Aetna targets reduced pricing for new Vitality Re XV health cat bond

Aetna, the health, medical and benefits insurance unit of CVS Health, is now targeting reduced pricing for what will be its fifteenth Vitality Re health insurance catastrophe bond issuance, with spread guidance reduced for the $200m of reinsurance it hopes to receive from the Vitality Re XV Ltd (Series 2024) transaction.

Aetna returned to the insurance-linked securities (ILS) market at the beginning of January, as is typical every year.

Aetna is among the most consistent and regular long-term sponsors of catastrophe bond structures, using them as a way to secure efficient reinsurance capacity from the capital markets, with its first Vitality Re deal sponsored back in 2010.

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

For 2024, Aetna came to market with a target for $200 million of multi-year medical benefit claims ratio linked reinsurance protection from the capital markets.

That target has not changed, we’re told, with the goal still being to secure $200 million of cover with this Vitality Re XV issuance.

But, we are told the spread guidance has been lowered, indicating Aetna hopes to secure this cover with better than initially expected execution on the placement of the securities with investors.

Vitality Re XV Limited is still aiming to issue and sell $200 million of securities across two tranches of Series 2024 health ILS notes to investors, with the resulting funds to be used as collateral for reinsurance agreements that would benefit Aetna.

The notes will provide Aetna a kind of annual aggregate indemnity reinsurance arrangement, but with the trigger based on an index linked to the health insurer’s reported medical benefit claims ratio.

If this claims index exceeds a predefined attachment point during the risk period, for either of the tranches of notes issued by Vitality Re XV, it can trigger a reinsurance recovery for Aetna.

Each of the two tranches of notes to be issued by Vitality Re XV will provide Aetna with a four year source of protection to the end of 2027 and four risk periods, with each tranche covering a different layer of its reinsurance needs.

A $140 million of Vitality Re XV Class A notes have an expected loss of around 0.01% and were at first offered to ILS investors with coupon price guidance in a range from 2.75% to 3.25%.

We now understand these Class A notes are being offered with reduced spread guidance of 2.5% to 2.75%, so could price below the initial guidance.

The $60 million tranche of Vitality Re XV Class B notes have an initial expected loss of around 0.20% and were first offered to ILS investors with price guidance in a range from 3.75% to 4.25%.

Again, we now understand the spread guidance to have been reduced, with a range of 3.5% to 3.75% on offer to investors.

One year ago, Aetna’s Vitality Re XIV Ltd (Series 2023) health ILS issuance featured two tranches of notes with the same expected loss levels, but it was priced at a level near historic highs for the insurers long-standing series of health insurance linked catastrophe bond deals.

The comparable Class A notes for 2023 were priced at 3.5% and the comparable Class B’s at 4.5%, so well above where Aetna is targeting pricing the Vitality Re XV notes for 2024.

But, drop back a year, to the Vitality Re ILS issuance from early 2022 and the Class A notes had the same expected loss but priced at a lower 2%, while the Class B’s were close in expected loss terms at 0.18% but priced at 2.75%.

So, the spread guidance is clearly still higher than 2022 and prior (it was considerably lower again in some previous years), but well-down on last year’s peak which is understandable given cat bond market conditions a year ago.

You can read all about this Vitality Re XV Ltd (Series 2024)  health insurance ILS from Aetna in our extensive Artemis Deal Directory.