AXA Global Life has selected RMS to conduct risk analysis for a new excess mortality bond sponsored by the insurer and issued through Benu Capital Ltd., using RMS’s LifeRisks Infectious Disease, Probabilistic Terrorism, Earthquake Casualty, Residual Risk, Longevity Risk and Global Tsunami Scenario Models.
The bond, which closed this month, transfers €285 million of the risk of an upward shock in mortality in France, the United States or Japan to the capital markets, according to an RMS source. The deal is the industry’s first to include a single year trigger with roll over of mortality to the following year, and the first to include Japan mortality since the 2011 Tohoku Earthquake’s tsunami caused upward of 15,000 deaths in the country, RMS asserts.
“We are delighted to have assisted AXA Global Life with this successful placement, and to bring another unique structure to market,” comments Dominic Smith, senior manager, RMS LifeRisks. “The recent Ebola outbreak in West Africa is a reminder of the preparedness of the world for infectious disease epidemics and their potential threat to the life (re)insurance industry. The 2011 Tohoku Earthquake’s death toll of more than 15,000 showed that some natural catastrophe perils can cause significant excess mortality. Being prepared for the impact of a major future pandemic or large scale mortality shock is important in ensuring the future the industry.”
Protection Against Losses
RMS reports that it guided AXA Global Life through complex data gathering, hedge effectiveness and cost/benefit analysis to develop the insurance program and its tuning of the payout mechanism and measurement of hedge effectiveness continues to enable sponsors to issue deals knowing that hedges are quantifiably effective and can be monitored over the risk period of the transaction. The bond transfers excess mortality risk from AXA Global Life to the capital markets to protect against losses from catastrophic excess mortality to a life insurance portfolio. The Benu index enables investors to take on this risk in isolation without taking on the complex financial risks associated with life insurance portfolios. A large event could trigger the index in a single year, thus reducing the time to settle excess mortality transactions post-event and simplifying capital calculations.