Vita Capital (2003)
The first extreme mortality bond, placed by a major life reinsurer in December 2003 to pass the risk of catastrophic excess mortality to investors.
A life reinsurer accumulates the death risk of millions of insureds across several countries, and a severe pandemic would hit all of them in the same year: that accumulation is more than the retrocession market can absorb. Vita Capital moved the risk to the capital markets through a dedicated vehicle whose principal served as collateral. The trigger was a mortality index built on public statistics from five countries, weighted by the reinsurer's exposure, rather than on its own claims. That choice makes the payout fast and verifiable for investors, at the cost of basis risk between the index and the actual book. The deal opened a segment, extreme mortality bonds, which its sponsor and others later renewed under several names.
In December 2003, a life reinsurer placed 400 million dollars of three-year Vita Capital notes, indexed to mortality in the United States (70%), the United Kingdom (15%), France (7.5%), Italy (5%) and Switzerland (2.5%); principal would be eroded above 130% of the 2002 mortality level and fully lost at 150%. The notes were repaid in full at maturity in 2007.
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