In January 2011, Aetna announced the first health insurance linked securities deal, transferring medical benefits risks to capital market investors.
Aetna entered into a quota share reinsurance agreement with its domestic captive, Health Re, which simultaneously entered into a 100% excess-of-loss reinsurance agreement with Vitality Re, a Cayman Islands special purpose entitiy. Vitality Re then sold $150 million of BBB-rated notes to Goldman Sachs, which were sold to qualified investors.
The attachment point triggering the reinsurance is a medical loss ratio of 104%. By comparison, Aetna’s fourth quarter 2010 loss ratio was 83%, down from the prior year’s 84%.
Editor’s Note: Why don’t self-funded employee welfare plans transfer catastrophic risk to capital markets too?
