The $200 million Vitality Re IX Ltd. (Series 2018-1) health insurance-linked securities (ILS) transaction from Aetna has now been priced and both tranches of notes have had their coupons fixed at levels below the bottom-end of the initial price guidance ranges.
The Vitality Re series of health insurance ILS transactions are catastrophe bond like arrangements that provide insurer Aetna with a multi-year, fully-collateralized source of reinsurance protection against a deterioration in its medical benefit claims ratio.
This $200 million Vitality Re IX offering is Aetna’s ninth visit to the capital markets to secure reinsurance protection against a worsening in its medical benefit and health insurance claims experience.
The transaction was launched earlier this month, with the two tranches set to provide two layers of reinsurance protection for Aetna.
The transaction from Vitality Re IX Ltd. launched seeking to issue a $140 million tranche of Class A notes and a $60 million tranche of Class B notes and that sizing hasn’t changed, the transaction remains a $200 million deal at pricing, we understand.
That issue was overcome and an amendment was made to the offering documentation, to reflect the fact the health insurer fee could change and to adjust the annual reset process so that it could allow for any future changes to the status of the health insurer fee.
So now the two tranches of notes have been priced and once again this Vitality Re IX deal demonstrates strong investor appetite for ILS and catastrophe bonds.
The $140 million Class A tranche of notes which have an expected loss of less than 0.01% and are the least risky layer of reinsurance protection, launched with coupon price guidance in a range from 1.75% to 2.25%. This tranche of notes have now been priced with a coupon of just 1.6%, so below the starting guidance.
The $60 million Class B tranche, which are riskier and have an expected loss of 0.16%, were launched to investors with a coupon guidance range of 2% to 2.75%, but this tranche has now been priced at 1.75%, so again well below the guidance range mid-point.
These price points are very low even for the Vitality series of deals, which is clearly a reflection of ILS investor demand.
But while this reflects investor demand, it should be noted that given the risk remote nature of these tranches of notes and their diversifying effect within catastrophe heavy ILS fund portfolios, the fact they price down isn’t all that surprising.
These notes have a welcome diversifying effect on ILS investors allocations to reinsurance risks, hence some investors would be very happy to accommodate them at low pricing.
This $200 million Vitality Re IX Ltd. (Series 2018-1) transaction is scheduled for issuance next week. You can read all about this and every other health insurance ILS in the Artemis catastrophe bond and ILS Deal Directory.