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Aetna (AET) Signs Reinsurance Arrangement with Vitality Re

Aetna Inc.AET recently signed a four-year reinsurance arrangement with Vitality Re VIII Limited. This deal would not only enable Aetna to reduce the amount of required capital for its group commercial health insurance business but also provide it with $200 million of collateralized excess of loss reinsurance coverage on a portion of the same business.

We note that Aetna has been taking up such reinsurance arrangements to improve its capital efficiency and lower the weighted average cost of capital (WACC). In 2013, the company partnered with Vitality Re for a four-year reinsurance arrangement under which the amount of loss reinsurance coverage was $150 million.

The strategic alliance with Vitality Re - a newly formed insurance company that issued health insurance-linked notes in a private offering in connection with this transaction - marks the eighth reinsurance arrangement by Aetna. Notably, this partnership is an important aspect of the company's long-term capital management strategy.

Over the last one year, the shares of Aetna have been underperforming. The stock has gained only 13.6%, while the Zacks categorized Health Maintenance Organization (HMO) industry has gained 27.7%. This underperformance is likely to have stemmed from the legal issues related to its pending merger with Humana Inc. HUM , which has finally been blocked by the Justice Department on Jan 23.

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Though the blocking of the merger has resulted in shareholders losing confidence on the stock, Aetna continues to look for other means to grow and regain investors' favor. This recent agreement with Vitality Re is undoubtedly a move in this direction.

Zacks Rank and Stocks to Consider

Aetna presently has a Zacks Rank #4 (Sell). The company delivered positive earnings surprises in each of the last four quarters with an average beat of 6.25%

Some better-ranked stocks in the HMO industry are United Health Group Inc UNH and WellCare Health Plans Inc WCG . Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

UnitedHealth delivered positive earnings surprises in the last four quarters with an average beat of 3.80%

WellCare also beat estimates in the last four quarters with an average positive surprise of 40.01%.

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Aetna Inc. (AET): Free Stock Analysis Report

Humana Inc. (HUM): Free Stock Analysis Report

UnitedHealth Group Incorporated (UNH): Free Stock Analysis Report

WellCare Health Plans, Inc. (WCG): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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