Back to top

Humana Completes Sale of KMG Subsidiary to HC2 Holdings

Read MoreHide Full Article

Humana Inc. (HUM - Free Report) recently announced that it has finally completed the sale of its wholly-owned subsidiary, KMG America Corporation (“KMG”), to the unit of Texas-based insurance company, HC2 Holdings, Inc. (HCHC - Free Report) . The subsidiary is called Continental General Insurance Company (“CGIC”). Kanawha Insurance Company (“KIC”), the arm of KMG includes Humana’s closed block of non-strategic commercial long-term care insurance policies, catering to around 29,300 policyholders. As of Mar 31, 2018, KIC had around $150 million in statutory surplus and $160 million of statutory total adjusted capital with approximately $2.4 billion of cash and invested assets. Humana contributed around $195 million of capital to KIC under the Stock Purchase Agreement.

Humana expects this transaction to benefit its policyholders on the back of CGIC’s significant experience in the commercial long-term care insurance market. It also estimates to face a net loss of $400 million or $2.75 per common share under generally accepted accounting principles (GAAP). This projected loss includes a pretax figure of around $900 million, partially offset by the tax gain of $500 million.

After the transaction is complete, CGIC will have cash and invested assets of around $3.8 billion, much more than the pre-transaction possession of $1.5 billion. Moreover, with the deal’s closure, pro-forma statutory surplus for the combined entities is predicted in the $155-$175 million bracket and the total adjusted capital is anticipated between $185 million and $205 million, subject to closing adjustments.

Meanwhile, HC2 would be able to expand its insurance investment portfolio and increase the total adjusted insurance capital base by a skyrocketing margin. It is estimated to grow from $85 million between $185 million and $205 million. Keefe, Bruyette & Woods, Inc. and Drinker Biddle & Reath LLP acted as financial and legal advisors to CGI.

Shares of Humana have surged 30.5% year to date, outperforming its industry’s rally of 17.2%. The stock has a Zacks Rank #3 (Hold).

Stocks to Consider

Investors interested in the Medical-HMO industry can also check out some better-ranked stocks like UnitedHealth Group Incorporated (UNH - Free Report) , Anthem, Inc. (ANTM - Free Report) and WellCare Health (WCG - Free Report) .

UnitedHealth Group Incorporated operates as a diversified health care company in the United States. It carries a Zacks Rank #2 (Buy) and came up with an average four-quarter positive earnings surprise of 3.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Anthem operates as a health benefits company in the United States and is a Zacks #2 Ranked player. It managed to pull off an average trailing four-quarter earnings surprise of 6.65%.

WellCare provides managed care services for government-sponsored health care programs. The company holds an impressive Zacks Rank of 2 and came up with an average four-quarter beat of 53.89%.

5 Medical Stocks to Buy Now

Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.

New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.

Click here to see the 5 stocks >>

More from Zacks Analyst Blog

You May Like

Published in