French reinsurer SCOR Global Life is planning to issue a rare mortality bond.
The deal, Atlas IX Capital Ltd., has yet to be sized, according to a presale report published by Standard & Poor's. Investors will receive interest at a spread over three-month Libor unless U.S. mortality rates, as reported by the Centers for Disease Control and Prevention, exceed a certain level. In that case, interest and principal payments revert back to the insurer to pay claims.
S&P has assigned a preliminary 'BB+' rating to the senior class A notes and a preliminary 'BB' rating to the subordinated class B notes. Both tranches have a weighted average life of 5.4 years.
Aon Benfield Securities, BNP Paribas and Natixis are the lead arrangers.
Mortality bonds are an offshoot of catastrophe bonds, which have been used since the 1990s to reinsure property claims resulting from hurricanes and other natural disasters.
What would trigger losses for SCOR’s mortality bond? According to S&P, the biggest risks “are a man-made catastrophe, such as a nuclear, chemical, or biological war/terrorist attack; a natural catastrophe; or a substantial pandemic with very limited vaccine or known treatment.”
But analysts note in the report that pandemic risk is mitigated by advances in disease control and prevention, and advances in health care technology.
“Generally speaking, terrorist attacks and more typical influenza-type pandemics tend not to cause a statistically large number of deaths, despite the increased concern over possible future pandemics which followed the SARS [severe acute respiratory syndrome] outbreaks, the presence of avian flu among the domestic bird population, and the outbreak of swine flu in 2009,” they wrote.
The initial measurement period for U.S. mortality for each class of notes will begin on Jan. 1, 2013 and end on Dec. 31, 2014 and the following four measurement periods will begin and end on the same dates in 2014, 2015, 2016, 2017, and 2018.
The class A notes cover losses from U.S. mortality between the attachment level of 104% and exhaustion level of 107%. The class B notes cover losses between the attachment level of 102% and exhaustion level of 104%.