February 26, 2024

Secondary market prices for the Vita Capital VI Limited (Series 2021-1) death catastrophe bond deal sponsored by global reinsurer Swiss Re have fallen, with the market appearing to anticipate an increased likelihood of losses being paid under the terms of the note.

Swiss re-flag buildingAs we reported in May, the Vita Capital VI mortality catastrophe bond sponsored by Swiss Re in 2021 was seen as a risk to buy by investors after preliminary data showed higher weighted death rates in the US and UK in 2022.

A single $120 million Class B note issued by Vita Capital VI became the first and only dead cat bond issued during the pandemic, explicitly covering the increased number of deaths due to COVID-19, but only from 2022 onwards.

The notes could be triggered to cover certain mortality losses for Swiss Re in Australia, Canada, the UK and the US through the end of 2025 if the age- and sex-weighted mortality index rises above pre-set trigger points.

The release calendar year 2021 excludes deaths from the COVID-19 pandemic, but does include deaths outside of it.

For these mortality cat bonds to face losses, both countries need to experience sufficient excess mortality (as measured by a population-weighted index). Therefore, a country with an excessively high mortality rate cannot raise these considerations alone.

But our sources told us back in May that UK and US reporting agencies have released preliminary estimated mortality data for 2022, and analysis of these data suggests that these dead cat bonds are likely to attach, face impairments, and investors’ investment capital may be eroded.

These notes will erode at a sliding scale as the weighted mortality index is combined into one aggregate, so as it rises, the outstanding principal gradually decreases.

At the time, in May, we explained that the notes were thought to face a possible loss of principal of up to 50%, and some investors analyzing published mortality data dropped their prices to 50 cents.

Now, Plenum Investments, a specialist cat bond investment manager, has commented on the death cat bond, noting that prices have fallen significantly.

Vita Capital VI 2021-1 Class B notes are facing “trading pressure in the secondary market,” Plenum Investments said, adding that while there was no further information on the extent of the bond’s losses, fresh depreciation had occurred.

Plenum Investments called the notes “partially defaulted,” suggesting that even before the latest price drop, the firm believed that some of the principal amount might be lost.

The ILS manager noted that the performance of its Plenum CAT bond fund was affected by the latest drop in Swiss Re’s death catastrophe bond prices, with the devaluation of the notes weighing on its fund’s performance last week.

Plenum said it holds a 0.9 percent stake, or about $1.08 million, in Vita Capital VI Mortality Cat Bonds.

The notes traded at 0.4225 cents last week, compared with a valuation of 0.8 cents the previous week, the investment manager noted.

Dead cat notes appear to be downgraded to 40-50 cents on some broker pricing tables at the moment, suggesting continued decline in investor confidence in Vita Capital VI 2021 dead cats to avoid losses.

Plenum Investments noted that “there is no new mortality information, so information on bond losses is available so far.”

However, an update to the preliminary data may have been released, and investors and ILS fund managers have been assessing potential losses associated with the notes.

Either way, these Vita Capital VI 2021-1 Class B notes now appear to be increasingly seen as potentially facing a loss of principal, which could spur more deals in the coming weeks.

You can read all about the Swiss Re Vita Capital VI Limited (Series 2021-1) deal and all other catastrophe bond issues in our Artemis deals directory.

We have added the Vita Capital VI Dead Cat Bond to Our cat bond catalog defaults, triggers or is deemed to have additional risk.

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