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%.
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