Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Vitality Re Ltd.

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Vitality Re Ltd. – At a glance:

  • Issuer: Vitality Re 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: 'BBB-'
  • Date of issue: Dec 2010
  • news coverage: Articles discussing Vitality Re Ltd. from

Vitality Re Ltd. – Full details:

Vitality Re Ltd. (a Cayman Islands based SPV) is the first ILS transaction to transfer the risks of medical benefit claims exceeding pre-defined attachment points.

Vitality Re Ltd. is being issued on behalf of a new entrant to the cat bond ILS sponsor arena, Aetna Life Insurance Company.

It aimed for $200m of cover and its term is for three years. The notes issued by Vitality Re will cover the claims payments of Health Re Inc. (Aetna’s reinsurance SPV), and so Aetna, against their medical benefit ratio exceeding a specific attachment point. The ratio is to be calculated on an annual aggregate basis (and will act as a kind of index of claims). Through the transaction Aetna receive a source of indemnity-based annual aggregate excess of loss reinsurance capacity against medical benefit claims above a predetermined threshold. If claims exceed the threshold then the transaction would payout and investors lose some or all of their principal.

Risk modelling for this transaction is being provided by Milliman Inc. who created a simulation based stochastic model for the transaction. Standard & Poor’s who are rating the transaction say that they expect results to differ from the modelled results and so they adjust the probability of attachment using stress indicators before coming up with a rating. S&P cite pandemic as the biggest risk of loss to this transaction.

Collateral is being invested in highly rated assets and the account will be over-collateralized. A tri-party repurchase agreement is then entered into between Vitality Re, Goldman Sachs and the Bank of New York.

Vitality Re attempted to issue two classes of notes. $125m of Class A notes and $75m of Class B notes. The Class A notes have a medical benefit ratio attachment point of $1.3 billion and the Class B notes attach at $1.225 billion. At close Vitalty Re Ltd. only issued a single $150m tranche.

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