Aetna has announced that it has entered into a four-year reinsurance arrangement with Vitality Re IX Limited as part of its long-term capital management strategy. The arrangement allows Aetna to reduce its required capital and provides $200 million of collateralized excess of loss reinsurance coverage on a portion of Aetna’s group commercial health insurance business.1 Vitality Re IX Limited is a newly formed insurance company which issued health insurance-linked notes in a private offering in connection with this transaction.
“Today’s transaction marks the successful completion of our ninth reinsurance arrangement under the Vitality Re program,” said Aetna Treasurer David Buda. “The Vitality Re program remains an integral component of our capital structure by lowering our cost of capital and driving capital efficiency.”
1 Amounts payable under the reinsurance arrangement are based on the annual medical benefit ratio (“MBR”) of a portion of Aetna Life Insurance Company’s group commercial PPO, POS and indemnity business compared to a threshold attachment point specified in the applicable reinsurance arrangement. The principal amount of the Vitality Re IX notes, which are non-recourse to Aetna, and the coverage available under the reinsurance arrangement will be reduced by any payments to Aetna under the reinsurance arrangement. Aetna will be entitled to begin to receive payments from Vitality Re IX under the reinsurance arrangement if the MBR of the covered business for calendar year 2018 reaches an initial attachment point of 94%. The full $200 million of coverage would be paid to Aetna if the MBR of the covered business reaches an initial exhaustion point of 114% for calendar year 2018. The attachment and exhaustion points will be reset annually for 2019, 2020 and 2021 to maintain modeled probabilities of attachment and expected loss on the Vitality Re IX notes equal to the initial modeled probabilities of attachment and expected loss.
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