Aetna secures new $200m Vitality Re XV health cat bond at reduced pricing

Aetna, the health, medical and benefits insurance unit of CVS Health, has now successfully secured the targeted lower pricing for its fifteenth Vitality Re health insurance catastrophe bond issuance, with the $200m of notes on offer from the Vitality Re XV Ltd (Series 2024) transaction now priced at the bottom of reduced guidance.

The $200 million of reinsurance has been secured at much better pricing than the comparable Vitality Re health insurance-linked securities (ILS) deal from a year ago, but it appears the spreads still remain higher than earlier comparable issuances, from 2022 and prior.

Aetna returned to the insurance-linked securities (ILS) market at the beginning of January 2024, as is typical every year.

Aetna has been one of the most consistent and regular sponsors of catastrophe bond structures in the last decade or more, using them as a way to secure efficient reinsurance capacity from the capital markets, with its first Vitality Re deal sponsored back in 2010.

Details of every Vitality Re health ILS issuance from Aetna can be found in the extensive Artemis Deal Directory.

For 2024, Aetna had an initial target to secure $200 million of multi-year medical benefit claims ratio linked reinsurance protection from the capital markets with this Vitality Re XV health ILS deal.

We can now confirm that the targeted reinsurance protection has been secured and at better than initially targeted pricing as well.

Vitality Re XV Limited will now issue and sell $200 million of securities across two tranches of Series 2024 health cat bond notes to investors, with the proceeds to be used as collateral for reinsurance agreements that will benefit Aetna.

As in every Vitality Re ILS transaction, 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 XV Ltd., so passing the protection on to the beneficiary

The $200 million of notes will provide Aetna a kind of annual aggregate indemnity reinsurance arrangement, but with the trigger based on an index linked to the health insurer’s reported medical benefit claims ratio.

If this claims index exceeds a predefined attachment point at any stage during each risk period, for either of the tranches of notes issued by Vitality Re XV, it can trigger a reinsurance recovery for Aetna.

The two tranches of notes that Vitality Re XV will issue will provide Aetna with a four year source of protection to the end of 2027 and four risk periods, with each tranche covering a different layer of its reinsurance needs.

A $140 million of Vitality Re XV Class A notes come with an expected loss of around 0.01% and were at first offered to ILS investors with coupon price guidance in a range from 2.75% to 3.25%. As we reported, that spread guidance was lowered to between 2.5% and 2.75%, and we’re now told that the price has been finalised at the low-end of 2.5%

Meanwhile, the $60 million tranche of Vitality Re XV Class B notes come with an initial expected loss of around 0.20% and were first offered to ILS investors with price guidance in a range from 3.75% to 4.25%, which then dropped to an updated range of 3.5% to 3.75% and we’re now told has been finalised to pay investors a spread of 3.5%, so again the low-end of already reduced guidance.

As we explained in our last article on this deal, the pricing of previous year’s issuances, prior to 2022, were at lower multiples than this new issuance, so while pricing down these notes will still offer a higher multiple-at-market than the 2022 and some of those prior vintage Vitality Re deals.

You can read all about this Vitality Re XV Ltd (Series 2024)  health insurance ILS from Aetna in our extensive Artemis Deal Directory.