A rating analyst has given a lukewarm review to the idea of using a special purpose captive reinsurer to try to guard against catastrophic health insurance risk.
Aetna Inc. (NYSE:AET) recently announced that it will be getting a five-year, $200 million reinsurance arrangement from Vitality Re V Ltd. — a special-purpose captive reinsurer based in the Cayman Islands.
The company has used four other special-purpose captives to provide health reinsurance in $150 million chunks. The terms for those captives started in December 2010, April 2011, January 2012 and January 2013.
The new $200 million captive replaces the two first Vitality captives.
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Steve Zaharuk, a Moody’s analyst, says Aetna has received regulatory approval to get statutory capital credit for the assets held by the reinsurer in the captive collateral accounts.
The benefits from the Vitality transaction appears to be “quite modest and temporary,” Zaharuk says.