Pricing on Aetna’s Vitality Re X health ILS falls to bottom of guidance

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Health insurance giant Aetna will be delighted with the response from ILS investors to its latest and tenth health or medical benefit risk ILS transaction, the $200 million Vitality Re X Ltd. (Series 2019) deal, as pricing falls to the bottom of initial guidance.

Aetna returned to the insurance-linked securities (ILS) market with the tenth in its Vitality Re series of deals, as it continues to find these transactions an efficient and cost-effective way to leverage reinsurance capital within its financial structure, as a tool to add capital efficiency.

The tenth transaction sees newly set up vehicle Vitality Re X Ltd. issuing two tranches of Series 2019 notes which will be sold to ILS investors, with the proceeds set to collateralise the underlying reinsurance agreements between Aetna Life Insurance Company and its Health Re captive, which in turn enters into a retrocession agreement with Vitality Re X.

At launch, the transaction saw a $140 million Class A tranche of notes with an expected loss of less than 0.01%, and a $60 million Class B tranche with an expected loss of 0.17%, both being offered to investors.

We’re told that the deal has not upsized and the tranche sizes remain the same, so promising Aetna a $200 million source of collateralised reinsurance coverage from the capital markets.

But the pricing has moved, we understand, with sources saying it has fallen to the lowest end of the coupon guidance ranges for each tranche of notes.

At launch the Class A notes were offered to investors with a coupon guidance range from 1.75% to 2.25%, while the Class B notes offered a coupon from 2% to 2.75%.

Both have now fallen to the bottom of these ranges, with the Class A notes now offering pricing of 1.75% and the Class B notes 2%.

The pricing remains roughly aligned with previous transactions. This latest Vitality Re deal is a little lower risk than last year’s issuance, but looks set to price slightly higher, so on a risk-return basis it seems there is a slight upwards shift in pricing on these health ILS deals.

You can read all about this $200 million Vitality Re X Ltd. (Series 2019) transaction in our catastrophe bond and ILS Deal Directory. We will update you as the transaction comes to market.

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