Kortis Capital (2010)
The first longevity trend bond, placed in 2010, which pays out if British longevity and US mortality diverge beyond a threshold.
A reinsurer that writes both annuities, which cost more when people live longer, and life cover, which costs more when they die sooner, holds a natural hedge: the two risks offset each other as long as mortality moves the same way everywhere. The hedge breaks when populations diverge, for instance if British retirees gain years of life while mortality among working-age Americans stops improving. Kortis carved out that residual risk and sold it to investors through a divergence index computed from both countries' national statistics. The structure solved a problem that plain longevity bonds had not: finding a buyer for a slow-moving trend risk whose horizon exceeds most investors', by selling only the spread rather than the whole exposure.
In December 2010, a life reinsurer placed 50 million dollars of eight-year Kortis Capital notes; principal would be eroded if the gap between mortality improvement among men aged 75 to 85 in England and Wales and among US men aged 55 to 65 exceeded a threshold set at issuance.
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