Reinsurance Group of America (RGA) subsidiary Chesterfield Financial Holdings has closed a $300-million transaction backed by a closed block of life insurance policies, RGA said in a press release.
Standard & Poor’s rated the single-tranche deal A- (sf).’ It has a 4.7-year average life. Credit Agricole Securities was the transaction’s lead structure and sole book runner.
The polices were assumed by RGA Reinsurance Company, a unit of RGA, between 2006 and 2010. In its pre-sale, S&P said it considers the linked collateral well diversified, with a volume of 2.65 million policies representing an amount at risk of $266.2 billion, according to a pre-sale.
“The transaction highlights and monetizes a portion of the embedded value that exists within our broad portfolio of mortality risk,” said RGA Chief Financial Officer Jack Lay.
Proceeds from the offering are earmarked for “general corporate purposes,” the company said.
RGA established Chesterfield entirely for the purpose of issuing the notes.
Insurance-linked notes generally pay investors a fixed interest rate. The issuer paying the noteholders receives funds from premiums that are paid by the underlying policy holders. In the RGA case, the risk for the noteholders would be a spike in the mortality rate of the policyholders — the resulting payouts to the policyholders’ beneficiaries could dry up the flows to the issuer and push the notes towards default.
The transaction has some features that mitigate an increase in the mortality rate, such as RGA’s liquidity support should the rate rise by an additional 1.32 deaths per thousand. The U.S. mortality rate is currently around 8.15 deaths per thousand.