In a deal that greatly accelerates its move into the Medicare supplement market, Aetna announced in June an agreement to buy Genworth Financial's Medicare supplement business, Continental Life Insurance, for $290 million.
When the purchase is completed, expected in the fourth quarter this year, Aetna's book of business for supplemental Medicare insurance will jump from its current 10,000 members to more than 155,000.
"By acquiring this business, Aetna will significantly expand its footprint in the Medicare supplement business," said Mark Bertolini, Aetna's chairman, CEO and president. "This important growth opportunity comes at a time when the Medicare population is anticipated to increase as Baby Boomers reach age 65. Medicare supplement is expected to be a fast-growing product in the coming years as individuals seek peace of mind for out-of-pocket costs and employers look for added retiree coverages."
With the acquisition, Aetna will be able to use a two-pronged approach to grow the Medicare supplement business – via CLI's well-established network of brokers, and by cross-selling the products with its existing 400,000-member-strong Medicare Advantage and Medicare Part D lines.
"For us the acquisition keeps with the plan to broaden our product portfolio and add new revenue streams, to diversify from purely the health insurance business," said Cynthia Michener, an Aetna spokesperson. "We also have a focus on Medicare and given that we have a substantial Medicare business, the supplement piece is very complementary."
Total 2010 net sales for Continental Life amounted to about $322 million, with more than $300 million derived from its Medicare supplement business. The company also has small pieces of business selling accident and health and final expense (burial or funeral) insurance. First quarter 2011 revenue was up modestly, ringing up $84 million in sales.
For Richmond, Va.-based Genworth, the sale of CLI comes roughly five years after it acquired the company, which operates out of Brentwood, Tenn. According to company spokesman Tom Topinka, the move to sell its Medicare supplement – commonly referred to as Medigap – insurance business was to allow the company to refocus on what it sees as its core strengths: long-term care insurance, life insurance, annuities and mortgage insurance.
"The transaction clearly benefits both parties, as it moves a sound platform to a company that is committed to the long-term development of the Medicare supplement business, while allowing Genworth to focus our Retirement and Protection segment in markets where we have the strongest value propositions," said Michael Fraizer, Genworth's chairman and CEO, in a prepared statement.
Genworth said the company will record an after-tax gain of about $35 million on the sale and that all existing policies will remain in effect during and following closing of the transaction.
Michener said Aetna plans to keep all 175 employees and management of CLI at its current location, with the business being folded into Aetna's Medicaid business division.
The deal is projected to be earnings-neutral for Aetna in 2012. Michener said the company will tap its roughly $3.5 billion in cash reserves to pay for the acquisition at closing.