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CVS Health owned Aetna secures $200m Vitality Re X collateralized reinsurance


Aetna, the health, medical and benefits insurance arm of CVS Health, has successfully completed its latest and tenth trip to the catastrophe bond and insurance-linked securities (ILS) market for collateralized reinsurance, with its $200 million Vitality Re X Ltd. (Series 2019) deal.

cvs-aetna-reinsuranceAetna tends to return to the ILS market each year with a catastrophe bond structure designed to transfer the risk of rising medical benefit insurance claims to the capital markets, providing the firm with an efficient source of capital and reinsurance.

The transactions allow the health insurer to reduce its required capital and have become a regular and valued part of its capital stack, adding efficiency and at reduced costs compared to traditional reinsurance, which the firm buys plenty of anyway.

The tenth Vitality Re ILS transaction saw Aetna again finding ILS an efficient and cost-effective way to leverage reinsurance capital within its financial structure, as a tool to add capital efficiency.

The deal was issued through Vitality Re X Limited, a recntly formed Cayman Islands special purpose insurer which issued $200 million of health insurance-linked notes in a private offering to investors.

The capital invested to buy the notes was used to collateralize the necessary reinsurance agreements between Aetna and its captive Health Re and the captive and Vitality Re X, to effect the protection involved in this transaction.

As a result, Aetna can reduce its required capital and benefit from $200 million of collateralized excess of loss reinsurance coverage for some of its group commercial health insurance business.

“Today’s transaction marks the successful completion of the tenth reinsurance arrangement under the Vitality Re program,” explained CVS Health Chief Financial Officer Eva Boratto. “The Vitality Re program is an important component of our capital structure that lowers our cost of capital and drives capital efficiency.”

The Vitality Re X transaction priced keenly for Aetna as well, having launched the two tranche deal with price guidance of 1.75% to 2.25% for the $140 million of Class A notes, while the $60 million Class B notes offered a coupon to investors from 2% to 2.75%.

The pricing settled at the bottom of these ranges, with the Class A notes pricing at 1.75% and the Class B notes 2%.

These two tranches in the Vitality Re X issuance are very slightly less risky than the 2018 Vitality Re IX deal, but priced slightly higher in the case of Class A and at the same level for Class B, suggesting a marginally higher risk-adjusted return for investors in this health insurance-linked securities transaction for 2019.

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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