is the first catastrophic mortality program structured for a primary insurance company. Also, the deal will sell notes denominated in euros and U.S. dollars, and is based on a multi-country mortality index. Mortality in France accounts for 60% of the risk in the deal, according to Swiss Re, a global reinsurance company that arranged the transaction. Ixis CIB and Lehman Brothers also participated on the deal, although their exact roles were unclear.

Premium payments on insurance policies reinsured by AXA Cessions, a non-rated, wholly owned subsidiary of AXA, will secure the notes issued from the Osiris Capital trust. AXA's shelf program is authorized to issue up to 1 billion ($1.2 billion) in notes.

Once Osiris issues the notes, it will hold the proceeds in a separate collateral trust account and invests in assets with long-term ratings of Aa2' and short-term ratings of P-1', according to Moody's Investors Service. To hedge investment risk, the issuer will enter into a total return swap agreement with a qualified counterparty, which will bear the risk of losses on the investments. In this issuance, Swiss Re Financial Products will act as the swap counterparty. To further protect note holders, AXA Cessions will hold an amount equal to one calendar quarter of premiums in a bank account. The deal also carries a wrap from CIFG Europe.

The first most senior tranches, denominated in Euros and rated AAA' by Moody's, priced 20 basis points over the three-month Euribor. The lowest-rated portion of the deal, meanwhile, got a BB+' rating and came in at 500 basis points over the three-month Libor.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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