January 8, 2013 / 10:30 AM / in 5 years

Aetna back in market with catastrophe bond offering

LONDON (Reuters) - Health insurer Aetna (AET.N) is seeking to raise about $150 million of protection for medical benefit claims by selling a catastrophe bond through its Cayman Islands-based Vitality Re vehicle.

Standard & Poors (S&P) assigned BBB+ and BB+ ratings respectively to the Class A and B notes to be issued by Vitality Re IV Ltd, the credit rating agency said in a report.

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 issue, the fourth such deal from Aetna, will help protect Aetna against higher-than-expected medical claims on a portion of Aetna’s group commercial health insurance business.

The notes are structured with an ‘indemnity trigger’, which means the performance of the bond depends on the actual loss of Aetna’s portfolio.

Any losses to the covered insurance business will be measured by the medical benefit ratio (MBR) -- a market metric used to calculate medical costs.

    A payout being triggered if claims payments “exceeds 102 percent for the Class A notes and 96 percent for the Class B notes,” S&P said.

    The catastrophe bond sector ended 2012 on a high -- with more than $6 billion in sales, the second highest total in the history of the market.

    Reporting by Sarah Mortimer. Editing by Jeremy Gaunt.

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