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Healthy new peril for ILS sector

Investment bank Goldman Sachs has brought the first health insurance related risk to the insurance-linked securities (ILS) market with the proposed $200mn Vitality Re securitisation for new sponsor Aetna Life Insurance.

The bond will provide three-year cover for Aetna's Health Re business against the risk that its medical benefit ratio (MBR) exceeds a pre-set MBR attachment level for commercial insured accident and health business.

The indemnity-based cover provides the cedant with annual aggregate excess of loss reinsurance against medical benefit claims above this pre-set threshold.

Aetna is primarily a commercial health insurer in the US, but has also expanded into public sector Medicare cover.

Health Re will be formed for the Vitality Re deal as a Vermont-domiciled vehicle into which Aetna will cede $1.25bn of covered business premium on a quota-share basis annually.

Health Re will be the counterparty that enters a reinsurance agreement with Cayman-domiciled Vitality Re, which will then issue the ILS notes to investors.

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