Aetna, a diversified health care benefits company, has entered into a three-year reinsurance agreement with Vitality Re, a newly formed insurance company, as part of Aetna's long-term capital management strategy.

Aetna said that the agreement will allow 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 agreement allows Aetna to free up capital held with respect to the covered business, and deploy it accretively for other purposes.

"Through this transaction, we have improved our capital efficiency, enhanced our financial flexibility and reduced our weighted average cost of capital. We expect this to be the first step in a larger program," Zubretsky said.

Aetna offers traditional and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, and medical management capabilities and health care management services for Medicaid plans.