Aetna, the health, medical and benefits insurance unit of CVS Health, has returned to the insurance-linked securities (ILS) market seeking $250 million of health care related reinsurance from a Vitality Re XVII Ltd (Series 2026) deal, which will become its seventeenth deal in the Vitality Re series.
The company has been bringing Vitality Re health insurance ILS deals in catastrophe bond form to market since 2010.
Aetna has been particularly consistent in launching a new Vitality deal every year, as it continues to leverage capital markets backed reinsurance to protect its medical benefits insurance business, staggering maturities and layering the coverage through these Vitality Re health insurance-linked catastrophe bond issues.
It’s worth noting that the Vitality Re health and medical benefit ration linked cat bonds, or ILS, have never resulted in principal losses for investors, with them covering only what might be considered extreme health care related tail risks and playing a role as much as a capital tool as reinsurance for their sponsor.
Details of every Vitality Re health ILS issuance from Aetna can be found in the extensive Artemis Deal Directory.
For 2026, Aetna has returned with an initial target to secure $250 million of collateralized reinsurance for the company, to cover it against increases in its medical benefit claims ratio.
That is already the joint-largest after last year’s also $250 million Vitality Re XVI 2025 deal and for the second year running this new Vitality Re XVII deal features a tranche of notes with the highest expected loss metric of any Vitality tranche seen.
Out of the sixteen previous Vitality Re issuances, the 2025 issuance was $250 million in size, 11 since 2024 have been $200 million in size, while the 4 prior to that were all $150 million in size.
For this 2026 issuance, Aetna has established a new Cayman Islands special purpose issuer named Vitality Re XVII Limited.
Three tranches of health insurance-linked notes are set to be issued, designed to provide a targeted $250 million of collateralized health reinsurance from the capital markets for the sponsor.
Vitalty Re XVII, like every other deal in the series, will transfer some of Aetna’s health insurance risks to capital markets investors in securitized form. The structure utilises a medical benefit claim ratio trigger, which is effectively an indemnity trigger based on the health and medical benefits insurers’ claims experience.
The Vitality Re series are an efficient way to leverage reinsurance capital within Aetna’s financial structure, enhancing its capital efficiency and protecting it against tail medical claims events, measured against any significant increase in the medical benefit ratio Aetna reports.
Risk transfer is not the only benefit, as there remains a significant focus on the capital and solvency related benefits that this form of reinsurance capital provides to Aetna.
The sale of the three tranches of Series 2026 notes to investors by Vitality Re XVII Limited will provide the funding necessary to fully-collateralize reinsurance agreements to the benefit of Aetna.
As is typical of these Vitality Re ILS transactions, the Aetna Life Insurance Company will enter into a quota share health reinsurance agreement with Aetna’s Vermont captive Health Re Inc. The captive, Health Re, will in turn enter into an excess of loss reinsurance agreement for each of the tranches of notes issued by Vitality Re XVII Ltd., so passing the protection on to the sponsor.
The Vitality Re deals provide a kind of annual aggregate indemnity reinsurance arrangement, but with the trigger based on an index linked to Aetna’s reported medical benefit claims ratio for the covered health insurance business.
If this medical benefit ratio claims index exceeds a predefined attachment point during the risk period, for any of the tranches of notes issued by Vitality Re XVII, it can trigger a reinsurance recovery for the sponsor and so a loss to the note holders.
The three tranches of notes to be issued by Vitality Re XVII will provide Aetna with a four year source of reinsurance protection to the end of 2029, across four annual risk periods from January 1st, with each tranche covering a different layer of its reinsurance needs. Each note will sit atop another, so layering the protection within its reinsurance tower.
Vitality Re XVII is offering a currently $160 million tranche of Series 2026 Class A notes that will protect Aetna against losses above a medical benefit claims ratio of 107.5% ($1.075bn), giving them an initial expected loss of 0.01% and covering losses up to a medical benefit claims ratio of 123.5% ($1.235bn), we understand from sources.
This Class A tranche of notes is being offered to ILS investors with spread price guidance in a range from 1.50% to 1.75%, we are told.
Next, a $60 million tranche of Vitality Re XVII Series 2026 Class B notes will protect Aetna against losses above a medical benefit claims ratio of 101.5% ($1.015bn), giving them an initial expected loss of 0.21% and they will cover losses to a claims ratio of 107.5% ($1.075bn).
The Class B notes are being offered to ILS investors with price guidance for a risk interest spread in a range from 2.00% to 2.25%, we understand.
The final Class C tranche of Series 2026 notes being offered by Vitality Re XVII are $30 million in size, to protect Aetna against losses from a medical benefit claims ratio of 98.5% ($985m), giving them an initial expected loss of 0.98% and they will cover losses up to a claims ratio of 101.5% ($1.015bn).
These Class C notes are offered to ILS investors with price guidance in a range from 3.50% to 4.00%, sources said.
It is the Class C notes that have the highest expected loss ever seen in a Vitality Re tranche of notes, slightly higher than last year’s Class C notes at 0.96%.
While the Class C notes feature the highest expected loss in the history of the Vitality Re series, at a 98.5% MBR attachment they are not the riskiest, as previously Aetna has sponsored notes with an MBR attachment point as low as 94%.
The expected losses of each tranche are relatively close to each of the tranches from the 2025 deal, which priced at 1.75%, 2.25% and 3.75%.
As a result, the initial price guidance for the Vitality 2026 health ILS deal is slightly lower, but not meaningfully so. Although it’s worth noting that being remote in risk terms the spreads are always quite low with these Vitality Re deals.
Demonstrating their risk remoteness, it’s worth noting that 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.
It’s good to see Aetna back in the market to continue utilising the capital markets for efficient reinsurance capital, to benefit its solvency and protect itself against extreme health event risk.
You can read all about this Vitality Re XVII Ltd (Series 2026) health insurance ILS from Aetna in our extensive Artemis Deal Directory.
