Aetna, the health, medical and benefits insurance unit of CVS Health, has now secured the targeted $250 million of health care related reinsurance from its new Vitality Re XVII Ltd (Series 2026) catastrophe bond, pricing all three tranches at the top of initial guidance or above.
The company has been a particularly consistent sponsor, bringing Vitality Re health insurance ILS deals in catastrophe bond form to market since 2010, with this now being the seventeenth in the series.
Details of every Vitality Re health ILS issuance from Aetna can be found in the extensive Artemis Deal Directory.
As we reported in an update on the transaction, all three tranches of notes from this Vitality Re XVII offering saw their price guidance raised during its marketing.
That is an indication of the minimum return requirements allocators have for investing into insurance-linked securities, as even with remote-risk tranches of medical benefit claims exposed notes such as these, the price guidance was raised, as investors demanded a higher spread.
Now, we understand all three tranches of notes have been priced at levels above or at the top of their initial guidance, which has now secured Aetna its targeted $250 million of health and medical benefit reinsurance from the capital markets.
We did note at the time we first covered this Vitality Re XVII health ILS deal that its price guidance was lower than previous issuances for Aetna. Now, with pricing having risen, the risk interest spreads Aetna will pay investors are much more aligned with recent issues.
Which might make it seem like this is a transaction unaffected by the recent softening of catastrophe bond and reinsurance pricing, but we feel it has more to do with their being a need for a minimum return on capital and with such low spreads these deals are already at or near the baseline level for what investors want to receive to deploy funding.
With the notes now priced, Vitality Re XVII will issue the three tranches that will fund a $250 million source of multi-year collateralized health reinsurance for Aetna.
The three tranches of notes will provide Aetna with a four year source of reinsurance protection to the end of 2029, across four annual risk periods from January 1st, structured on a medical benefit claims ratio trigger, so a form of indemnity coverage based on its MBR claims experience.
The lowest risk of the three tranches, the Class A notes, remained at $160 million in size. With an expected loss of just 0.01%, these notes were first offered with price guidance in a range from 1.50% to 1.75%, which was then raised to between 1.9% and 2%. We’re now told they have priced to pay a spread of 2%, which is some 23% higher than the mid-point of initial guidance.
The next layer of Class B notes which are slightly riskier remained $60 million in size. These have an expected loss of 0.21% and were first offered with price guidance in a range from 2% to 2.25%, which was then raised to between 2.35% and 2.5%. We’re now told the Class B notes priced to pay a 2.4% risk interest spread, which is around a 13% increase from the initial mid-point.
The final and riskiest Class C tranche of notes remained at $30 million in size. These have an expected loss of 0.98% and were initially offered with price guidance in a range from 3.5% to 4%, which was revised to the top-end at a 4% risk interest spread and that is where these notes have now priced (around a 7% uplift from the mid-point of guidance).
Notably though, these tranches have all priced a little above where Aetna’s 2025 issuance of Vitality Re XVI Ltd (Series 2025) settled, but below the 2024 issuance of Vitality Re XV Ltd (Series 2024) notes.
Again, we feel this is likely more a reflection of investor cost-of-capital and minimum return requirements, although perhaps recent political pressure on health insurers in the US may also play into investors being slightly more conservative when it comes to these deals at this time.
But, as we explained before, CVS forecast a medical benefit ratio of 90.5% across the health care benefits business for 2026. While the riskiest Class C tranche of notes from this Vitality Re XVII issuance would attach their coverage at a medical benefit claims ratio of 98.5%, the other two tranches higher, that projection is still some way higher than the metric has run before.
As we explained in our first article on this issuance, Aetna’s medical benefit ratio over the last decade, for a full-year for the covered subject business, had only ever risen as high as 90.8% in 2021 (the peak year with COVID pandemic effects), while Aetna’s overall MBR for 2025 was only running at 90% up to the end of September.
That shows how remote risk these tranches remain, but for Aetna the capital efficiency benefits of the multi-year collateralized reinsurance makes these a core component of its reinsurance arrangements.
You can read all about this Vitality Re XVII Ltd (Series 2026) health insurance ILS from Aetna in our extensive Artemis Deal Directory.
