Swiss Re Exec: More Embedded Value Life Securitizations Likely

The first securitization of embedded value of life insurance since 2007 shows that "life is coming back to the market," said Alison Martin, Swiss Re's head of Life & Health.

Last month, Swiss Re Capital Markets participated in the placing of C$120 million (US$117 million) in notes issued by Vecta I Ltd., a special purpose vehicle, on behalf of Canadian reinsurer Aurigen Reinsurance Co. It was the first securitization of Canadian life insurance embedded value (Best's News Service, Dec. 30, 2011).

"It offers an alternative source for Canadian life companies to add to their capital management strategies," Martin said. "But I wouldn't limit it to Canada."

More such securitizations are expected from all jurisdictions, Martin said.

"It's a very useful tool to help provide long-term funding for life insurance business," Martin said. "It's a good way of monetizing future profits. We see the potential for more transactions in the future."

The insurance-linked securities market became more challenging for all types of securitizations following the 2008 financial crisis, Martin said.

"It’s really great that another embedded value transaction has been done. It shows there is life coming back into the market," she said.

The transaction is sponsored by Aurigen Reinsurance Co. and covers a portfolio of policies reinsured by Aurigen prior to Dec. 31, 2010.

Toronto-based Aurigen Reinsurance, licensed in 2008, offers life and health reinsurance to the Canadian life and health insurance market. The company plans on expanding into the U.S. market, according to BestLink, which provides online access to A.M. Best's database of insurance information.

Additionally, Aurigen has longer term plans to expand outside of North America, according to BestLink.

Aurigen Reinsurance Ltd., a Bermuda affiliate, accepts retrocession from Aurigen Reinsurance Co.Aurigen Reinsurance Co.'s license as a life insurer is restricted to the reinsurance business.

The securitization includes a single tranche. The notes are expected to mature in 6.25 years and have a coupon rate of 8%. Swiss Re Capital Markets has acted as joint book runner on the transaction.

Principal repayment on the notes is linked to the future profits on 12 life reinsurance treaties, from six separate life insurance companies, written by Aurigen Reinsurance Co.

Vecta I Ltd. was incorporated under the laws of Bermuda on Jan. 25, 2011, for the limited purpose of issuing the notes and entering into the retrocession agreement with Aurigen. The Vecta I notes were sold in a private placement and have not been registered under the Securities Act or any state securities laws.

Swiss Re Group's subsidiaries currently have Best's Financial Strength Ratings of A+ (Superior).

Aurigen Reinsurance currently has a Best's Financial Strength Rating of A- (Excellent).

(By Meg Green, senior associate editor, BestWeek: [email protected])