Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Vitality Re II Ltd.

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Vitality Re II Ltd. – At a glance:

  • Issuer: Vitality Re II Ltd.
  • Cedent / sponsor: Aetna
  • Placement / structuring agent/s: Goldman Sachs are sole bookrunner
  • Risk modelling / calculation agents etc: Milliman Inc.
  • Risks / perils covered: Medical benefit claims levels
  • Size: $150m
  • Trigger type: Medical benefit ratio index
  • Ratings: S&P: Class A - 'BBB', Class B - 'BB+'
  • Date of issue: Apr 2011
  • news coverage: Articles discussing Vitality Re II Ltd. from

Vitality Re II Ltd. – Full details:

Vitality Re II Ltd. is a Cayman Islands domiciled SPV set up for Health Re Inc. and ultimately Aetna Life Insurance Co. to transfer medical benefit claims risks to capital markets investors.

The deal provides them with a source of indemnity based on an annual aggregate excess of loss reinsurance basis for medical benefit claims which reach above a predefined level.

The notes help to cover claims payments of Health Re should a defined medical benefit ratio (MBR), essentially an index of claims or losses, exceed attachment levels.

Aetna will enter into a quota share reinsurance agreement with Health Re, that allows them to cede $700m of covered premiums to Health Re who will then enter into an excess of loss contract with Vitality Re II for each of two classes of notes being issued.

If the medical benefit ratio for the covered premiums exceeds the specified trigger levels Health Re will be entitled to payments from Vitality Re II. The trigger points are initially set at levels that the ceding insurer has never experienced claims at.

This deal benefits Aetna by reducing their capital requirements and risk of health insurance claims exceeding a predefined point.

Aetna will receive payments should the medical benefit ratio of certain managed care health plans reach 100%. The full $150m payment would be due to Aetna if the medical benefit ratio reached 120% during 2011, the attachment point and exhaustion point will be reset in following years. The medical benefit ratio is worked out based on the percentage of collected premiums spent on actual medical costs.

The deal has a term of 2.75 years with maturity expected in January 2014. The $110m of Class A notes priced at 440bp above Libor while the $40m of Class B notes priced at 625bp above.

Proceeds from the sale of the notes will be invested in two collateral accounts and Vitality Re II will enter into a repurchase agreement with Goldman Sachs.

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