Ratings agency Standard & Poor’s has upgraded or affirmed the ratings on a number of the medial benefit ratio insurance-linked securities (ILS) transactions sponsored by health insurer Aetna after receiving the annual reset results.
S&P received updated modelled reset results from Milliman Inc., who provide risk modelling and calculation services for the transactions. The updated results show that the underlying business that Health Re Inc. ceded to the issuer has seen an improved claims experience and as a result has a lower probability of attachment.
S&P said that it has raised its ratings on Vitality Re II Ltd.’s Series 2011-1 Class B notes to ‘BBB-(sf)’ from ‘BB+(sf)’. At the same time, it has also affirmed the ‘BBB+(sf)’ rating on Vitality Re Ltd.’s 2010-1 Class A notes, Vitality Re II Ltd.’s Series 2011-1 Class A notes, and Vitality Re III Ltd.’s Class A notes, as well as its ‘BB+(sf)’ rating on Vitality Re III Ltd.’s Series 2012-1 Class B notes.
S&P explained that the medical benefit ratio attachment for the 2011-1 Class B notes is 100% and the updated baseline attachment probability is 12 basis points. It also reviewed the various stress tests and said that the upgraded rating reflects the impact of those tests. The ratings on the 2010-1 and 2011-1 Class A notes were subject to a ratings cap of ‘BBB+’.
The Vitality Re deals provide Aetna with cover for health insurance risks linked to medical benefit claims ratios. As such they are unique in the ILS market and both investors, and other potential sponsors who may be watching and contemplating similar deals, will be pleased to see the outlook for these ILS transactions continually improve at each annual reset.