Method and system for securitizing mortality risk

• US 20060026092A1
• Filed: 07/29/2004
• Published: 02/02/2006
• Est. Priority Date: 07/29/2004
• Status: Active Grant

• Current Assignee: Swiss Reinsurance Company
• Original Assignee: Swiss Reinsurance Company
• Inventors: Klein, Ronald, Lo, Brian
• Granted Patent: US 7,752,063 B2
• Time in Patent Office: Days
• US Class Current: 705/38
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

Methods and apparatus, including computer systems, are provided for securitizing a mortality risk. A premium is received by an issuer from a counterparty, and the issuer provides coverage of a mortality risk to the counterparty. An investment is received by the issuer from an investor, and the issuer provides a risk instrument to the investor. The risk instrument provides a contingent return of the investment to the investor, where if a first condition is satisfied then the entire investment is returned, if a second condition is satisfied then none of the investment is returned, and if neither the first nor the second conditions are satisfied then a portion of the investment is returned. The first and second conditions are related to the mortality risk.

Claims

1. A computer system, comprising:

a means for generating records of a securitizing transaction in which coverage of a mortality risk is provided to a counterparty by an issuer, including recording the receipt of a premium from the counterparty;

a means for generating records of an issuance of a risk instrument from the issuer to an investor, including recording the receipt of an investment by the issuer from the investor where the risk instrument provides a contingent return of the investment to the investor;

a means for determining whether a first condition is satisfied, a second condition is satisfied or if neither the first nor the second conditions are satisfied, where the first and second conditions are related to the mortality risk; and

a means for determining the amount of the contingent return of the investment to the investor and the amount of an event payment to the counterparty according to the determined conditions, where the amount of the contingent return or the event payment can be zero.

2. The system of claim 1, wherein the first condition is satisfied if a mortality index for a covered region for a risk period is equal to or less than a threshold value and the second condition is satisfied if the mortality index is greater than the threshold value.

3. The system of claim 2, wherein the mortality index is a weighted adjustment of a mortality rate for the covered region for the risk period, the weighted adjustment based on a demographic profile of a group covered for the mortality risk by the counterparty.

4. The system of claim 3, wherein the mortality index is calculated according to the following formula:

$\mathrm{Mortality}<br><br>\text{\hspace{1em}<br><br>}<br><br>I<br><br>\mathrm{ndex}=\underset{j}{\sum <br><br>}<br><br>\text{\hspace{1em}<br><br>}<br><br>a_j<br><br>\underset{i}{\sum <br><br>}<br><br>\text{\hspace{1em}<br><br>}<br><br>\left(b^m<br><br>w_i<br><br>q_{i,j}^m+b^f<br><br>w_i<br><br>q_{i,j}^f\right)$

where;

a_j is the weight for country j;

b^m is the gender weighting for males;

b^f is the gender weighting for females;

w_i is the weight for age band i;

q_i,j^m is the observed deaths per 100,000 for males

from country j and age band i; and

q_i,j^f is the observed deaths per 100,000 for females

from country j and age band i.

5. The system of claim 1, wherein the first condition is satisfied if a mortality index for a covered region for a risk period is equal to or less than a first threshold value and the second condition is satisfied if the mortality index is greater than a second threshold value, where the second threshold value is greater than the first threshold value.

6. The system of claim 5, wherein the mortality index is a weighted adjustment of a mortality rate for the covered region for the risk period, the weighted adjustment based on a demographic profile of a group covered for the mortality risk by the counterparty.

7. The system of claim 6, wherein the mortality index is calculated according to the following formula:

$\mathrm{Mortality}<br><br>\text{\hspace{1em}<br><br>}<br><br>I<br><br>\mathrm{ndex}=\underset{j}{\sum <br><br>}<br><br>\text{\hspace{1em}<br><br>}<br><br>a_j<br><br>\underset{i}{\sum <br><br>}<br><br>\text{\hspace{1em}<br><br>}<br><br>\left(b^m<br><br>w_i<br><br>q_{i,j}^m+b^f<br><br>w_i<br><br>q_{i,j}^f\right)$

where;

a_j is the weight for country j;

b^m is the gender weighting for males;

b^f is the gender weighting for females;

w_i is the weight for age band i;

q_i,j^m is the observed deaths per 100,000 for males

from country j and age band i; and

q_i,j^f is the observed deaths per 100,000 for females

from country j and age band i.

8. A method of securitizing a mortality risk, comprising:

receiving a premium from a counterparty;

providing coverage of a mortality risk to the counterparty;

receiving an investment from an investor; and

providing a risk instrument to the investor, the risk instrument providing a contingent return of the investment to the investor, where if a first condition is satisfied then the entire investment is returned, if a second condition is satisfied then none of the investment is returned, and if neither the first nor the second conditions are satisfied then a portion of the investment is returned, and where the first and second conditions are related to the mortality risk.

9. The method of claim 8, further comprising:

generating income from the investment; and

paying an interest return on the risk instrument to the investor using the investment income.

10. The method of claim 8, further comprising:

providing the premium received from the counterparty to the investor.

11. The method of claim 8, wherein the first condition is satisfied if a mortality index for a covered region for a risk period is equal to or less than a threshold value and the second condition is satisfied if the mortality index is greater than the threshold value.

12. The method of claim 11, wherein the mortality index is a weighted adjustment of a mortality rate for the covered region for the risk period, the weighted adjustment based on a demographic profile of a group covered for the mortality risk by the counterparty.

13. The method of claim 12, wherein the mortality index is calculated according to the following formula:

$\mathrm{Mortality}<br><br>\text{\hspace{1em}<br><br>}<br><br>I<br><br>\mathrm{ndex}=\underset{j}{\sum <br><br>}<br><br>\text{\hspace{1em}<br><br>}<br><br>a_j<br><br>\underset{i}{\sum <br><br>}<br><br>\text{\hspace{1em}<br><br>}<br><br>\left(b^m<br><br>w_i<br><br>q_{i,j}^m+b^f<br><br>w_i<br><br>q_{i,j}^f\right)$

where;

a_j is the weight for country j;

b^m is the gender weighting for males;

b^f is the gender weighting for females;

w_i is the weight for age band i;

q_i,j^m the observed deaths per 100,000 for males

from country j and age band i; and

q_i,j^f is the observed deaths per 100,000 for females

from country j and age band i.

14. The method of claim 8, wherein the first condition is satisfied if a mortality index for a covered region for a risk period is equal to or less than a first threshold value and the second condition is satisfied if the mortality index is greater than a second threshold value, where the second threshold value is greater than the first threshold value.

15. The method of claim 14, wherein the mortality index is a weighted adjustment of a mortality rate for the covered region for the risk period, the weighted adjustment based on a demographic profile of a group covered for the mortality risk by the counterparty.

16. The method of claim 15, wherein the mortality index is calculated according to the following formula:

$\mathrm{Mortality}<br><br>\text{\hspace{1em}<br><br>}<br><br>I<br><br>\mathrm{ndex}=\underset{j}{\sum <br><br>}<br><br>\text{\hspace{1em}<br><br>}<br><br>a_j<br><br>\underset{i}{\sum <br><br>}<br><br>\text{\hspace{1em}<br><br>}<br><br>\left(b^m<br><br>w_i<br><br>q_{i,j}^m+b^f<br><br>w_i<br><br>q_{i,j}^f\right)$

where;

a_j is the weight for country j;

b^m is the gender weighting for males;

b^f is the gender weighting for females;

w_i is the weight for age band i;

q_i,j^m is the observed deaths per 100,000 for males

from country j and age band i; and

q_i,j^f is the observed deaths per 100,000 for females

from country j and age band i.

17. The method of claim 8, further comprising:

establishing one or more risk classes, each risk class representing a different mortality risk;

wherein;

providing coverage of a mortality risk to the counterparty comprises providing coverage of a mortality risk represented by a risk class; and

providing a risk instrument to the investor comprises providing a risk instrument to the investor where the return of the investment to the investor is contingent on the realization of the mortality risk represented by the risk class and the first and second conditions are related to the mortality risk presented by the risk class.

18. A method for securitizing a mortality risk, comprising:

receiving a premium from a counterparty;

providing coverage of a mortality risk to the counterparty;

receiving an investment from an investor; and

providing a risk instrument to the investor, the risk instrument providing a contingent return of the investment to the investor, where;

if a mortality index for a covered region for a risk period is less than a first threshold value, then the investor is provided a return of the entire investment;

if the mortality index for the covered region for the risk period is greater than a second threshold value, then the counterparty is provided the entire investment; and

if the mortality index for the covered region for the risk period is greater than the first threshold value and less than the second threshold value, then the investor and the counterparty are each provided a share of the investment.

19. The method of claim 18, further comprising:

generating income from the investment; and

paying an interest return on the risk instrument to the investor using the investment income.

20. The method of claim 18, further comprising:

providing the premium received from the counterparty to the investor.

21. The method of claim 18, wherein the mortality index is a weighted adjustment of a mortality rate for the covered region for the risk period, the weighted adjustment based on a demographic profile of a group covered for the mortality risk by the counterparty.

22. The method of claim 21, wherein the mortality index is calculated according to the following formula:

$\mathrm{Mortality}<br><br>\text{\hspace{1em}<br><br>}<br><br>I<br><br>\mathrm{ndex}=\underset{j}{\sum <br><br>}<br><br>\text{\hspace{1em}<br><br>}<br><br>a_j<br><br>\underset{i}{\sum <br><br>}<br><br>\text{\hspace{1em}<br><br>}<br><br>\left(b^m<br><br>w_i<br><br>q_{i,j}^m+b^f<br><br>w_i<br><br>q_{i,j}^f\right)$

where;

a_j is the weight for country j;

b^m is the gender weighting for males;

b^f is the gender weighting for females;

w_i is the weight for age band i;

q_i,j^m is the observed deaths per 100,000 for males

from country j and age band i; and

q_i,j^f is the observed deaths per 100,000 for females

from country j and age band i.

23. The method of claim 18, further comprising:

establishing one or more risk classes, each risk class representing a different mortality risk;

wherein;

providing coverage of a mortality risk to the counterparty comprises providing coverage of a mortality risk represented by a risk class; and

providing a risk instrument to the investor comprises providing a risk instrument to the investor where the return of the investment to the investor is contingent on the realization of the mortality risk represented by the risk class and the first and second conditions are related to the mortality risk presented by the risk class.

24. The method of claim 23, further comprising:

issuing a first series of risk instruments of a first risk class of the one or more risk classes;

wherein;

providing a risk instrument to the investor comprises providing a risk instrument from the first series of risk instruments.

25. The method of claim 24, wherein issuing the first series of risk instruments includes issuing the first series of risk instruments on a first issue date, the method further comprising:

issuing a second series of risk instruments of the first risk class on a second issue date, the second issue date being after the first issue date.

26. A system for securitizing a mortality risk, comprising:

a reinsurance contract providing coverage for a mortality risk from an issuer to a counterparty in exchange for payment of a premium from the counterparty to the issuer; and

one or more risk instruments issued from the issuer to one or more investors in exchange for receipt of an investment from an investor, the risk instrument providing a contingent return of the investment to the investor, where if a first condition is satisfied then the entire investment is returned, if a second condition is satisfied then none of the investment is returned, and if neither the first nor the second conditions are satisfied then a portion of the investment is returned, and where the first and second conditions are related to the mortality risk.

27. The system of claim 26, further comprising:

a trust account for investing the investment, where income is generated from the investment; and

wherein the risk instrument further provides an interest return to the investor using the investment income.

28. The system of claim 26, wherein the first condition is satisfied if a mortality index for a covered region for a risk period is equal to or less than a first threshold value and the second condition is satisfied if the mortality index is greater than a second threshold value, where the second threshold value is greater than the first threshold value.

29. The system of claim 28, wherein the mortality index is a weighted adjustment of a mortality rate for the covered region for the risk period, the weighted adjustment based on a demographic profile of a group covered for the mortality risk by the counterparty.

30. The system of claim 29, wherein the mortality index is calculated according to the following formula:

$\mathrm{Mortality}<br><br>\text{\hspace{1em}<br><br>}<br><br>I<br><br>\mathrm{ndex}=\underset{j}{\sum <br><br>}<br><br>\text{\hspace{1em}<br><br>}<br><br>a_j<br><br>\underset{i}{\sum <br><br>}<br><br>\text{\hspace{1em}<br><br>}<br><br>\left(b^m<br><br>w_i<br><br>q_{i,j}^m+b^f<br><br>w_i<br><br>q_{i,j}^f\right)$

where;

a_j is the weight for country j;

b^m is the gender weighting for males;

b^f is the gender weighting for females;

w_i is the weight for age band i;

q_i,j^m is the observed deaths per 100,000 for males

from country j and age band i; and

q_i,j^f is the observed deaths per 100,000 for females

from country j and age band i.

31. A method of securitizing a mortality risk, comprising:

establishing one or more risk classes, each risk class representing a mortality risk and each risk class being issuable as risk instruments providing a return on an investment, the amount of the return for a risk instrument being contingent upon the occurrence of a trigger event for the corresponding represented mortality risk; and

issuing one or more risk instruments of a first risk class of the one or more risk classes.

32. The method of claim 31, wherein a trigger event occurs if a mortality index for a covered region for a risk period exceeds a first threshold value.

33. The method of claim 32, wherein:

an exhaustion event occurs if the mortality index for the covered region for the risk period exceeds a second threshold value; and

the amount of the return for the risk instrument is a portion of the investment if a trigger event occurs and an exhaustion event does not occur and the amount of the return for the risk instrument is zero if an exhaustion event occurs.

34. The method of claim 33, wherein the mortality index is a weighted adjustment of a mortality rate for the covered region for the risk period, the weighted adjustment based on a demographic profile of a group covered for the mortality risk by the counterparty.

35. The method of claim 34, wherein the mortality index is calculated according to the following formula:

$\mathrm{Mortality}<br><br>\text{\hspace{1em}<br><br>}<br><br>I<br><br>\mathrm{ndex}=\underset{j}{\sum <br><br>}<br><br>\text{\hspace{1em}<br><br>}<br><br>a_j<br><br>\underset{i}{\sum <br><br>}<br><br>\text{\hspace{1em}<br><br>}<br><br>\left(b^m<br><br>w_i<br><br>q_{i,j}^m+b^f<br><br>w_i<br><br>q_{i,j}^f\right)$

where;

a_j is the weight for country j;

b^m is the gender weighting for males;

b^f is the gender weighting for females;

w_i is the weight for age band i;

q_i,j^m is the observed deaths per 100,000 for males

from country j and age band i; and

q_i,j^f is the observed deaths per 100,000 for females

from country j and age band i.

36. The method of claim 31, further comprising:

issuing a first series of risk instruments of a first risk class of the one or more risk classes.

37. The method of claim 36, wherein issuing the first series of risk instruments includes issuing the first series of risk instruments on a first issue date, the method further comprising:

issuing a second series of risk instruments of the first risk class on a second issue date, the second issue date being after the first issue date.