Aetna priced its $150 million health insurance-linked securitization, Vitality Re IV Ltd. (Series 2013-1).
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.
The Standard & Poor’s rated ‘BBB+’, class A notes priced at 275 basis points over three month Treasuries and ‘BB+’, class B notes priced at +375 basis points, according to a Feb. 1, Nomura securitization report.
The arrangement allows Aetna to reduce its required capital and provides $150 million of collateralized excess of loss reinsurance coverage on a portion of Aetna’s group commercial health insurance business.
Aetna will be entitled to begin to receive payments from Vitality Re IV under the reinsurance arrangement if the medical benefit ratio exceeds 102% of class A notes and 96% of class B notes.
Under the reinsurance agreement, Vitality Re IV would receive quarterly installment payments that would be used to pay interest on the bonds and expenses. Every year, principal on the notes would be reduced by the claims paid to Aetna and at maturity; the issuer will repay the remaining principal to the noteholders, explained analysts in the Nomura report.
In 2011, MBR for the covered businesses was 81.4% and since 2005, the highest annual MBR was 88.5% in 2009.
“This reinsurance arrangement improves our capital efficiency and reduces our weighted average cost of capital,” said Aetna’s Treasurer Alfred P. Quirk, Jr, in a press release.