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Mortality cat bond risk rises. Swiss Re’s Vita marked near total loss, Matterhorn extended

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The threat of loss to investors in mortality catastrophe bonds has increased in recent weeks, with Swiss Re’s Vita Capital VI deal marked down for a near total loss and one of the Matterhorn Re cat bonds sponsored by the reinsurer has seen its maturity extended, as mortality estimates have risen again, Artemis has learned.

swiss-re-building-imageThe Vita Capital mortality catastrophe bond, which was sponsored by Swiss Re back in 2021 and was already seen as under threat, has seemingly coming under even more pressure in recent weeks, with the notes marked down to imply an almost total loss of principal might now be expected by investors.

As we’d reported last year, the secondary market price for the Vita Capital VI Limited (Series 2021-1) mortality catastrophe bond transaction had dropped.

This had originally been after the release of preliminary data showing an increase in weighted mortality rates in 2022 for the US and the UK.

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We’re told the trend continued and the pricing in the secondary cat bond market now reflects a worsening outlook for the Vita Capital VI mortality cat bond notes.

As recently as mid-November, the Vita Capital VI 2021-1 Class B notes were marked for bids of around 40, but in December that fell further to bids of around 20, then again to bids of less than 3 cents on the dollar.

At that level of price discount and with the full $120 million of principal still outstanding, it is increasingly looking like the investors holding the Vita Capital VI mortality cat bond are facing losses, perhaps a near-total loss of their invested capital with this cat bond.

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We understand mortality data has deteriorated further. The fact we’ve now learned that a second mortality cat bond is also facing uncertainty and potential losses, suggests the outlook might have worsened considerably in recent months.

The second mortality cat bond is the $80 million Class A tranche of notes from the Matterhorn Re Ltd. (Series 2020-2) cat bond sponsored by Swiss Re.

The Class A notes cover losses from both northeast U.S. named storms on an industry loss trigger basis and also extreme mortality events in Australia, Canada and the UK, on a mortality index trigger basis.

These Matterhorn Re 2020-2 Class A cat bond notes had been marked down for bids of around 80 cents on the dollar as long ago as September, but we’re now told the pricing declined further, falling to a level inviting bids in the 70’s in October and November.

The price dropped again in December, with the bid for these notes marked down to the 30’s by late December, reflecting the fact a mark-to-market implied 60% to 70% loss of the $80 million of principal could now be expected.

We understand that, where these Matterhorn Re 2020-2 Class A notes are concerned, a rise in mortality trend data has worsened the outlook for the notes.

The Matterhorn Re 2020-2 Class A notes have now had their maturity date extended out to January 2027, we understand, to allow for calculation and ongoing loss development, in relation to the mortality data for the covered areas.

Given the further decline in price for the Vita Capital cat bond and the fact that has dropped to a very low level, it seems likely investors are facing growing losses from these mortality cat bonds and we understand fund managers have been marking their books accordingly.

Both of these mortality cat bonds are included in our directory of cat bonds defaulted, triggered or deemed at-risk of attaching.

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