Vitality Re VII Ltd. (Series 2016-1)
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Vitality Re VII Ltd. (Series 2016-1) - At a glance:
- Issuer / SPV: Vitality Re VII Ltd. (Series 2016-1)
- Cedent / Sponsor: Aetna
- Placement / structuring agent/s: Goldman Sachs is sole bookrunner and co-structuring agent. BNP Paribas and Munich Re are co-managers and co-structuring agents
- Risk modelling / calculation agents etc: Milliman Inc.
- Risks / Perils covered: Medical benefit claims levels
- Size: $200m
- Trigger type: Medical benefit ratio (indemnity)
- Ratings: S&P: Class A - 'BBB+(sf)', Class B - 'BB+(sf)'
- Date of issue: Jan 2016
Vitality Re VII Ltd. (Series 2016-1) - Full details
This new transaction, Aetna’s seventh Vitality deal will be issued by a newly established Cayman Islands company Vitality Re VII Ltd., we understand from sources.
As with all the previous Vitality ILS transactions, Aetna will enter into a quota share agreement with its Health Re captive reinsurance company, which will in turn enter into excess of loss reinsurance agreements with the Vitality Re VII vehicle and Vitality Re II will sell two tranches of notes to ILS investors to collateralise those reinsurance agreements.
Vitality Re II will issue two tranches of notes, a $140 million Class A tranche and a $60 million Class B, of course both could grow while the deal is marketed depending on ILS investor demand. The coverage provided is indemnity protection for Aetna’s losses above a pre-defined medical benefit ratio trigger for each tranche and the notes are both structured on an annual aggregate basis.
The transaction will have a four-year term, covering losses suffered from January 2016 to the end of 2019, with the medical benefit ratio calculated on an annual basis to see whether Aetna’s claims have breached the trigger point and whether any payout is deserved.
The $140 million Class A tranche of notes to be issued by Vitality Re II will attach at a medical benefit ratio of 100% up to exhaustion at 114%. As ever the Vitality Re II notes are very remote risk, with an attachment probability of 0.03% and an expected loss of less than 0.01%. These notes are offered with price guidance of 1.5% to 2.15%, we’re told.
The $60 million Class B tranche of Vitality Re II 2016-1 notes are a little riskier, attaching at a medical benefit ratio of 94% and exhausting at 100%, so sitting beneath the Class A tranche of notes. This tranche has an attachment probability equivalent to 0.47% and an expected loss of 0.18%, so again very remote risk. This tranche is being marketed with price guidance of 2% to 2.65%.
For either tranche of notes to face a payout, the medical benefit ratio must breach the trigger attachment points within one of the annual risk periods.
These two tranches have a similar risk profile to the Vitality Re VI Ltd. (Series 2015-1) deal from last year, which paid investors 1.75% for the Class A tranche and 2.1% for the Class B, so the coupon guidance range the 2016-1 notes are being marketed with seems aligned.
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