Posted on 04 Sep 2009
Concerns about the potentially disastrous effects of the H1N1 (aka swine flu) virus have led SCOR Global Life SE, a subsidiary of SCOR SE, to add a new layer of protection to its current four-year mortality swap transaction with the financial services firm J.P. Morgan. Under the new, extended arrangement, SCOR will be entitled to $75 million in the event of a rise in mortality over the course of the period from 1 January 2009 to 31 December 2011 notably due to major pandemics, natural catastrophes or terrorist attacks.
The risk swap is indexed against a weighted combination of US and European population mortality, measured over two consecutive calendar years. According to the structure of the arrangement, a payment will be triggered if, at any time during the period covered, the index exceeds 105 percent. At any index level between the trigger point of 105 percent and the exhaustion point of 110 percent, J.P. Morgan will pay to SCOR a pro-rata amount of the notional swap amount of $75 million, so that for example at an index level of 107.5 percent, 50 percent of the total amount becomes payable, and at an index level of 110 percent the full amount will be paid out. The risk swap is fully collateralized and thus SCOR bears no credit risk exposure.
The previous four-year mortality swap with J.P. Morgan, which was signed on 22 February 2008 provides for receipt of up to $100 million at any index level between the trigger point of 115 percent and the exhaustion point of 125 percent. Both transactions are indexed against a weighted combination of US and European population mortality, measured over two consecutive calendar years.
Jean-Luc Besson, Chief Risk Officer of SCOR Group, comments: “As a leading global life reinsurer with strong stakes in mortality reinsurance protection, we are taking the current threat of the Influenza (H1N1) virus seriously. Although we currently don’t expect that the influenza virus will significantly increase mortality levels, we are convinced that pandemics could constitute material tail events for the insurance industry and may have corresponding financial repercussions on both sides of the balance sheet. With this second transaction with J.P. Morgan, SCOR demonstrates its stringent risk management."