UPDATE: Aetna To Buy Genworth's Medicare-Supplement Unit For $290 Million

Aetna Inc. (AET) agreed to acquire a Medicare supplemental-insurance business from Genworth Financial Inc. (GNW) for $290 million, the latest expansion by a health insurer into the growing market for senior-citizen health plans.

Aetna, based in Hartford, Conn., said the acquisition would expand its footprint in the Medicare Supplemental business, which is expected to grow substantially as the Baby Boom generation begins to retire.

Last week, Aetna rival WellPoint Inc. (WLP) also cited demographic trends for its nearly $800 million purchase of CareMore Health Group, which runs Medicare Advantage plans as well as health clinics.

The acquisition of Genworth's Medicare Supplement business will add about 145,000 members to Aetna's rolls. Aetna said the business had about $317 million in net earned premium for 2010.

Medicare Supplement, also known as Medigap, is health insurance sold by private companies to fill gaps in the basic coverage provided by Medicare, the government health plan for seniors.

"Medicare Supplement is expected to be a fast-growing product in the coming years as individuals seek peace of mind for out-of-pocket costs and employers look for added retiree coverages," Aetna Chief Executive Mark Bertolini said in a press release.

Aetna said the deal would be neutral to 2012 earnings and to add to earnings modestly thereafter. Aetna will maintain the current management of the Genworth business, staff and operations, which are primarily based in Brentwood, Tenn.

The deal includes Continental Life Insurance Co. and its American Continental Insurance Co. unit. Aetna will also reinsure certain related blocks of in-force business.

Executives with Genworth, of Richmond, Va., had previously said they were examining a possible sale of the unit as they work to refashion the company in the wake of the financial crisis, and refocus its retirement and protection unit.

Chief Executive Michael Fraizer has said he wants to concentrate on areas where Genworth has greater competitive advantages, including its long-term care and wealth management operations.

"Looking ahead, we continue to actively pursue strategies that free capital for targeted redeployment and enhance shareholder value over time," Fraizer said in a press release.

Genworth said Monday it will record a gain of $35 million related to the sale, and sees the deal closing in the fourth quarter.

Aetna shares rose 26 cents to $43.12 in recent trading; Genworth rose 27 cents, or 2.6%, to $10.37.

-By Peter Loftus, Dow Jones Newswires; +1-215-982-5581; peter.loftus@dowjones.com

--Erik Holm and Melodie Warner contributed to this article.

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