Extreme mortality bond tests investor view on pandemic risk

摘要

An extreme mortality bond, which pays investors if a pandemic, a major terrorist attack or even a war causes more deaths than statisticians expect, is being quietly marketed to global institutional investors. In these times of uncertainty, the trade for insurance firm axa, the details of which are little known, will be a key test of whether investors remain willing to bet that the Ebola outbreak and geopolitical tensions may not result in huge casualties. Historically, there have only been a handful of extreme mortality bonds sold to investors by the largest mortality underwriters. These bonds, also called Mortality Catastrophe Bonds (MCBs), enable insurers to transfer extreme mortality risk to capital markets. In such trades, investors buy notes with principal and interest payments exposed to the risk of an adverse mortality experience of a portfolio of lives. They can help an issuer -typically an insurance or reinsurance company - to offset large life insurance policy payouts if diseases such as Ebola, avian influenza, SARS or AIDS start to cause extreme loss of life.