Aetna returns with Vitality Re V, its fifth medical benefit ILS transaction

by Artemis on January 8, 2014

The first insurance-linked securities (ILS) or catastrophe bond type transaction to launch in 2014 sees a $200m deal from regular sponsor health insurer Aetna with Vitality Re V Ltd. (Series 2014-1), its latest medical benefit claims ratio linked ILS deal.

This Vitality Re V deal, the first transaction to be added to the Artemis Deal Directory in 2014, will be the fifth Vitality Re ILS transaction sponsored by Aetna. Previously it sponsored Vitality Re Ltd. in December 2010, Vitality Re II Ltd. in April 2011, Vitality Re III Ltd. (Series 2012-1) in January 2012 and Vitality Re IV Ltd. (Series 2013-1) in January 2013.

Aetna has now been the first to launch a new cat bond or ILS deal for three consecutive years, demonstrating its commitment to securing a source of reinsurance protection for some of its health insurance medical benefit risks through issuance of securities and leveraging capacity from capital market investors.

Artemis understands from market sources that Vitality Re V has launched today. As with its previous Vitality ILS deals, Aetna is using its captive Health Re Inc. as the ceding reinsurer for the transaction and the protection ultimately reinsures the health insurance portfolio of its Aetna Life Insurance Company subsidiary.

Two tranches of notes are being issued, with a preliminary total deal size of $200m, sources told Artemis. A Class A tranche of notes with a preliminary size of $140m and a Class B tranche sized at $60m are both being offered to ILS investors.

Through the issuance of Vitality Re V Limited Aetna is seeking a fully-collateralized source of reinsurance protection for its health insurance portfolio. The risk period is said to be for four years, from the beginning of 2014 to the end of 2018.

The reinsurance protection provided by Vitality Re V will cover Aetna against unusual or unexpected rises in its medical benefit claims ratio, providing indemnity protection for claims above a predefined ratio attachment point. The protection provided by Vitality Re V will be on an annual aggregate basis, Artemis understand.

The two tranches of notes provide protection at different medical benefit claims levels, as all the previous Vitality Re ILS transactions did. We hope to be able to bring you more details on the attachment point, exhaustion and pricing of each tranche in the coming days.

Goldman Sachs is said to be bookrunner for the Vitality Re V Ltd. transaction as well as acting as co-structuring agent alongside BNP Paribas. As with the previous Vitality Re transactions Milliman Inc. is providing risk analysis services.

Vitality Re V Ltd. (Series 2014-1) has now been added to the Artemis Deal Directory. We will update you as more detail becomes available and as the transaction moves towards completion over the coming weeks.

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