With the deal, Aetna aims to take a more “personalized” approach to healthcare for its members.
In a move that makes it the country’s second largest group life and disability insurer, The Hartford has agreed to purchase Aetna’s units in those specialities for $1.45 billion in cash. The deal is expected to close next month, and most of the 1,800 Aetna employees currently working in the group life and disability units will remain with The Hartford.
“The transaction provides a unique and accretive opportunity for The Hartford to become the second largest group life and disability insurer, an important business for The Hartford with a stable risk profile, attractive returns and strong long-term growth prospects,” The Hartford Chairman and CEO Christopher Swift said in a statement.
The Hartford will fund the acquisition with insurance subsidiary dividends and capital amassed by its holding company, which includes a $273-million unused bucket from its 2017 equity repurchase reserve. No debt or equity will be issued to cover the purchase.
A Turnaround for The Hartford
The acquisition represents a remarkable turnaround for The Hartford. Hit hard by the financial crisis of 2008-09, the company received a $3.4 billion aid package from the government, which it subsequently repaid.
Because of the financial crisis, The Hartford’s leadership at the time decided to emphasize its property and casualty insurance business and put its variable annuity division up for sale. A deal for that runoff business, Talcott Resolution, has yet to be completed. In an interview with the Wall Street Journal, Swift said that The Hartford is comfortable managing its current book of variable annuities, as it has since closed the business to new sales.
The Aetna purchase “effectively removes” The Hartford as a potential acquisition target, according to Wells Fargo Securities analyst Elyse Greenspan. She added that the company will likely look to expand its business with more acquisitions instead.
In addition to Aetna’s group life and disability lines, The Hartford gains a digital technology platform backed by data analytics that it hopes will help claimants receiving disability and workers’ compensation benefits. Workers’ compensation accounts for a large portion of The Hartford’s property and casualty segment.
Aetna to Focus on Member Health
The sale follows Aetna’s unsuccessful attempt to merge with Humana last year, a merger which the Department of Justice claimed violated antitrust law. It plans to funnel the proceeds from it into internal investments, share repurchases, and debt repayment.
By unloading its life and disability businesses, Aetna can now turn its attention to increasing its health offerings to consumers, employers, and Medicaid and Medicare enrollees — services for which it faces competition from other insurers. The deal, said Aetna President Karen S. Lynch, further enables the insurer to develop “a personalized approach to improving member health.”
In doing so, Aetna aims to transition from a traditional health insurer to a company that crafts wellness plans to keep members healthy, a shift that it contends will reduce healthcare costs for employers and individuals. Yet according to Forbes, if Aetna is to succeed in moving from fee-for-service payments to a quality of care reimbursement model, it needs to make significant investments in provider networks, information technology, and other systems.