Aetna, the health, medical and advantages insurance unit of CVS Health, has now finalised the small print of its sixteenth health and medical profit claim linked insurance-linked securities (ILS) deal, securing the targeted $250 million of reinsurance from the Vitality Re XVI Ltd (Series 2025) issuance and making it the biggest Vitality Re deal yet.
Aetna is a very consistent long-term sponsor of transactions that utilise the catastrophe bond structure to secure efficient health reinsurance capability from capital markets investors.
The insurer returned to the catastrophe bond market earlier this month, with its initial goal being to secure $250 million in health and medical profit reinsurance from this recent Vitality Re XVI issuance.
As we stated, this shall be Aetna’s sixteenth Vitality Re issuance of health and medical profit insurance-linked securities (ILS), having sponsored its first back in December 2010.
On the $250 million goal, we explained that this may very well be Aetna’s biggest Vitality Re deal yet.
Which is now the case, as we’ve learned the notes have now been priced meaning Aetna has secured the targeted coverage and its largest ILS issuance to-date.
Details of each Vitality Re health ILS issuance from Aetna will be present in the extensive Artemis Deal Directory.
With this Vitality Re XVI Ltd. issuance now priced, Aetna has secured a 4 12 months source of reinsurance protection to the tip of 2028, across 4 annual risk periods from January 1st, with each of three tranches of notes to be issued covering a special layer of its reinsurance needs.
As with all of the Vitality Re deals the insurer has sponsored, this Vitalty Re XVI will transfer a few of Aetna’s medical health insurance risks to capital markets investors in securitized form and on a medical profit claim ratio basis, which is effectively an indemnity trigger based on the health and medical advantages insurers’ claims experience.
If this medical profit ratio claims index exceeds a predefined attachment point throughout the risk period, for any of the tranches of notes issued by Vitality Re XVI, it might probably trigger a reinsurance recovery for the sponsor.
That translates to a source of annual aggregate indemnity reinsurance arrangement, but with the trigger based on an index linked to Aetna’s reported medical profit claims ratio for the covered medical health insurance business.
Vitality Re XVI Limited will issue three tranches of health insurance-linked notes that may provide $250 million of collateralized health reinsurance from the capital markets for Aetna, with pricing at attractive levels as two tranches priced below initial guidance, one on the mid-point.
The $160 million of Vitality Re XVI Series 2025 Class A notes include an initial expected lack of 0.01%. They were initially offered to ILS investors with coupon price guidance in a spread from 2% to 2.5%, which fell to an updated 1.75% to 2% as we reported in our first update, and we’re now told these have priced on the low-end of 1.75%.
The $60 million tranche of Vitality Re XVI Series 2025 Class B notes include an initial expected lack of 0.20%. They were first offered to ILS investors with price guidance in a spread from 2.75% to three.25%, but this also fell to 2.25% to 2.75%, and the notes have now priced on the low-end of two.25%, we understand.
The ultimate $30 million Class C tranche of Series 2025 notes Vitality Re XVI will issue include an initial expected lack of 0.96%, so are the riskiest layer of this deal. Initially offered with price guidance in a spread from 3.5% to 4%, this range narrowed to between 3.5% and three.9%, and sources say the ultimate pricing was at 3.75%.
As we explained, these pricing levels are back around where Vitality Re deals were pricing around 2021, so the recent softer catastrophe bond market price conditions are evident again with Aetna’s latest issuance.
As we explained before, the Class C notes feature the very best expected lack of any Vitality Re tranche ever sponsored by Aetna, suggesting the health insurer sees the profit in bringing this efficient reinsurance capital further down its funding tower.
For this reason, with the Class C notes have a variety multiple-at-market of three.9 times the expected loss, this can also be by far the bottom ever seen in a Vitality Re issuance.
Nonetheless, it’s essential to notice that those Class C notes can attach at an MBR of 97%, but over the past decade, for the covered subject business, Aetna’s medical profit ratio has only ever risen as high as 90.8% in 2021 (the height 12 months with COVID pandemic effects), while the MBR for 2024 was only running at 88.1% in as much as the tip of September.
So while this 12 months’s issuance features the riskiest tranche of Vitality Re notes we’ve seen from Aetna, they’re still relatively remote-risk and would only attach for 12 months’s where its health and medical profit insurance claims reached historically high levels.
It’s encouraging to see Aetna bringing a special level of risk to market and for it to be well-received by the cat bond investor base, as this means to the insurer a method to make the capital markets an excellent larger component of its reinsurance and risk capital arrangements.
You possibly can read all about this Vitality Re XVI Ltd (Series 2025) medical health insurance ILS from Aetna in our extensive Artemis Deal Directory.