Humana Inc. is paying a unit of HC2 Holdings Inc. $203 million to provide a good home for its stand-alone long-term care insurance business.
Continental General Insurance Company, an insurance company subsidiary of HC2, is paying Humana $10,000 to acquire the stock of Humana's KMG America Corp. subsidiary.
KMG America is the parent of Kanawha Insurance Company, a company that is providing stand-alone long-term care insurance for about 31,000 people. Humana has been running the Kanawha LTCI business as a "closed block" business, meaning that it continues to administer existing policies but does not sell new LTCI policies.
HC2 and Continental General
HC2, a New York-based conglomerate, invests in companies in many different industries. In 2015, the company hired James Corcoran, a former New York state insurance superintendent, to help it get into the LTCI business.
Stand-alone LTCI was a hot product in the 1990s, but the product has fallen into disfavor in recent years because of strict state rate increase regulations, the effects of prolonged low interest rates on insurance company earnings on the assets supporting the LTCI obligations, and the effects of insurers' problems with predicting policyholder behavior.
Continental General, which has administrative offices in Austin, Texas, has focused on getting control of closed blocks of LTCI business from insurers that no longer want the business. In many cases, companies that now went to dispose of closed blocks of LTCI business must put more cash into the blocks, or pay the acquirers in some other way, rather than collecting significant cash payments from the acquirers.
As a result of past deals, Continental General now provides long-term care insurance, life insurance and annuity coverage for about 93,000 people, according to Humana.
The Deal Terms
HC2 says in its press release about the KMG/Kanawha deal that, as of June 30, Kanawha had about $150 million in statutory capital and surplus, with about $2.3 billion in cash and invested assets.
Once the Humana deal is completed, the company would have about $3.5 billion in cash and invested assets, HC2 says.
Humana says in its own release that it expects to record a net loss of $400 million in connection with the transaction. That impact would include a $900 million pretax loss and the release of $500 million in tax benefits.
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