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Aetna (AET) Signs Reinsurance Arrangement with Vitality Re
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Aetna Inc. recently signed a four-year reinsurance arrangement with Vitality Re VIII Limited. This deal would not only enable Aetna to reduce the amount of required capital for its group commercial health insurance business but also provide it with $200 million of collateralized excess of loss reinsurance coverage on a portion of the same business.
We note that Aetna has been taking up such reinsurance arrangements to improve its capital efficiency and lower the weighted average cost of capital (WACC). In 2013, the company partnered with Vitality Re for a four-year reinsurance arrangement under which the amount of loss reinsurance coverage was $150 million.
The strategic alliance with Vitality Re – a newly formed insurance company that issued health insurance-linked notes in a private offering in connection with this transaction – marks the eighth reinsurance arrangement by Aetna. Notably, this partnership is an important aspect of the company’s long-term capital management strategy.
Over the last one year, the shares of Aetna have been underperforming. The stock has gained only 13.6%, while the Zacks categorized Health Maintenance Organization (HMO) industry has gained 27.7%. This underperformance is likely to have stemmed from the legal issues related to its pending merger with Humana Inc. (HUM - Free Report) , which has finally been blocked by the Justice Department on Jan 23.
ONE YEAR PRICE CHART
Though the blocking of the merger has resulted in shareholders losing confidence on the stock, Aetna continues to look for other means to grow and regain investors’ favor. This recent agreement with Vitality Re is undoubtedly a move in this direction.
Zacks Rank and Stocks to Consider
Aetna presently has a Zacks Rank #4 (Sell). The company delivered positive earnings surprises in each of the last four quarters with an average beat of 6.25%
UnitedHealth delivered positive earnings surprises in the last four quarters with an average beat of 3.80%
WellCare also beat estimates in the last four quarters with an average positive surprise of 40.01%.
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Aetna (AET) Signs Reinsurance Arrangement with Vitality Re
Aetna Inc. recently signed a four-year reinsurance arrangement with Vitality Re VIII Limited. This deal would not only enable Aetna to reduce the amount of required capital for its group commercial health insurance business but also provide it with $200 million of collateralized excess of loss reinsurance coverage on a portion of the same business.
We note that Aetna has been taking up such reinsurance arrangements to improve its capital efficiency and lower the weighted average cost of capital (WACC). In 2013, the company partnered with Vitality Re for a four-year reinsurance arrangement under which the amount of loss reinsurance coverage was $150 million.
The strategic alliance with Vitality Re – a newly formed insurance company that issued health insurance-linked notes in a private offering in connection with this transaction – marks the eighth reinsurance arrangement by Aetna. Notably, this partnership is an important aspect of the company’s long-term capital management strategy.
Over the last one year, the shares of Aetna have been underperforming. The stock has gained only 13.6%, while the Zacks categorized Health Maintenance Organization (HMO) industry has gained 27.7%. This underperformance is likely to have stemmed from the legal issues related to its pending merger with Humana Inc. (HUM - Free Report) , which has finally been blocked by the Justice Department on Jan 23.
ONE YEAR PRICE CHART
Though the blocking of the merger has resulted in shareholders losing confidence on the stock, Aetna continues to look for other means to grow and regain investors’ favor. This recent agreement with Vitality Re is undoubtedly a move in this direction.
Zacks Rank and Stocks to Consider
Aetna presently has a Zacks Rank #4 (Sell). The company delivered positive earnings surprises in each of the last four quarters with an average beat of 6.25%
Some better-ranked stocks in the HMO industry are United Health Group Inc (UNH - Free Report) and WellCare Health Plans Inc . Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
UnitedHealth delivered positive earnings surprises in the last four quarters with an average beat of 3.80%
WellCare also beat estimates in the last four quarters with an average positive surprise of 40.01%.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>