Vitality Re IX pricing delayed on health insurer fee uncertainty

Pricing for the in-the-market $200 million Vitality Re IX Ltd. (Series 2018-1) health insurance-linked securities (ILS) issuance has been delayed due to uncertainty over the future of health insurer fees, because the U.S. government has been considering the fees as part of government shutdown related budgetary debates.

The so-called anti-shutdown bill, which hit the U.S. government last week as Republicans and Democrats tried to find alignment on measures to prevent the government shutdown, included health related measures, one of which would have seen the Affordable Care Act health insurer fee reinstatement postponed for two years.

The health insurer fee is effectively a tax on the health insurance industry, with annual assessments that began in 2014. The U.S. government had postponed the fee for 2017, but the uncertainty surrounding the shutdown bill means the impact of the fee in 2018 is now uncertain. The fee was forecast to cost the health insurance industry $14.3 billion in 2018 if it is required to be paid.

With the Vitality Re IX ILS transaction slated to provide reinsurance to health insurer Aetna, a company that would be impacted by any change to the health insurer fee or its schedule, the pricing date on the Vitality Re IX notes has been pushed back to this week, sources told Artemis. Pricing had originally been slated for last week.

We’re told that the offering documentation could have had to be amended, if the shutdown bill had been approved, hence pricing had to wait.

However, now the U.S. government is in a period of shutdown and no agreement was reached over the anti-shutdown bill and its health insurance related measures, it is possible that the Vitality Re IX deal will proceed, based on the current understanding of the health insurer fee, or see some documentation amended if it is deemed to be relevant to the reinsurance agreements underlying it.

It’s a good example of politics affecting the insurance and reinsurance linked security issuance market, a very rare occurrence. But when there is uncertainty over legalities that could influence the deal, even if only in a minor way, it is best to slow down the issuance timeline and ensure the documentation accounts for all eventualities.

We understand that the Vitality Re IX health insurance ILS deal is now expected to have its notes priced this week, after it has been decided whether any changes to the documentation are required and any changes required have been made.

Update: We understand that an amendment has been made to the offering documentation, to reflect the fact the health insurer fee could change and to adjust the annual reset process so that it can allow for any future changes to the status of the health insurer fee. Pricing is now expected for these notes on Tuesday 23rd January 2018.

We will update you as this $200 million Vitality Re IX Ltd. (Series 2018-1) transaction comes to market.