From The Medical Quack, ducknetweb

$150 Million to kick when medical loss ratio hits 104%

The amount of the threshold will be reset on an annual basis in 2012 and 2013 to maintain profitability.  This is not a huge reinsurance amount by comparison to the amount of business they do at $150 Million in coverage.  As you can read here this is a newly formed insurance company in the Cayman Islands.

When reading this you might think they are preparing for a worse case scenario cover the rising cost of healthcare when money spent will rise above the 80% HHS required new law that insurers must spend this amount on medical care related to the medical loss ratios for all carriers.  Goldman Sachs served as the underwriting manager and obviously with running algorithms to project where costs could go, both Aetna and Goldman felt this was in the interest of the insurer, coverage just in case if the Aetna spending exceeds and goes beyond normal spending for a catastrophic event or events.  BD

“U.S. health insurer Aetna Inc. has a completed a reinsurance transaction that reduces its capital-related costs and provides it $150 million of collateralized excess-of-loss reinsurance coverage on part of its commercial group health business.

The three-year reinsurance agreement is with Vitality Re Ltd., a newly formed insurance company in the Cayman Islands, which Aetna said issued the industry’s first health insurance-linked notes in a private offering related to the deal. Goldman Sachs served as the underwriting manager of the private offering.

Amounts payable under the deal are based on the annual medical loss ratio of a portion of Aetna Life Insurance Co.’s commercial group preferred provider organization, point of service and indemnity business. Aetna said it can start receiving payments from Vitality Re this year if the medical loss ratio of the covered business reaches an initial attachment point of 104%.

The provision does not kick in until the medical loss ratio hits 104% to 114%, he said. “So we view it as catastrophic protection.”

Aetna’s Reinsurance Deal on Medical Loss Ratio Unique to Health Insurance Industry | TradingMarkets.com

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http://ducknetweb.blogspot.com/2011/01/aetna-takes-out-reinsurance-deal-in.html