In line with its long term strategy of accelerating International operations, health insurer CIGNA Corp. (CI) has announced a joint venture with TTK Group in India. According to the deal, Cigna will offer its health insurance products across the Indian subcontinent via its new partner.
According to CIGNA, TTK is the best fit for its health insurance business due to a vast consumer base and prominence among several segments of the industry. TTK is an Indian conglomerate with annual revenues of about $2.2 billion , growing at approximately 30% year over year.
The company deals in consumer durables, pharmaceuticals and supplements, bio-medical devices, maps and atlases, consular visa services, virtual assistant services and health care services.
Cigna has been eyeing the Indian market for quite some time. Health insurance in India largely remains under-penetrated compared with other Asian economies like China, Vietnam, Sri Lanka and Korea. However, a host of factors such as liberalization of insurance, increasing cost of care, changing epidemiological pattern of diseases, growing awareness amongst Indians to look for various health financing options has made India an attractive market, with significant growth opportunities.
Last year it initiated negotiations with state-owned Indian banks for joint ventures to tap the insurance market in the region. Now with the announcement of this joint venture Cigna is seeking approval from the Insurance Regulatory and Development Authority of India. However, the approval can’t be expected before 2013.
Diversification
Cigna boasts a diversified health services business with significant international operations and licenses in 27 countries. While the Health care business remains a focus for the company with 70% of business in fee based offerings, the International business along with the Group Life and Disability business provides diversification – both nationally and globally and contributes as much as 20% to operating earnings. Cigna expects earnings from the International business to be $275-295 million in 2011.
Latest International Acquisitions
During September, Cigna announced the acquisition of UK-based FirstAssist Insurance Services for an undisclosed amount. The acquisition is expected to add 3 million travel and protection insurance members and also provide cross-selling opportunities across United Kingdom.
Last year, Cigna acquired Belgium based Vanbreda International for $400 million, making it the leading provider of expatriate benefits. The unit has been adding significantly to the company’s international book of business and we expect significant accretion going forward.
International Business to Contribute More
CIGNA’s International business is expected to fuel future growth. We believe that CIGNA’s distinctive presence in China and South East Asia will help bolster earnings and expand margins.
The company’s international business offers faster growth (high-double digits) and higher margins (high-single digits to low-double digits) than its commercial book. Given the aggressiveness with which Cigna is focusing on its strategy “Go Global," we expect the International business contribution to total earnings to go up to approximately one-third from one–fifth currently.
Peer Performance
Aetna Inc. (AET), one of the competitors of CIGNA, is also growing its international business. However, it derives a relatively smaller portion, approximately 2-3% of revenue and 4-5% of earnings, from overseas. While Cigna is primarily focused on Asia, Aetna’s focus is Europe. Nevertheless, going forward, we expect to see more overlaps as both companies are eying the growing economies of Asia and the Middle East.
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