Aetna Inc. (AET) has recently revealed that it has completed the acquisition of Prodigy Health Group, which was announced back in April.
New York-based Prodigy sells self funded plans to employers that employ about 100-5000 individuals. The acquisition, valued at $600 million, will add Prodigy’s self funded market to Aetna’s domain.
Self-funded plans are the ones in which employers assumes the risk and pay the claims, and the job of the insurer is limited to administering the whole process. Prodigy’s market spans across 15 states in the U.S. Through this market, Aetna plans to strengthen its position in the small-to-mid-sized segment by offering Administrative Services Only plans, which have become popular of late with higher premium levels charged by insurance companies.
During January, Aetna completed the purchase of Medicity, a health information exchange technology company. On June 13, Aetna announced that it would acquire the Medicare Supplement business of Genworth Financial, Inc., which includes Continental Life Insurance Company of Brentwood, Tennessee and its subsidiary American Continental Insurance Company.
We note that Aetna continues to have an active merger and acquisition (M&A) pipeline. Moreover, with a wide-ranging M&A strategy, the company has not limited itself to gaining scale in the commercial business or strengthening foothold in some other customer end markets like Medicaid or Medicare. The company will consider strategies like Medicaid business expansion, new customer market segments innovation, or medical cost control for future growth. Given the low visibility around Aetna’s 2011-2012 EPS due to the Health Care reform, we believe this approach will help the company gear up for long-term growth.
Aetna, which has about 36 million members, boasts of an excellent operating and net income, good liquidity and solid risk-based capitalization levels. Earlier during the week, the rating agency A.M.Best affirmed the financial strength rating (FSR) of “A” (Excellent) and the issuer credit rating (ICR) of “a+” on the insurance and health maintenance organization subsidiaries of Aetna. The rating agency also affirmed the ICR of “bbb+” and debt ratings of the company. All the ratings carried a stable outlook.
Aetna competes closely with UnitedHealth Corp. (UNH), Wellpoint Inc. (WLP), CIGNA Corp. (CI), and Humana Inc. (HUM).
