US-based health insurer Aetna has entered into a three-year reinsurance arrangement with Vitality Re III as part of its long-term capital management strategy.

Health insurer said that the arrangement will allow to reduce its required capital and provide $150m of collateralized excess of loss reinsurance coverage on a portion of its group commercial health insurance business.

Aetna senior executive vice president and CFO Joseph Zubretsky said that they have successfully completed their third reinsurance transaction that provides catastrophic risk protection, improves their capital efficiency and reduces our weighted average cost of capital.

"This transaction allows Aetna to free up additional capital held for the covered commercial health insurance business, and deploy it in an accretive manner.

Vitality Re III is a newly formed insurance company which issued health insurance-linked notes in a private offering in connection with this transaction.