Health insurer Aetna has entered into a three-year reinsurance agreement with Vitality Re II, a newly formed insurance company, as part of long-term capital management strategy.

Aetna said that the agreement allows it to reduce the required capital and provides $150m of collateralized excess of loss reinsurance coverage on a portion of Aetna’s group commercial health insurance business.

In connection with this agreement, Vitality Re issued health insurance-linked notes in a private offering.

Aetna senior executive vice president and CFO Joseph Zubretsky said the successful completion of the second transaction allows Aetna to free up additional capital held with respect to the covered business, and deploy it accretively for other purposes.

"As with Vitality Re, this transaction provides catastrophic risk protection, improves our capital efficiency, and reduces our weighted average cost of capital," Zubretsky said.