Assurant Health stands as one of the only health insurance companies openly willing to sell, but potential buyers will have to stomach a business that lost $84 million in the first three months of this year alone.
Assurant Health, a subsidiary of home and life insurance giant Assurant, confirmed the deficit Wednesday. Premium revenue increased 45% to $625.7 million in the first quarter, but the losses remained “significantly worse than we anticipated,” Assurant Chief Financial Officer Christopher Pagano said on an earnings call. In the past 15 months, Assurant Health has lost $148 million.
The company said last week it hired investment bank Barclays Capital and will actively shop Assurant Health to the highest bidder. If no buyer emerges, Assurant will cease its health insurance operations by 2016.
The only update executives provided on the process is that Assurant will not sell its health insurance and employee benefits as a package. “We fundamentally believe the buyer universe is very different for those two businesses, and so they are completely separate,” Assurant CEO Alan Colberg said.
Assurant's decision to shed the business quickly gained widespread attention in the industry. Insurers have been clamoring to buy new assets. “This isn't surprising, and I think we're likely to see more and more consolidation in health insurance,” said Stuart Gunn, a healthcare managing director at investment bank Houlihan Lokey.
Depending on the price, Assurant Health could be an attractive acquisition target, Gunn said. But the company comes with a lot of baggage, and “the buyer would have to look very closely at the book of business,” he said.
Assurant Health is much smaller than the other major health insurers. It had roughly 1 million members as of last year, while companies like UnitedHealthcare and Aetna have membership in the tens of millions.
For 2015, Assurant Health sold health plans on 16 exchanges established by the Affordable Care Act. Policyholders were sicker than predicted, driving up the costs of medical claims. Assurant Health also did not collect as much as expected from the ACA's risk-sharing programs. The ACA created the so-called 3 Rs: risk adjustment, risk corridors and reinsurance. Those provisions were created to protect health insurers from suffering large losses and adverse risk selection as they took on more patients.
To offset the company's substantial losses, premiums will likely have to be raised next year. Surveys have shown health insurance shoppers often buy plans based on cost, and exceptionally higher premiums could drive Assurant Health members to other exchange plans.
The potential migration and the steep financial hurdles are the biggest challenges for buyers, said Vishnu Lekraj, an analyst at financial services firm Morningstar. Exchange "consumers have the freedom of looking at different plans across different insurers,” he said.
