Insurance giant Assurant is looking to sell its health insurance division, Assurant Health—a company that has been active on the Affordable Care Act exchanges but has hemorrhaged tens of millions of dollars.
It's likely another insurer will emerge to acquire Assurant Health, industry sources say. Health insurers have been eager to snatch up any available asset, but sellers have been few and far between. Assurant Health covers roughly 1 million people and had $2 billion of premium revenue last year.
Assurant Health is expected to lose between $80 million and $90 million in the first quarter of this year, Assurant said Tuesday. Regardless if a buyer is found, it will pull out of the health insurance marketplace by 2016. That means 2015 was the company's first and last ACA open-enrollment period, when it sold health plans in 16 states.
“The health and employee benefits business segments possess differentiated capabilities in their respective markets, but we do not believe they can meet our return targets at the pace we require,” Assurant CEO Alan Colberg said in a news release. “While this is a difficult decision, we believe they would be strong assets for new owners that are focused more exclusively on healthcare and employee benefits.”
Assurant Health lost $64 million overall in 2014, and the problems have remained the same. The insurer attracted sicker-than-average people, saying in February that their ACA policyholders “had worse morbidity characteristics than we had assumed,” and it consequently had to pay out more in medical claims. Its medical-loss ratio in 2014 was 104.3%.
Assurant Health also blamed losses on low recoveries from the ACA's insurance risk programs and the policy shift that allowed people to stay in plans that are not compliant with ACA standards.
Further, the company didn't have the same leverage as other large payers to build a provider network. In 2012, Assurant Health signed a multiyear deal with Aetna to use its national provider network for its members.
Executives were hopeful in February that raising premiums by upwards of 20% on average and lowering commission fees for brokers would boost Assurant Health's profitability. “We believe the actions we are taking, along with ongoing expense discipline, should improve results in 2015,” Colberg said.
Assurant hired investment bank Barclays Capital to explore a potential transaction. Assurant's employee benefits division, which offers ancillary products such as dental insurance to small and midsize employers, is also up for sale.
Assurant, which posted $10.4 billion as a company last year, is better known for its home and life insurance business.