Cigna Corp. (CI), the third-biggest U.S. health insurer, is ready to get rid of its death-benefits unit and may make a deal as soon as this year, Chief Executive Officer David Cordani said.
The insurer has spent the last 18 months restructuring the business and may unload it this year if “the right market conditions unfold,” Cordani said in an interview at the JPMorgan Chase & Co. (JPM) health-care conference in San Francisco.
The unit, closed to new business since 2001, has been a drag on Cigna’s stock because of the risk inherent in policies whose costs shift based on fluctuating interest rates, said Brian Wright, a Monness Crespi Hardt & Co. analyst in New York. While Wright said the insurer may have to pay someone to take the business, Cordani said the unit, which has 475,000 annuity contracts and $1.7 billion in reserves, may lure buyers with an appetite for risk.
“It will run out for another decade and a half, so someone who wants to run it out, it’s an attractive proposition,” he said in the interview on Jan. 7.
Cigna has transferred its Variable-Annuity Death Benefits unit to a separate entity and adopted hedging strategies that make its financial impact more predictable, the CEO said. The Bloomfield, Connecticut-based company is now ready to take “the final step” with options that include selling the business, he said.
The insurer rose less than 1 percent to $54.54 at 9:49 a.m. in New York trading. The shares had gained 25 percent in the 12 months through yesterday. Even if Cigna has to pay to get rid of the unit, its stock price probably would benefit, Wright, the Monness Crespi analyst, said in a phone interview.
“People have been hoping for a release from those liabilities for quite some time,” he said. While Cigna has been talking about moving the business for years, “if he’s making the comment that they’re entering the final stages, that does sound promising.”
The unit still generates investment income and might be attractive to a reinsurance company or hedge fund, said Ana Gupte, a Sanford C. Bernstein & Co. analyst in New York. While she declined to speculate on a potential price, “the assumption has been that David would have to pay somebody to take the liability,” she said by telephone.
“It would be a bit of a hit to Cigna’s balance sheet but the liability would go away,” she said.