Aetna, the well being, medical and advantages insurance coverage unit of CVS Well being, is again within the insurance-linked securities (ILS) market and in search of what may develop into its largest issuance within the long-standing Vitality Re sequence, because the agency’s sixteenth transaction launches with a goal for $250 million of reinsurance from a Vitality Re XVI Ltd (Series 2025) deal.
Aetna is among the most constant long-term customers of the disaster bond construction to safe environment friendly reinsurance capability from capital markets traders.
The primary Vitality Re well being ILS, or well being and medical advantages cat bond deal, was sponsored by Aetna again in 2010 and the insurer has returned yearly since, with this Vitality Re XVI Ltd. deal now set to develop into the fifteenth within the sequence.
It’s notable that the Vitality Re well being ILS sequence have by no means seen traders endure any principal losses for any of the prior transactions.
For 2025, Aetna has returned with an preliminary goal to safe what could possibly be the largest well being cat bond within the Vitality Re sequence, we’ve got discovered, with this new issuance in search of $250 million of collateralized reinsurance for the corporate.
Out of the fifteen earlier Vitality Re issuances, 11 since 2024 have been $200 million in measurement, whereas the 4 previous to that had been all $150 million in measurement.
One other notable level on the sixteenth Vitality Re issuance of well being insurance-linked securities (ILS) is that this would be the first to characteristic three tranches of notes, if all are efficiently issued, with every prior deal within the sequence having solely seen two tranches of notes positioned.
It’s additionally notable that the Class C tranche on supply with this Vitality Re XVI well being ILS issuance has the very best preliminary anticipated lack of any prior tranche of notes issued below the sequence, as Aetna appears to convey this cat bond like reinsurance safety again a bit of decrease down its tower in 2025.
For 2025, Aetna has arrange a brand new Cayman Islands particular function issuer named Vitality Re XVI Restricted. The car is focusing on issuance of three tranches of well being insurance-linked notes, which can be designed to supply a focused $250 million of collateralized well being reinsurance from the capital markets for the insurer.
As in each Vitality Re deal, this Vitalty Re XVI will switch a few of Aetna’s medical health insurance dangers to capital markets traders in securitized kind and on a medical profit declare ratio foundation, which is successfully an indemnity set off based mostly on the well being and medical advantages insurers’ claims expertise.
The Vitality Re sequence of well being cat bond like offers afford an environment friendly technique to leverage reinsurance capital inside Aetna’s monetary construction, enhancing its capital effectivity and defending it towards tail medical claims occasions, measured towards any vital improve within the medical profit ratio Aetna studies.
Danger switch isn’t the one profit for Aetna, as there stays a big deal with the capital adequacy and solvency associated advantages that this type of reinsurance capital supplies.
The sale of the three tranches of Collection 2025 notes to traders by Vitality Re XVI Restricted will present funding for use to collateralize reinsurance agreements to the good thing about Aetna.
As with each prior Vitality Re ILS transaction, the Aetna Life Insurance coverage Firm will enter right into a quota share well being reinsurance settlement with Aetna’s Vermont captive Well being Re Inc. The captive, Well being Re, will in flip enter into an extra of loss reinsurance settlement for every of the tranches of notes issued by Vitality Re XVI Ltd., so passing the safety on.
Successfully, these transactions supply a sort of annual mixture indemnity reinsurance association, however with the set off based mostly on an index linked to Aetna’s reported medical profit claims ratio for the lined medical health insurance enterprise.
If this medical profit ratio claims index exceeds a predefined attachment level throughout the danger interval, for any of the tranches of notes issued by Vitality Re XVI, it could set off a reinsurance restoration for the sponsor.
Every of the three tranches of notes to be issued by Vitality Re XVI will present Aetna with a 4 yr supply of reinsurance safety to the tip of 2028, throughout 4 annual danger durations from January 1st, with every tranche masking a unique layer of its reinsurance wants.
A focused $160 million of Vitality Re XVI Collection 2025 Class A notes will shield Aetna towards losses above a medical profit claims ratio of 106% ($1.06bn), giving them an preliminary anticipated lack of 0.01% and masking losses as much as a medical profit claims ratio of 122% ($1.22bn), we perceive from sources.
This Class A tranche of notes can be the most important single tranche within the Vitality Re sequence to this point and are being supplied to ILS traders with coupon worth steering in a spread from 2% to 2.5%, we’re informed.
Subsequent, a $60 million tranche of Vitality Re XVI Collection 2025 Class B notes will cowl Aetna towards losses above a medical profit claims ratio of 100% ($1bn), giving them an preliminary anticipated lack of 0.20% and they’ll cowl losses to a claims ratio of 106% ($1.06bn).
These Class B notes are being supplied to ILS traders with worth steering in a spread from 2.75% to three.25%, we perceive.
The ultimate Class C tranche of Collection 2025 notes being supplied by Vitality Re XVI will cowl Aetna towards losses above a medical profit claims ratio of 97% ($970m), giving them an preliminary anticipated lack of 0.96% and they’ll cowl losses as much as a claims ratio of 100% ($1bn).
These Class C notes are supplied to ILS traders with worth steering in a spread from 3.5% to 4%, sources mentioned.
The preliminary worth steering for every tranche is at lower-levels than the danger curiosity spreads paid for the 2023 and 2024 issuances, with the indicated multiples on the mid-points of steering being again across the ranges paid by Aetna in 2022, Artemis’ information reveals.
The riskier Class C tranche, being at a decrease medical profit ratio (MBR) for his or her set off attaching, characteristic the bottom a number of ever seen in a Vitality Re well being ILS issuance, given they’ve the very best preliminary anticipated loss we’ve seen in any ILS deal from Aetna.
However, whereas these Class C notes would connect at an MBR of 97%, it’s price noting that Aetna’s medical profit ratio during the last decade, for the lined topic enterprise, has solely ever risen as excessive as 90.8% in 2021 (the height yr with COVID pandemic results), whereas the MBR for 2024 was solely operating at 88.1% in 2024 as much as the tip of September, sources mentioned.
For 2025, whereas in search of its largest Vitality well being insurance-linked securities deal in historical past, Aetna is trying to layer reinsurance safety from the capital markets inside its tower, with every tranche sitting on high of the opposite, the Class C’s being the riskiest, adopted by the B’s that might connect after the C’s exhaust, after which equally the extra distant Class A tranche attaching final and sitting highest up.
The Vitality Re XVI Collection 2025 notes will sit alongside three different nonetheless in-force Vitality Re offers, XIII, XIV, and XV, however the brand new Class C tranche would be the lowest attaching within the sequence that will likely be excellent for 2025.
If efficiently issued as the most important ever Vitality Re ILS deal at $250 million, Aetna would have $850 million of disaster bond backed well being reinsurance for 2025, from the three aforementioned offers and given its XII deal matures within the coming days.
It’s encouraging to see Aetna trying to increase the Vitality Re program in 2025, with what could possibly be its largest issuance to-date and the primary to characteristic three tranches of notes.
Lastly, whereas the riskier Class C notes characteristic the very best anticipated loss within the historical past of the Vitality Re sequence, at a 97% MBR attachment they aren’t the riskiest, as beforehand Aetna has sponsored notes with an MBR attachment as low as 94%.
You may learn all about this Vitality Re XVI Ltd (Series 2025) medical health insurance ILS from Aetna in our intensive Artemis Deal Directory.
