Standard & Poor’s assigned  ‘BBB+’ and ‘BB+’ ratings to the class A and B notes to be issued by Aetna’s $150 million Vitality Re IV Ltd. (Series 2013-1), a health insurance-linked securitization.

This is the fourth in Aetna’s series of Vitality Re deals and it provides the insurer with additional reinsurance against a rise in medical benefit claims rates. BNP Paribas is lead manager on the deal, according to the S&P presale report.

The class A tranche has a preliminary size of $105 million and the class B tranche has a size of $45 million. The notes are structured with four year average life.

S&P said in the presale that the securitization allows Aetna to reduce the amount of capital it is required to hold and provides the insurer with $150 million of collateralized excess of loss reinsurance coverage on a portion of its group commercial health insurance business.

The notes will cover Aetna’s claims payments relating to the covered insurance business to the extent the medical benefit ratio (MBR) exceeds 102% for the class A notes and 96% for the Class B notes.  The covered business under this transaction is the commercial insured accident and health business that include PPO, point of service, and indemnity lines directly written by Aetna and reported in its annual statutory statements, according to the S&P presale report.  

So far Aetna has been the only insurer to tap the capital markets with a health insurance linked deal. 

Michael Halsband, director at Deutsche Bank's capital markets and treasury solutions group participated on S&P’s Catastrophe Bond Market roundtable this month and said that Aetna’s structuring could be equally applicable to any other number of low volume loss ratio lines of business that require the insurer to hold more capital than is economical.

 “At the end of the day, with capital right now not being as dear as it has been in the past, there's less interest in such structures,” he said. “At some point however, [insurers] will begin to appreciate the capital efficiency inherent in these types of structures very much the same way that cat risk funding has picked up in the capital markets."


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