Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

S&P affirms ratings of Vitality Re IV, V & VI health ILS deals


Ratings agency Standard & Poor’s has affirmed the ratings of all tranches from three medial benefit ratio or health insurance linked ILS deals sponsored by Aetna. The ratings have been affirmed as S&P said that its rating criteria had previously been misapplied for these deals.

The Vitality Re transactions provide insurer Aetna with a multi-year source of collateralised reinsurance capacity, which would pay out based on sudden or major increases in its medical benefit claims ratio.

As such the reinsurance protection these deals offer to Aetna are typically exposed to pandemics such as severe flu outbreaks and the like, rather than general increases in the rates of claims paid by the insurer, through a catastrophe bond like structure and trigger.

S&P has affirmed the ratings on all tranches of ILS notes issued by Vitality Re IV Ltd., Vitality Re V Ltd., and Vitality Re VI Ltd., adding that the ratings are based on the lowest of the medical benefit ratio (MBR) risk factor on the ceded risk (‘bbb+’ for each Class A tranche and ‘bb+’ for each Class B tranche); the rating on Aetna Life Insurance Co., the underlying ceding insurer; and the rating on the collateral investments.

For the medical benefit ratio risk factor, S&P used the most recent annual reset data for Vitality Re IV and V, while for Vitality Re VI the first reset report is not due until September 2016, which ensures that the latest data and information on the ratio of claims is taken into consideration.

However, the reason for the affirmation is due to an oversight, as S&P explains; “We had misapplied the Rating Natural Peril Catastrophe Bonds: Methodologies And Assumptions (published Dec. 18, 2013, on RatingsDirect) criteria by not also applying the Principles Of Credit Ratings (published Feb. 16, 2011) criteria.”

So therefore S&P wanted to ensure its original rating for these notes was accurate and run the rating process again. No change has been required and the ratings were all affirmed as is.

S&P continued; “For these affirmations we are applying the Principles Of Credit Ratings criteria in conjunction with the criteria articles listed below. We assessed the factors listed in the preceding paragraph, and the application of this additional criteria did not result in any ratings changes.”

You can read all about the Vitality Re IV Ltd., Vitality Re V Ltd., and Vitality Re VI Ltd., health insurance-linked ILS transactions in the Artemis Deal Directory.

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