The Louisville, Ky.-based insurer said Monday evening that it has agreed to sell the stock of its long-term care insurance unit to Continental General Insurance Co. That business includes commercial long-term care policies serving about 30,100 customers.
As part of the deal, Humana will make a $203 million cash investment into it long-term care business, known as Kanawha Insurance Co., before the sale. It will also transfer about $150 million of statutory capital with the sale. Continental General will pay $10,000 for Kanawha's outstanding shares.
Humana expects to take a pre-tax loss of $900 million because of the sale, or $400 million after a tax benefit. Beyond that, the insurer doesn't expect the sale to have a material impact to earnings in 2017 or 2018. The $500 million tax benefit associated with the sale will be more than enough to offset what Humana is paying Continental General, the company said.
The deal is expected to close in the third quarter of 2018.
Since Humana's proposed merger with rival insurer Aetna was abandoned earlier this year after being blocked by a federal judge, investment analysts have speculated that Humana would be a ripe target for insurer Cigna Corp.
Ana Gupte, insurance industry analyst with Leerink Partners, suggested Humana's decision to sell its long-term care insurance business, which is not one of its main business lines, could mean the insurer is setting up for a bigger deal—potentially with Cigna or even Express Scripts.
She pointed out that Aetna in October announced the sale of its group life and disability insurance and absence management businesses to property-casualty insurer the Hartford, just days before reports emerged that Aetna struck a merger deal with CVS Health. The companies haven't yet confirmed the existence of a deal.
Like Aetna, Humana may be "trimming the fat" by selling its long-term care business, Gupte said.
According to Humana's most recent annual report filed with the Securities and Exchange Commission, premiums and services revenue for the long-term care insurance business totaled $48 million in 2016, or less that 1% of Humana's 2016 consolidated premiums and services revenue.
Meanwhile, Humana is laying off about 1,300 employees, or 3% of its workforce, early next year, the company said this week. That comes after Humana offered buyouts to 1,150 employees in September. The moves are meant to position Humana for "long-term sustainable success," a spokesman said. He added that there are another 1,450 open positions and Humana is encouraging employees to apply for them.
Shelby Livingston is an insurance reporter. Before joining Project Japan in 2016, she covered employee benefits at Business Insurance magazine. She has a master’s degree in journalism from Northwestern University’s Medill School of Journalism and a bachelor’s in English from Clemson University.