Vitality Re XI Ltd. (Class A And Class B Notes)

Presale:

Vitality Re XI Ltd. (Class A And Class B Notes)January 7, 2020

Profile

Table 1

Principal-At-Risk Variable-Rate Notes

Series2020

PreliminaryRating

Amount(Mil. $)

Interest (toscheduled maturitydate)

Term(years)

Expected scheduledredemption date

Expected finalextended redemptiondate

Class A BBB+ (sf) [140] TMMF + [•] basispoints

4 Jan. 9, 2024 Jan. 9, 2025

Class B BB+ (sf) [60] TMMF + [•] basispoints

4 Jan. 9, 2024 Jan. 9, 2025

Note: This presale report is based on information as of Jan. 7, 2020. The ratings shown are preliminary. Subsequent information may result inthe assignment of final ratings that differ from the preliminary ratings. Accordingly, the preliminary ratings should not be construed asevidence of final ratings. This report does not constitute a recommendation to buy, hold, or sell securities.

Table 2

Transaction Participants

Issuer Vitality Re XI Ltd.

Ceding reinsurer Health Re, Inc.

Underlying ceding insurer Aetna Life Insurance Co.

Sole bookrunner and co-structuring agent Goldman Sachs & Co. LLC

Co-manager and co-structuring agent Munich Re

Indenture trustee, collateral account provider, and reinsuranceaccount trustee

The Bank of New York Mellon

Administrator of Vitality Re XI Ltd. Artex Risk Solutions (Cayman) Limited

Administrator of Health Re, Inc. Marsh Management Services Inc.

Escrow Agent Iron Mountain Intellectual Property Management,Inc.

Claims Reviewer KPMG in the Cayman Islands

Loss Reserve Specialist Towers Watson (Bermuda) Ltd.

Initial modelling agent and Reset Agent Milliman, Inc.

Presale:

Vitality Re XI Ltd. (Class A And Class B Notes)January 7, 2020

PRIMARY CREDIT ANALYST

Robert N Roseman

New York

(1) 212-438-7236

[email protected]

SECONDARY CONTACT

Albert Ciolek

New York

+ 1 (212) 438 4654

[email protected]

www.standardandpoors.com January 7, 2020 1

© S&P Global Ratings. All rights reserved. No reprint or dissemination without S&P Global Ratings' permission. See Terms of Use/Disclaimeron the last page.

2364271

mailto: [email protected]




Table 3

Institution/Role

Institution/role Supporting ratings

Underlying ceding insurer: Aetna Life Insurance Co. A-/Stable/-

Reinsurance trust account and collateral account – Treasury money market funds AAAm

Table 4

Transaction Features

Closing date Jan. [•], 2020

Initial principalbalance

$[140] million Class A Notes

$[60] million Class B Notes

Country oforigination

Cayman Islands

Offering type 144A offering w/o reg. rights

Purpose Funding Vitality Re XI Ltd.'s collateralized obligations under excess of loss agreements that provide HealthRe, Inc., and ultimately Aetna Life Insurance Co., with a source of indemnity coverage based on an annualaggregate excess-of-loss reinsurance capacity for four years against medical benefit claims above apredetermined threshold.

Rationale

S&P Global Ratings has assigned 'BBB+ (sf)' and 'BB+ (sf)' preliminary ratings to the class A andclass B notes, respectively, to be issued by Vitality Re XI Ltd. The notes will cover claims paymentsof Health Re, Inc. and, ultimately, Aetna Life Insurance Co. (ALIC) related to the covered insurancebusiness to the extent the medical benefits ratio (MBR) exceeds 102% for the class A notes and96% for the class B notes. The MBR will be calculated on an annual aggregate basis.

We assessed the various risks contained in these issuances based on "Methodology AndAssumptions For Insurance-Linked Securitizations," published Nov. 19, 2018.

Vitality Re XI is a Cayman Islands-exempted company licensed as a class C insurer in the CaymanIslands. The current maturities for the outstanding (and expected to be issued, in the case ofVitality Re XI) Vitality Re issuances are:

- Vitality Re VII Ltd. (matures in 2020),

- Vitality Re VIII Ltd. (matures in 2021),

- Vitality Re IX Ltd. (matures in 2022),

- Vitality Re X Ltd. (matures in 2023), and

- Vitality Re XI Ltd. (matures in 2024).

The preliminary ratings are based on the lowest of the following: the MBR risk factor on the cededrisk ('bbb+' for the class A notes and 'bb+' for the class B notes); the rating on ALIC, the underlyingceding insurer (A-/Stable/--); or the rating on the permitted investments, ('AAAm') that will be heldin the collateral account (there is a separate account for each class of notes) at closing.



2364271

Presale: Vitality Re XI Ltd. (Class A And Class B Notes)

The MBR risk factors are currently the lowest of the three inputs. However, if the rating on ALICwere to fall below the MBR risk factor, we would lower our rating on the notes accordingly. If thepermitted investments were in a money market fund not rated 'AAAm', we would withdraw ourrating on the notes.

Determining The MBR Risk Factor

Milliman, Inc. constructed a model (Vitality Re XI escrow model) based on independently collecteddata and assumptions that could be used to assess the probability of attachment on the ratednotes. The statistical data, methodology, modeling estimates, and explanations included in theinformation presented to us have been prepared by Milliman, which is in the business of actuarialanalysis of health care cost and utilization trends and MBR risk.

Vitality Re XI supplied us with 18 modeled attachment probabilities for each class of notes fromthe escrow model. These attachment probabilities reflect a baseline scenario, nine claims-trendsensitivity tests, five premium-trend sensitivity tests, and three composite (combining selectedclaim and premium sensitivity tests) sensitivity tests.

When determining the MBR risk factor, we use our insurance-linked securitizations criteria. Thesecriteria indicate that we will rely on the modeling performed by risk-modeling companies werecognize as sufficiently credible, the various qualitative and quantitative assessments we applywhen determining the insurance risk factor, the rating on the ceding insurance company, and therating on the collateral arrangement underlying the transaction.

The 'bbb+' and 'bb+' MBR risk factors for the class A and B notes, respectively, represent theresults of one of the composite stress scenarios plus an additional qualitative adjustment to theseresults.

Given Milliman's long history in this area, we view it as a sufficiently reliable source of data.Regarding the assessments we make to the modeled results, these were refined to reflect theirunique nature and are described below.

According to Milliman's risk analysis, the primary drivers of historical financial fluctuations havebeen the volatility in per capita claim cost trends and lags in insurers' reactions to these trendchanges in their premium rating increase actions. Other volatility factors include changes inexpenses and target profit margins and enrollment growth and declines. Although these factorscause the majority of claims volatility, the extreme tail risk is affected by severe pandemic.

The MBR for the first nine months of 2019 was 85.6%, higher than 83.3% during the same periodin 2018, reflecting the suspension of ACA's industrywide health insurer fee (HIF) in 2019. Inaddition, for the four quarters ended Sept. 30, 2019, the reported MBR for the covered businesswas 86.67%, above the multiyear average MBRs (ended Sept. 30, 2019) though below the MBRattachment levels. This higher recent MBR is primarily due to the 2019 suspension of the HIF andreduction in small group premium as a percentage of covered business premium beginning in2017.

Table 5

Multiyear Average MBRs For The Covered Business

(%)

Two-year average 84.87

Three-year average 84.94

Four-year average 84.39



2364271


Table 5

Multiyear Average MBRs For The CoveredBusiness (cont.)

(%)

Five-year average 83.92

Six-year average 83.66

Seven-year average 83.47

Eight-year average 83.39

Nine-year average 83.26

10-year average 83.39

On Dec. 18, 2015, the Consolidated Appropriations Act 2016 (CAA) was signed into law. The CAAamended certain provisions of the Affordable Care Act (ACA), including suspending theindustrywide health insurer fee (HIF) for calendar-year 2017.

On Jan. 22, 2018, a legislation was enacted that suspended the HIF for 2019. As the HIF isgenerally passed on to policyholders through increased premiums, the suspension reducedpremiums. This was seen in 2017 and is evident so far in 2019, as the realized MBR has increased.As currently enacted, the HIF will apply and increase for 2020 and annually thereafter.

Milliman considered the HIF applying for 2020 by subtracting 70 basis points from the initialbaseline MBR when determining the realized historical MBR for the first annual risk period. Thisamount represents 35% of an estimated 200-basis-point one-year MBR impact due to the HIFapplying in 2020 after being suspended for 2019. Milliman estimates that during the five-yearperiod reflected in the initial baseline MBR for the first annual risk period, the average HIF duringthat period was approximately 35% of the one-year HIF MBR impact assumed to be experiencedduring 2020.

Milliman considered the decrease in small group premium as a percentage of the coveredbusiness premium by adding 80 basis points to the initial baseline MBR in determining therealized historical MBR for the first annual risk period. This amount represents the differencebetween the actual five-year average MBR ended Sept. 30, 2019, and a re-weighted five-yearaverage MBR based on the current mix of small group versus large group business.

In adjusting the modeled probability of attachment, we considered the following strengths, risks,and mitigating factors.

Strengths

- ALIC is one of the largest writers in the health insurance industry of policies that make up thecovered business.

- PPO business is the most prevalent in the marketplace, and Aetna is a well-established playerin an industry where the largest players are continuing to build competitive advantage.

- Aetna Inc. and Health Re have entered into a "keep well" agreement (which will remain in effectuntil the quota-share termination date for the last outstanding series of notes). As long asHealth Re has any obligations to ALIC under any quota-share agreement, including, withoutlimitation, Health Re's obligation to meet Health Re's capital requirements under Vermont law,Aetna Inc. agrees to maintain capital in Health Re to ensure that Health Re has the necessary



2364271


funds available to satisfy any such obligations.

Risks

- Milliman used industrywide data and assumptions when constructing the model.

- The interaction of the Patient Protection and Affordable Care Act (PPACA), the ConsolidatedAppropriations Act (CAA), and the December 2019 legislation repealing th HIF for calendar yearsbeginning after 2020 could result in unexpected volatility to the covered business.

- A new product or significant modification of reimbursement structure, medical management,underwriting, or significant change in rating methods on an existing product could change ourviews.

- Adverse economic conditions and unanticipated increases in ALIC's health care costs cansignificantly and adversely affect the covered business MBR.

- The potential integration risk related to Aetna's acquisition by CVS Health Corp. couldmaterially affect the covered business.

- The potential investment risk on the assets in the collateral accounts.

Mitigating factors

- Milliman is a widely recognized firm in health care actuarial consulting.

- This is the 11th bond rated by S&P Global Ratings covering health care claims--it is insuring thesame risk as the other 10 (four currently outstanding) Vitality issuances, and the MBRs to datehave been well below the attachment levels.

- The highest MBR for the covered business since 2008 is 88.5% in 2009.

- Under the scenarios as modeled, the primary driver of risk is pandemic.

- The assets in each collateral account are required to be invested in a U.S. Treasury moneymarket fund rated 'AAAm'.

Another mitigating factor we consider is that in 2014 major provisions of PPACA becameoperational. However, these provisions were largely limited to individual business, which is notincluded in the covered block. Regarding small group, risk-factor limitations took effect in 2014,and small group exchanges were established in 2015. (However, very few employers to date havepurchased coverage through a public small group exchange, and ALIC is currently participating ina limited number of public small group exchanges.)

Typically, because the minimum loss ratio for small group business (which constitutes 4.9% of thecovered block in the nine months ended Sept. 30, 2019) is less than for large group business (80%versus 85%), the greater the proportion of small group business, the lower the MBR on the coveredblock. However, there is a concern with the establishment of individual PPACA exchanges thatsmall employers will discontinue health insurance coverage and dump their employees onto theindividual exchanges--in a way, creating adverse selection (i.e., the groups with healthieremployees will dump their employees and those with less healthy employees will retain coverage),resulting in an increased MBR. While there is currently no evidence of this situation occurring, thestandard deviation of the MBRs was increased to reflect this additional uncertainty regarding thesmall group portion of the covered block.



2364271


Table 6

Calendar MBRs

--Year ended Dec. 31--

(Mil. $) 2011 2012 2013 2014 2015 2016 2017 2018 2019*

Premium 6,806 7,324 8,089 10,087 11,104 12,289 12,295 11,533 7,994

Medical benefits 5,540 6,060 6,623 8,340 9,083 10,198 10,504 9,631 6,846

MBR (%) 81.4 82.7 81.9 82.7 81.8 83.0 85.4 83.5 85.6

* Data as of Sept 30. 2019.

Collateral Account

Vitality Re XI will deposit the proceeds from the sale of the notes into a separate collateral accountfor each class of notes at the Bank of New York Mellon, which will invest the proceeds in a U.S.money market fund rated 'AAAm'. If, after closing, money market funds are not available, theproceeds may remain uninvested and held in cash.

If the related collateral account assets were to earn a net negative yield, Vitality Re XI might notnecessarily redeem the notes in full at maturity, and we would revise the rating to 'D'.

Noteholders will bear the risk of any loss of principal on the U.S. money market funds, and there isno recourse to Vitality Re XI, Health Re, Aetna, ALIC, or CVS Health Corp.

Ceding Insurer

The underlying cedent and ultimate beneficiary of the coverage provided by the notes, is Aetna LifeInsurance Co. The insurer financial strength rating on ALIC (A-/Stable/--), and the issuer creditrating on the immediate parent company, Aetna Inc. (BBB/Stable/--) (collectively referred to asAetna), are based on Aetna's very strong competitive position. Aetna has significant product andgeographic diversification, consistent above-industry average profitability, and strongcapitalization, shown by its run-rate consolidated risk-based capital ratio, which is well aboveregulatory requirements and higher than certain peers.

On Nov. 27, 2018, the issuer credit rating on Aetna was lowered to 'BBB/A-2' from 'A/A-1', and thefinancial strength rating on its operating subsidiaries was lowered to 'A-', with a stable outlook,from 'AA-'. This was based on Aetna's acquisition by a lower-rated group (CVS Health Corp.) thatwas taking on significant debt and integration risks, which continue to persist (see "Aetna Inc. AndSubsidiaries Ratings Lowered As CVS Health Corp. Nears Acquisition Close; Outlook Stable,"published Nov. 27, 2018.)

Surveillance

We will use surveillance data provided by the various transaction parties to perform periodicreviews. Our rating reflects our opinion of the transaction's ongoing risk profile. We will undertakea number of steps to determine whether the assigned rating continues to reflect our view of thetransaction's performance. These steps include:

- Reviewing the reports that detail the performance of the assets in the collateral account;



2364271


- Analyzing the annual reset report;

- Keeping informed of model updates; and

- Monitoring the claim and premium trends for ALIC and the health care industry.



2364271




2364271


Security For The Notes

Under the indenture and applicable class supplements, Vitality Re XI will assign to the indenturetrustee as security for the payment of principal and interest due on the notes its rights, title, andinterest under various contracts and in the collateral accounts and reinsurance trust accounts.

This security will be subordinated to the security granted for the benefit of Health Re as the cedingreinsurer. If the MBR exceeds the attachment, all or part of the assets in a collateral account willbe sold, deposited into a reinsurance trust account, and invested in eligible assets.

Pursuant to the XOL Agreement, Health Re will be required to establish and maintain a premiumreserve account for the benefit of Vitality Re XI, the purpose of which is to receive and hold fundsas security for Health Re's installment premium payment obligations. Specifically, Health Re willestablish a separate account for each XOL Agreement that is segregated from all other accountsof Health Re.

Covered Exposure

This will be the 11th issuance rated by S&P Global Ratings that covers medical benefitclaims--each has ALIC as the cedent. The MBR for the four quarters ending Sept. 30, 2019, is86.67%, which is still below the MBR attachment level of the class B notes, at 96%.

The ratings are based on a simulation-based stochastic model developed by Milliman specificallyfor this transaction. The model is based, in part, on independently collected industrywide data andassumptions.

The covered business will consist of commercial insured accident and health business (namelyPPO (preferred provider organization), point of service, indemnity products directly written by ALICand reportable in ALIC's statutory annual statements as "Accident and Health-Group."

The risks that will be excluded from the covered business for the notes are all of the following:

- Group insurance products;

- Dental and limited dental products;

- Medicare and Medicaid products;

- Stop-loss products;

- Individual medical products;

- Limited medical products, including all limited benefit plans (commonly referred to as"mini-med" plans) and all student health plans;

- Stand-alone vision products;

- Stand-alone employee assistance program products;

- AARP products;

- Domestic expatriate products; and

- Products where an insured pays 100% of the premium.

Group insurance products means all of ALIC's accidental death and dismemberment, life(including term life, group universal life, and paid-up life), long-term disability, short-term



2364271


disability, temporary disability, leave management, and long-term care products.

For the nine months ended Sept. 30, 2019, ALIC wrote approximately $8 billion of premiums on 1.9million members for the covered business. This compares with $8.7 billion of premium and 2million members as of the nine months ended Sept. 30, 2018.

The premiums for the covered business were $6.8 billion in 2011, $7.3 billion in 2012, $8.1 billionin 2013, $10.1 billion in 2014, $11.1 billion in 2015, $12.3 billion in 2016, $12.3 billion in 2017, and$11.5 billion in 2018.

Aetna will cede annually, in each of four years, $[1.0] billion or approximately [9%] of the CoveredBusiness premium and risk to Health Re through the QSRA related to the series 2020 notes.

The initial annual ceded premium is $[1.00] billion. The initial MBR attachment points for the classA notes is $[1.020] billion and for the class B notes, $[960] million.

There will be three annual resets, effective on Jan. 1, 2021, 2022, and 2023. Forty-five days afterthe third payment date of the second, third, and fourth annual risk periods, ALIC (via Health Re)will supply to Milliman its updated exposure data, including the MBR for the previous annual riskperiod.

Milliman will also use any updated health industry exposure data in the escrow model to provideadditional information on industry trends. Milliman will review the updated health industryexposure data to determine whether it has caused a statistically significant change in the mean orstandard deviation of the historical industry exposure data at the 1% level of significance. If it has,then the difference will be added to or subtracted from the starting assumptions of mean trend of7.92% and standard deviation of 4.64%, and all other adjustments will remain as initiallymodeled.

In addition, if the enrolment in the ceded block changes cumulatively by more than 300,000 fromthe 1.8 million members used in the escrow model, Milliman will incorporate the change into thesize adjustment for the covered business already built into the escrow model. Otherwise, thisfactor would remain unchanged. Milliman will use this information--plus the updated healthindustry exposure data--and run a new set of 2 million scenarios to determine new MBRattachment and exhaustion points for the notes.

Each annual reset will adjust the attachment point to maintain a probability of attachment andexpected loss less than or equal to 0.48% and 0.19% for the class B notes. The initial probability ofexhaustion is less than 0.01% for the class A notes and 0.04% for the class B notes. Theprobability of attachment and expected loss will be reset annually to maintain the percentagesestablished at closing. For each reset of the class A notes, if any class B notes are outstanding onthe applicable reset calculation date, the updated MBR attachment of the class A notes will be setso it is equal to the updated MBR exhaustion for the class B notes.

Milliman's analysis is based on three key data sources for industry exposure data:

- Public data source on per capita National Health Expenditures (NHE) (see descriptionhttp://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html,accessed Dec. 10, 2019) from 1960 to 2018 available online from the National HealthExpenditure Accounts Team in the Office of the Actuary of the Centers for Medicare & MedicaidServices (CMS);

- The Health Cost IndexTM (HCI) developed and maintained by Milliman since 1987 with a historyof trends through 2009 and going back to the mid-1970s; and

- The Milliman Healthcare Trend Guidelines, which supplement the HCI trends with data for 2010and later. This combined data is compared with NHE trends over various time periods of



2364271


volatility (collectively, health industry exposure data).

Loss Payment Calculation

For each annual risk period with respect to the excess-of-loss (XOL) agreement, "XOL medicalbenefit ratio" means (x) when measured for purposes of determining payments under the XOLagreement on the interim loss payment dates following the end of an annual risk period. It is thequotient of (i) the paid incurred benefits for that annual risk period divided by (ii) the annual totalpremium for the annual risk period. The "XOL medical benefit ratio" means (y) when measured forpurposes of determining payment under the XOL agreement on the annual risk periodcommutation date. It is the quotient of (i) the annual incurred benefits (including unpaid incurredbenefits) for such annual risk period divided by (ii) the annual total premium for that annual riskperiod.

The actual MBRs will be based on incurred claims on a date-of-service basis (incurred date isgenerally the date of admission for inpatient hospital claims and the date the service is providedotherwise) divided by earned premiums during the period. (This is before the impact of anypremium rebates due to minimum medical loss ratio requirements and excluding premium andclaim adjustments for the ACA risk mitigation programs for Small Group under Health CareReform.)

Interim loss payment dates are the second, third, and fourth payment dates following the end ofan annual risk period.

Paid incurred benefits are the portion of the annual incurred benefits for the annual risk periodunder the XOL agreement that ALIC has paid before the XOL loss payment date.

The annual risk period commutation date is the fifth payment date following the end of an annualrisk period.

"Annual incurred benefits" for each annual risk period under the XOL agreement means the sum ofthe amounts of medical benefit claims incurred by ALIC with respect to the covered businessrelated to such annual risk period (excluding the impact of any reinsurance). As such, medicalbenefit claims would be reportable by ALIC on line 13, "Disability Benefits and Benefits underAccident and Health Contracts," column 9 ("Accident and Health – Group") and/or line 19,"Increase in Aggregate Reserves for Life and Accident and Health Contacts," Column 9 ("Accidentand Health – Group") of ALIC's statutory annual statements under "Analysis of Operations byLines of Business" subject to the following limitations:

- For medical benefit claims reported on Line 13, "Disability Benefits and Benefits underAccident and Health Contracts," column 9 ("Accident and Health – Group"), only that portion ofsuch medical benefit claims that relate to the covered business that are incurred during suchannual risk period;

- For medical benefit claims reported on line 19, "Increase in Aggregate Reserves for Life andAccident and Health Contracts," column 9 ("Accident and Health – Group"), only that portion ofsuch medical benefit claims that relate to the covered business that are incurred during suchannual risk period; and

- Loss adjustment expenses, extra-contractual obligations, and insolvency fund liabilities(included in line 13 or line 19) shall not constitute or be considered part of annual incurredbenefits.

When calculating annual incurred benefits for a specific annual risk period, medical benefit claims



2364271


that ALIC incurs for the covered business in a different annual risk period won't be included. Asannual incurred benefits (including estimates of claims incurred but not reported) for annual riskperiods emerge, ALIC will update the benefits for each period to reflect the developments. XOLlosses are calculated on the basis of paid incurred benefits for each annual risk period forpayment on the three interim loss payment dates and all annual incurred benefits for each annualrisk period for payment on the annual risk period commutation date.

Annual total premium for the XOL agreement includes, for each annual risk period, the aggregatepremium amounts for all policies of the covered business in-force during each period (excludingthe impact of any reinsurance), as ALIC is able to report the aggregate premium amounts in itsstatutory annual statement. However, ALIC will not include, when calculating annual totalpremium:

- Any rebates of premium paid or payable by ALIC at any time, pursuant to the medical loss ratiolimitation requirements of the Patient Protection and Affordability Care Act (PPACA), and

- Any rebates of premium paid or payable by ALIC or received or receivable by ALIC at any timeunder the risk adjustment requirements under the act.

"Medical benefit claims" means claims for covered business benefits under a policy.

"Incurred" means--for purposes of the quota-share agreement, the XOL agreement, and thenotes, with respect to medical benefit claims for any time period--medical benefit claims thatALIC becomes obligated to pay under the terms of a policy during such time period that arereportable by ALIC on its statutory financial statements.

The first risk period begins on Jan. 1, 2020, and ends on Dec. 31, 2020. The second, third, andfourth risk periods begin on Jan. 1, 2021, 2022, and 2023, and the fourth risk period ends on Dec.31, 2024.

There is a three-month lag between the end of a risk period and when a loss payment can occur inrespect of that risk period. Therefore, prior to the scheduled maturity date, Health Re, based on itsinternal claim data, will decide whether to require Vitality Re XI to extend the term of the notes.There are no required MBR thresholds that have to be met for Vitality Re XI to extend the notes.But Health Re will continue to pay the existing installment premium on the outstanding principalamount under the XOL agreement, in addition to other premium amounts due and owed by HealthRe under the XOL agreement (see table 7).

Table 7

Percentage Of Annual Claims Paid Through The Indicated Date

Year Year-endThree months after

year endSix months after

year endNine months after

year end12 months after

year end

2011 87.5 98.4 99.5 99.8 99.9

2012 87.8 98.3 99.5 99.8 99.9

2013 87.9 98.3 99.5 99.8 99.9

2014 88.0 98.1 99.3 99.7 99.8

2015 87.4 97.8 99.1 99.5 99.8

2016 87.8 97.7 98.6 99.5 99.7

2017 88.3 98.0 98.7 99.5 99.6

2018 87.9 97.8 99.0 99.4



2364271


If the XOL ceded claims exceed the XOL attachment point, the losses to the notes are calculated bythe formula:

For interim loss payment dates for each annual risk period, losses are calculated using paidincurred benefits. For the annual risk period commutation date, losses are calculated using allannual incurred benefits. Recoveries will be adjusted if more than one XOL agreement covers thesame incurred medical benefit claim.

Terms And Conditions Of The Notes

Maturity

The scheduled redemption date is Jan. 9, 2024.

Principal and interest payments

The notes will pay interest quarterly in arrears at a rate equal to the yield on the permittedinvestments plus a class-specific interest spread, which is included in the quarterly installmentpremium payment due from Health Re.

Due to the procedures in place to calculate the MBR, there cannot be a loss of principal related tothe covered business until the second payment date in 2021.

Principal will be redeemed on the later of the scheduled maturity date, any maturity extensiondate, or, if applicable, an early redemption date.

Termination events

- Upon the election of Health Re, if the outstanding principal amount of a class of notes is equalto or less than 10% of the original principal amount.

- Health Re fails to meet the applicable capital requirements under Vermont law for 10 businessdays following notice from the Vermont Department of Financial Regulation.

- Health Re fails to make any installment premium payment when due as required by the XOLagreement.

- Health Re elects to provide written notice to Vitality Re XI and other relevant parties toterminate the applicable XOL agreement because a replacement reset agent, claims reviewer,or loss reserve specialist is not under contract within 45 days after the occurrence of a relatedservicer failure event.

- Health Re can terminate the transaction early if the sum of annual administration expenses, aswell as the claims reviewer and loss reserve specialist expenses, exceeds $750,000 in any



2364271


calendar year for the series 2020 notes.

Upon the election of ALIC, if in ALIC's reasonable judgment, any of the following has occurred as aresult of an amendment to or change in legislation or regulation or a change in the interpretationof legislation or regulation on or after the issuance date for the notes:

- ALIC won't be entitled to obtain the full recovery of all quota-share ceded claims under thequota-share agreement that would have been recoverable had the change not occurred;

- Health Re won't be entitled to obtain the full recovery of all XOL losses under the XOLagreement that would have been recoverable had a change not occurred; or

- ALIC or Health Re incurs material additional tax obligations, other costs, or a material reductionin the expected tax or other benefits (including the inability of ALIC or Health Re to take fullstatutory financial statement credit for the reinsurance under the quota-share agreement orXOL agreement) arising out of the quota-share agreement, the XOL agreement, or with respectto sums receivable under the agreements that ALIC or Health Re would not have incurred had achange not occurred.

Extension events

Health Re may, for up to 12 months, in three-month increments extend the term of the notes. Thefull interest spread will be payable during an extension event.

Related Criteria

- Criteria | Insurance | General: Methodology And Assumptions For Insurance-LinkedSecuritizations, Nov. 19, 2018



2364271


S&P may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of securities or from obligors.S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites,www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributedthrough other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available atwww.standardandpoors.com/usratingsfees.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respectiveactivities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has establishedpolicies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed andnot statements of fact. S&P's opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase,hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation toupdate the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment andexperience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not actas a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable,S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-relatedpublications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limitedto, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certainregulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Partiesdisclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damagealleged to have been suffered on account thereof.

Copyright © 2020 Standard & Poor's Financial Services LLC. All rights reserved.

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any partthereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrievalsystem, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not beused for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees oragents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are notresponsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or forthe security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESSOR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE ORUSE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THECONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct,indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, withoutlimitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advisedof the possibility of such damages.

Standard & Poor’s | Research | January 7, 2020 15

2364271


Documents

Vitality Re XI Ltd. (Class A And Class B Notes)