Aetna on-track to make new Vitality Re health ILS its largest yet, at $250m

Aetna, the health, medical and benefits insurance unit of CVS Health, is on-track to secure what will be the largest insurance-linked securities (ILS) issuance in its long-standing Vitality Re series, as the firm’s sixteenth transaction continued to target $250 million of reinsurance from the Vitality Re XVI Ltd (Series 2025) deal.

Aetna is one of the most consistent long-term users of the catastrophe bond structure to secure efficient reinsurance capacity from capital markets investors.

The insurer returned to the catastrophe bond market earlier this month, with an initial target to secure $250 million in health reinsurance from this new Vitality Re XVI issuance.

As we explained, this will be the firm’s sixteenth Vitality Re issuance of health and medical benefit insurance-linked securities (ILS) and at the $250 million target could be its biggest yet.

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

As in every Vitality Re deal, this Vitalty Re XVI will transfer some of Aetna’s health insurance risks to capital markets investors in securitized form and on a medical benefit claim ratio basis, which is effectively an indemnity trigger based on the health and medical benefits insurers’ claims experience.

Vitality Re XVI Limited will issue three tranches of health insurance-linked notes, that are designed to provide the targeted $250 million of collateralized health reinsurance from the capital markets for Aetna.

Each of the three tranches of notes to be issued by Vitality Re XVI will provide Aetna with a four year source of reinsurance protection to the end of 2028, across four annual risk periods from January 1st, with each tranche covering a different layer of its reinsurance needs.

There have been no changes to the sizes of each of the three tranches of notes, we understand, leaving the $250 million target still likely to be the end result, making this Aetna’s largest Vitality Re ILS deal yet.

However, the price guidance for all three tranches has either fallen or narrowed, indicating still abundant investor demand for new investments in the cat bond market.

The $160 million of Vitality Re XVI Series 2025 Class A notes have an initial expected loss of 0.01% and were at first offered to ILS investors with coupon price guidance in a range from 2% to 2.5%, but we’re now told this range has fallen to an updated 1.75% to 2%.

The $60 million tranche of Vitality Re XVI Series 2025 Class B notes have an initial expected loss of 0.20% and were first offered to ILS investors with price guidance in a range from 2.75% to 3.25%, but this has also fallen to 2.25% to 2.75%.

The final $30 million Class C tranche of Series 2025 notes being offered by Vitality Re XVI have an initial expected loss of 0.96% and were first offered with price guidance in a range from 3.5% to 4%, which has now been narrowed to between 3.5% and 3.9%, we understand.

The pricing levels are getting back towards where risk interest spreads settled for Aetna’s Vitality Re deals around 2021, it seems, reflecting the recent tighter prices being seen in new catastrophe bond issues.

You can read all about this Vitality Re XVI Ltd (Series 2025) health insurance ILS from Aetna in our extensive Artemis Deal Directory.