AXA makes history with catastrophe mortality securitisation.
In the first such transaction by a primary insurance company, AXA has issued $442m in asset backed securities to cover a catastrophic increase in mortality across its three major markets: France, Japan and the US over a risk period of four years (from 1 January 2006 to 31 December 2009).
Swiss Re arranged the transaction and placed the notes with investment banks IXIS CIB and Lehman Bros. Notes were issued by a Dublin-based sidecar, Osiris Capital.The deal represents the first catastrophe mortality programme which is structured for a primary insurance company. It also represents the first time euro denominated notes have been offered alongside US dollar notes.
The transaction has been segmented into four tranches according to probability of trigger, based on a multi-country index of official mortality figures, with a 60% weighting on French mortality. The base layer of $100m will pay if excess mortality is between 106% and 110% of normal over any two consecutive calendar years within the risk period. Given the size of AXA's life portfolio, only a very large event, such as an influenza pandemic, could put the bonds at risk.
The top tranche will apply in the very remote probability that excess mortality reaches 114%. According to Swiss Re, the transaction attracted considerable investor demand and was largely over-subscribed across the classes. For AXA, which in 2005 issued e200m notes to create quota-share cover for its motor portfolio, the securitisation diversifies its source of cover and optimises its risk management.
The AXA/Swiss Re arrangement comes after The Hartford also announced the purchase of $247.5m in multi-year, collateralised reinsurance from Foundation Re II. The reinsurance deal was composed of two separate coverages.
The first will provide $180m of reinsurance for losses from individual hurricane events along the Gulf and Eastern Coasts of the US. The second coverage will provide $67.5m of annual aggregate reinsurance for losses resulting from certain earthquake, hurricane, tornado and hailstorm events within the continental US.