Humana Signs Definitive Agreement to Sell Closed Block of Commercial Long-Term Care Insurance Business
November 06 2017 - 7:15PM
Business Wire
- Sale of the stock of KMG America
Corporation will also include a capital contribution of
approximately $203 million of Humana parent company capital,
subject to customary adjustments, in addition to the transfer of
approximately $150 million of statutory capital
- Upon consummation, Humana will have no
remaining exposure to the commercial long-term care insurance
business
- Cash savings from the expected tax
treatment of the sale should more than offset the capital
contribution and statutory capital transferred by Humana
- Estimated GAAP loss per diluted common
share of $2.75 will be excluded from Adjusted earnings per share
when recognized
- Excluding the loss on sale, the company
does not anticipate a material impact to earnings in 2017 or 2018
from the sale of the business
Humana Inc. (NYSE: HUM) announced today that it has reached a
definitive agreement to sell the stock of its wholly-owned
subsidiary, KMG America Corporation (KMG), to Continental General
Insurance Company (CGIC), a Texas-based insurance company wholly
owned by HC2 Holdings, Inc., a diversified holding company (NYSE:
HCHC). KMG’s subsidiary, Kanawha Insurance Company (KIC), includes
Humana’s closed block of non-strategic commercial long-term care
insurance policies that serves approximately 30,100 policyholders.
Humana recognizes that the acquisition of this business by a
company like CGIC will benefit policyholders because of CGIC’s
significant experience with and concentrated focus on the
commercial long-term care insurance market. CGIC currently provides
long-term care, life and annuity coverage to approximately 93,000
members.
Based on the terms of the definitive agreement, Humana expects
to record a net loss associated with the sale of KMG of
approximately $400 million, or $2.75 per diluted common share,
under generally accepted accounting principles (GAAP). The
estimated loss includes a pretax loss of approximately $900
million, offset by the expected tax benefit of approximately $500
million. When recognized, the loss on the sale of this
non-strategic business will be excluded from Adjusted earnings per
share.
Humana will fund the transaction with approximately $203 million
of parent company cash contributed into KMG, subject to customary
adjustments, in addition to the transfer of approximately $150
million of statutory capital with the sale, which together should
be more than offset by the estimated $500 million cash savings
associated with the expected tax treatment of the sale. Excluding
the loss on sale, the company does not anticipate a material impact
to earnings in 2017 or 2018 from the sale of the business.
The KMG transaction is anticipated to close by the third quarter
of 2018 subject to customary closing conditions, including South
Carolina Department of Insurance approval.
Goldman Sachs & Co. LLC is acting as financial advisor to
Humana. Locke Lord LLP is acting as legal advisor to Humana.
Cautionary Statement
This news release includes forward‐looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
When used in investor presentations, press releases, Securities and
Exchange Commission (SEC) filings, and in oral statements made by
or with the approval of one of Humana’s executive officers, the
words or phrases like “expects,” “believes,” “anticipates,”
“intends,” “likely will result,” “estimates,” “projects” or
variations of such words and similar expressions are intended to
identify such forward‐looking statements.
These forward-looking statements are not guarantees of future
performance and are subject to risks, uncertainties, and
assumptions, including, among other things, the timing to
consummate the divestiture of KMG America Corporation (“KMG”), the
risk that a condition to closing of the divestiture may not be
satisfied, the risk that required regulatory approvals for the
divestiture of KMG are not obtained, are delayed or are subject to
conditions that are not anticipated, the risk that we may not
recognize all or a portion of the expected tax benefits from the
divestiture, the risk of indemnification exposure under the
contractual agreements to effect the divestiture, and other
information set forth in the “Risk Factors” section of the
company’s SEC filings, a summary of which includes but is not
limited to the following:
- If Humana does not design and price its
products properly and competitively, if the premiums Humana
receives are insufficient to cover the cost of healthcare services
delivered to its members, if the company is unable to implement
clinical initiatives to provide a better healthcare experience for
its members, lower costs and appropriately document the risk
profile of its members, or if its estimates of benefits expense are
inadequate, Humana’s profitability could be materially adversely
affected. Humana estimates the costs of its benefit expense
payments, and designs and prices its products accordingly, using
actuarial methods and assumptions based upon, among other relevant
factors, claim payment patterns, medical cost inflation, and
historical developments such as claim inventory levels and claim
receipt patterns. The company continually reviews estimates of
future payments relating to benefit expenses for services incurred
in the current and prior periods and makes necessary adjustments to
its reserves, including premium deficiency reserves, where
appropriate. These estimates, however, involve extensive judgment,
and have considerable inherent variability because they are
extremely sensitive to changes in claim payment patterns and
medical cost trends, so any reserves the company may establish,
including premium deficiency reserves, may be insufficient.
- If Humana fails to effectively
implement its operational and strategic initiatives, particularly
its Medicare initiatives, state-based contract strategy, and its
participation in the new health insurance exchanges, the company’s
business may be materially adversely affected, which is of
particular importance given the concentration of the company’s
revenues in these products. In addition, there can be no assurances
that the company will be successful in maintaining or improving its
Star ratings in future years.
- If Humana fails to properly maintain
the integrity of its data, to strategically implement new
information systems, to protect Humana’s proprietary rights to its
systems, or to defend against cyber-security attacks, the company’s
business may be materially adversely affected.
- Humana is involved in various legal
actions, or disputes that could lead to legal actions (such as,
among other things, provider contract disputes relating to rate
adjustments resulting from the Balanced Budget and Emergency
Deficit Control Act of 1985, as amended, commonly referred to as
“sequestration”; other provider contract disputes; and qui tam
litigation brought by individuals on behalf of the government) and
governmental and internal investigations, any of which, if resolved
unfavorably to the company, could result in substantial monetary
damages or changes in its business practices. Increased litigation
and negative publicity could also increase the company’s cost of
doing business.
- As a government contractor, Humana is
exposed to risks that may materially adversely affect its business
or its willingness or ability to participate in government
healthcare programs including, among other things, loss of material
government contracts, governmental audits and investigations,
potential inadequacy of government determined payment rates,
potential restrictions on profitability, including by comparison of
profitability of the company’s Medicare Advantage business to
non-Medicare Advantage business, or other changes in the
governmental programs in which Humana participates.
- The Healthcare Reform Law, including
The Patient Protection and Affordable Care Act and The Healthcare
and Education Reconciliation Act of 2010, could have a material
adverse effect on Humana’s results of operations, including
restricting revenue, enrollment and premium growth in certain
products and market segments, restricting the company’s ability to
expand into new markets, increasing the company’s medical and
operating costs by, among other things, requiring a minimum benefit
ratio on insured products, lowering the company’s Medicare payment
rates and increasing the company’s expenses associated with a
non-deductible health insurance industry fee and other assessments;
the company’s financial position, including the company’s ability
to maintain the value of its goodwill; and the company’s cash
flows. Additionally, potential legislative changes, including
activities to repeal or replace, in whole or in part, the Health
Care Reform Law, creates uncertainty for Humana’s business, and
when, or in what form, such legislative changes may occur cannot be
predicted with certainty.
- Humana’s continued participation in the
federal and state health insurance exchanges, which entail
uncertainties associated with mix, volume of business and the
operation of premium stabilization programs that are subject to
federal administrative action, could adversely affect the company’s
results of operations, financial position and cash flows.
- Humana’s business activities are
subject to substantial government regulation. New laws or
regulations, or changes in existing laws or regulations or their
manner of application could increase the company’s cost of doing
business and may adversely affect the company’s business,
profitability and cash flows.
- If Humana fails to develop and maintain
satisfactory relationships with the providers of care to its
members, the company’s business may be adversely affected.
- Humana’s pharmacy business is highly
competitive and subjects it to regulations in addition to those the
company faces with its core health benefits businesses.
- Changes in the prescription drug
industry pricing benchmarks may adversely affect Humana’s financial
performance.
- If Humana does not continue to earn and
retain purchase discounts and volume rebates from pharmaceutical
manufacturers at current levels, Humana’s gross margins may
decline.
- Humana’s ability to obtain funds from
certain of its licensed subsidiaries is restricted by state
insurance regulations.
- Downgrades in Humana’s debt ratings,
should they occur, may adversely affect its business, results of
operations, and financial condition.
- The securities and credit markets may
experience volatility and disruption, which may adversely affect
Humana’s business.
In making forward‐looking statements, Humana is not undertaking
to address or update them in future filings or communications
regarding its business or results. In light of these risks,
uncertainties, and assumptions, the forward‐looking events
discussed herein may or may not occur. There also may be other
risks that the company is unable to predict at this time. Any of
these risks and uncertainties may cause actual results to differ
materially from the results discussed in the forward‐looking
statements.
Humana advises investors to read the following documents as
filed by the company with the SEC for further discussion both of
the risks it faces and its historical performance:
- Form 10-K for the year ended December
31, 2016;
- Form 10-Q for the quarters ended March
31, 2017 and June 30, 2017; and
- Form 8-Ks filed during 2017.
About HC2 Holdings, Inc.
HC2 Holdings, Inc. is a publicly traded (NYSE:HCHC) diversified
holding company, which seeks opportunities to acquire and grow
businesses that can generate long-term sustainable free cash flow
and attractive returns in order to maximize value for all
stakeholders. HC2 has a diverse array of operating subsidiaries
across seven reportable segments, including Construction, Marine
Services, Energy, Telecommunications, Life Sciences, Insurance and
Other. HC2's largest operating subsidiaries include DBM Global
Inc., a family of companies providing fully integrated structural
and steel construction services, and Global Marine Systems Limited,
a leading provider of engineering and underwater services on
submarine cables. Founded in 1994, HC2 is headquartered in New
York, New York. Learn more about HC2 and its portfolio companies at
www.hc2.com.
About Humana
Humana Inc. is committed to helping our millions of medical and
specialty members achieve their best health. Our successful history
in care delivery and health plan administration is helping us
create a new kind of integrated care with the power to improve
health and well-being and lower costs. Our efforts are leading to a
better quality of life for people with Medicare, families,
individuals, military service personnel, and communities at
large.
To accomplish that, we support physicians and other health care
professionals as they work to deliver the right care in the right
place for their patients, our members. Our range of clinical
capabilities, resources and tools – such as in-home care,
behavioral health, pharmacy services, data analytics and wellness
solutions – combine to produce a simplified experience that makes
health care easier to navigate and more effective.
More information regarding Humana is available to investors via
the Investor Relations page of the company’s website at humana.com,
including copies of:
- Annual reports to stockholders;
- Securities and Exchange Commission
filings;
- Most recent investor conference
presentations;
- Quarterly earnings news releases and
conference calls;
- Calendar of events; and
- Corporate Governance information.
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version on businesswire.com: http://www.businesswire.com/news/home/20171106006586/en/
Humana Investor RelationsAmy Smith, 502-580-3644Asmith3@humana.comorHumana Corporate
CommunicationsMark Mathis, 312-441-5010Mmathis@humana.com
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