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As part of its long term strategy of accelerating its International operations, health insurer CIGNA Corp. (CI) has announced the acquisition of UK based FirstAssist Insurance Services.

The financial terms of the deal were not disclosed. Connecticut based Cigna expects that the addition of FirstAssist’s products and services will widen its product portfolio, providing more breadth in terms of product choice and, thereby, enabling it to penetrate further into the UK and across the globe.

Cigna will also be able to leverage the company’s existing 3 million policy holders in the United Kingdom. Cigna will acquire the company from Barclays Private Equity of Barclays PLC (BCS). The deal is expected to see light at the end of the year. 

International Business Providing 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, contributing as much as 20% to operating earnings.  Cigna expects 2011 earnings in the International business of $275-295 million.

Earlier Strategic Investments

Last year Cigna acquired Belgium-based Vanbreda International for $400 million, making it the leading provider of expatriate benefits. In the second quarter the Vanbreda unit saw earnings growth above 20% year over year and contributed approximately $5 million after-tax to operating income. We expect more significant accretion in 2012.

Apart from buying whole businesses, Cigna is also considering joint ventures in regions that have restrictive regulations, such as India. Last year the company initiated negotiations with state-owned banks in India for joint ventures to tap the insurance market in the region. 

Greater Contribution of International Business over Time

CIGNA’s International business is expected to fuel future growth. We believe that CIGNA’s distinctive presence in China, Southeast Asia and Europe will allow it to 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 rise approximately one-third, instead of one-fifth currently.

Peer Competition

Its peer Aetna Inc. (AET) is also growing its international business; though it derives a relatively smaller portion from the segment (approximately 2-3% of revenue and 4-5% of earnings). Aetna’s primary focus is Europe and Cigna’s is Asia; but going forward we expect to see more overlap as both companies are eyeing the growing economies of Asia and the Middle East.

 
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