Swiss Re launches first longevity trend risk bond

Thu Dec 23, 2010 6:42am EST

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* Says investors prefer index-based securitisations

* Bond issue is $50 million and rated BB+

ZURICH Dec 23 (Reuters) - Swiss Re RUKN.VX, the world's second-biggest reinsurer, has limited its exposure to large divergences in life expectancy among different populations by launching the first longevity trend risk bond.

"We are hedging against the risk that life duration patterns between older, retired British males and younger U.S. males diverge significantly," said Alison McKie, head of life and health risk transformation at Swiss Re.

Swiss Re transferred $50 million of longevity trend risk to investors through an off-balance sheet investment vehicle called Kortis. "The bond is triggered by how the risks diverge, and it is only when they deviate by over 340 basis points that Swiss Re would be able to claim against Kortis," McKie said.

The bond, rated BB+ by Standard & Poor's, will use the index of England and Wales population mortality for the British data, and CDC data to determine the relevant U.S population longevity.

"The securitisation is designed on an index basis because investors prefer it. They can see the index results the same time as we do, and do not have to rely on us for data, which makes the bond more saleable and more tradeable," McKie said.

The bond will pay a quarterly coupon with an effective annualised yield of 4.72 percent until it matures in January 2017 when the index will be examined to determine whether the bond has triggered and if any principle has deteriorated.

While this is the first longevity risk securitisation, Swiss Re has securitised extreme mortality risk since 2003, and has issued about $1.8 billion in securitised bonds to date. (Reporting by Martin de Sa'Pinto; Editing by Dan Lalor)

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