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Vitality Re XIV Ltd (Series 2023)

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Vitality Re XIV Ltd (Series 2023) – At a glance:

  • Issuer: Vitality Re XIV Ltd
  • Cedent / sponsor: Aetna
  • Placement / structuring agent/s: GC Securities is sole structuring agent and bookrunner
  • 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 2023

Vitality Re XIV Ltd (Series 2023) – Full details:

Aetna, the health, medical and benefits insurer unit of CVS Health, is back in the insurance-linked securities (ILS) market to sponsor a fourteenth Vitality Re health insurance catastrophe bond issuance, targeting $200m of reinsurance from a Vitality Re XIV Ltd (Series 2023) transaction.

For 2023, we’re told that Aetna has registered a new Cayman Islands special purpose vehicle named Vitality Re XIV Limited and like other recent years the company targets the issuance of two tranches of health insurance-linked notes, designed to provide it a targeted $200 million of collateralized reinsurance from the capital markets.

Vitality Re XIV Limited aims to sell the two tranches of Series 2023 notes to to investors, with the resulting collateral will be used to collateralise reinsurance agreements for Aetna’s benefit.

Like every other Vitality Re ILS transaction we’ve seen, the Aetna Life Insurance Company will enter into a quota share health reinsurance agreement with Vermont captive Health Re Inc., and Health Re will in turn enter into an excess of loss reinsurance agreement for each of the tranches of notes issued by Vitality Re XIV Ltd.

It’s effectively annual aggregate indemnity reinsurance arrangement, but with the trigger based on an index linked to Aetna’s medical benefit claims ratio.

If the claims index exceeds a predefined attachment point, for either of the tranches of notes issued by Vitality Re XIV, it can trigger a reinsurance recovery payment.

Both of the tranches of notes to be issued by Vitality Re XIV will provide Aetna four years of protection to the end of 2026, with each covering a different layer of its reinsurance needs.

A $140 million of Vitality Re XIV Class A notes will protect Aetna for losses above a medical benefit claims ratio of 106%, equivalent to a $1.06 billion loss level, giving them an expected loss of around 0.01%. They will cover losses up to a medical benefit claims ratio of 120%, or $1.2 billion of losses.

The Class A tranche of notes are being offered to ILS investors with coupon price guidance in a range from 2.75% to 3.5%, we’re told.

A $60 million tranche of Vitality Re XIV Class B notes will provide Aetna with protection against losses above a medical benefit claims ratio of 100%, equivalent to a $1 billion loss level, which gives them an expected loss of around 0.20%. These notes cover losses to a claims ratio of 106%, or $1.06 billion, so the Class B notes attach first, so are riskier and would detach at the point the Class A notes began paying claims.

The Class B notes are being offered to ILS investors with price guidance in a range from 4% to 5%, we understand.

The coupons and multiples are far higher than last year’s Vitality Re deal, despite having similar expected loss levels. You can compare the 2022 deal here.

Update 1:

Pricing guidance has risen for each of the two tranches of notes to be issued by Vitality Re XIV.

The Class A notes price guidance has been raised to 3.25% to 3.5%, while the Class B notes pricing has been raised to 4.5% to 5%.

Update 2:

Aetna secured the full $200 million of reinsurance from its new Vitality Re ILS deal in 2023.

We’ve learned that the final pricing for the Class A tranche of notes was at the top-end of guidance, at 3.5%, while for the Class B notes it was at the original guidance mid-point, at 4.5%.

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