LONDON, Jan 24 (Reuters) - U.S. health insurer Aetna sold $150 million of catastrophe bonds to cover higher-than-expected medical claims, drawing strong demand, according to traders.
Credit agency Standard & Poor’s assigned BBB+ and BB+ ratings respectively to the Class A and B notes.
Catastrophe bonds allow insurers to pass on extreme risks, such as those related to earthquakes or hurricanes, to financial market investors. They are seen as an alternative to reinsurance.
The deal will cover the U.S. insurer against claims on a portion of Aetna’s group commercial health insurance business.
It is the fourth issue from Aetna’s Cayman Islands-based Vitality Re vehicle, and was 4.5 times oversubscribed, said one UK-based cat bond trader with knowledge of the transaction.
The $105 million Class A notes priced at 275 basis points above Money Market Treasury Funds (MMTF) - which are rated AAA by S&P - and the Class B $45 million notes came in at 375 bps above.
The notes are structured with an ‘indemnity trigger’, with a payout due if medical claims “exceed 102 percent for the Class A notes and 96 percent for the Class B notes,” S&P said.
Goldman Sachs and BNP Paribas structured the deal.