Aetna’s latest and eighth medical benefit claims insurance-linked security (ILS) transaction, Vitality Re VIII Ltd. (Series 2017-1), has now been priced at the low end of coupon guidance, once again reflecting investor demand for these very remote health insurance related risks.
Aetna has consistently seen its Vitality Re ILS transactions, where the health insurer leverages a catastrophe bond like structure to secure reinsurance protection against abnormal increases in its medical benefit claims ratio, pricing at very attractive levels.
This Vitality Re VIII deal is no different, with both tranches of the deal seeing enough investor appetite to drive the coupon down to the base-line of price guidance, we understand.
Sources told Artemis that the Vitality Re VIII transaction did not upsize while marketing, remaining a $200 million deal, the same size it launched at almost ten days ago.
The $140 million Class A tranche of notes, which will provide reinsurance protection to Aetna for losses from a medical benefit ratio (MBR) attachment point of 102% up to an MBR exhaustion at 116%, have priced at the bottom end of the marketed 1.75% to 2.25% range, so at 1.75% we hear.
Meanwhile, the $60 million Class B tranche, which covers losses from an MBR of 96% to 102%, have priced at 2%, again the bottom of the initial guidance range (2% to 2.75%).
The very attractive pricing is reflective of two things. One, the very remote nature of these risks, with Class A’s expected loss just 0.01% and Class B’s only 0.19%. But two, the appetite among ILS funds and investors to access more 144A securitised insurance and reinsurance risk.
With the catastrophe bond market failing to meet investor demand, pricing pressure is inevitable and the market should probably expect to see other cat bond or 144A ILS transactions pricing down at this time.
Aetna has clearly been able to take advantage of this, in securing another $200 million Vitality Re deal, which as it has previously explained, enable the health insurer to reduce its required capital, so helping to enhance its overall capital position efficiency.
These Vitality Re transactions aren’t just reinsurance capital, hence the extreme remoteness of the risks involved. One of the promises of the ILS market is a better way for re/insurers to manage their capital requirements and Aetna has clearly found a model that is working for it right now.
The Vitality Re VIII Ltd. (Series 2017-1) transaction is set to complete next week, we understand. You can read about all of Aetna’s health insurance linked ILS transactions in the Artemis Deal Directory.
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