AET Aetna Inc. (delisted)

Last week, CIGNA Corp. (CI) made two announcements relating to the expansion of its international business. Firstly, it finalized the acquisition of UK-based FirstAssist Insurance Services and secondly, it declared the addition of CIGNALinks Brazil to its global health care network.

The buyout of FirstAssist, a leading UK Travel and Protection Insurance Company, is a part of Cigna’s long term strategy of accelerating its International operations under its growth strategy ”Go Global.”

Connecticut-based Cigna expects the addition of FirstAssist to provide its members more breadth in terms of product choice, thereby enabling it to penetrate further into Europe and Asia Pacific. Cigna will also be able to leverage FirstAssist’s existing 3 million policy holders in the United Kingdom.

The inclusion of CIGNALinks Brazil via Gama Saude, the largest local network of doctors and hospitals, marked the expansion of Cigna in Brazil.

The company’s partnership with local provider, Gama Saude will benefit its expatriate customers by allowing discounts and lowering out-of-pocket costs.  

CIGNALinks is a unique program, which through its electronic data transmissions instantly provides information to its customers about benefits plan and eligibility. It is aimed at simplifying the administration of health care in the host country for its members.

Currently, CIGNALinks is present in countries like the United States, Spain, United Kingdom, Hong Kong, Singapore, Australia, the Middle East, and several countries in Africa. CIGNALinks benefits customers in more than 20 countries and jurisdictions.

Cigna qualifies as one of few health insurance companies in US as having a significant international business in 27 countries. While the Health care business in U.S. has been the main focus for Cigna (70% of its total revenue), the company is rapidly growing its International business (11% of the total revenue) to diversify away from the increased regulation from the Health care reform in the U.S.

CIGNA’s International business is expected to fuel its 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 traditional business.

Given the aggressiveness with “Go Global,” we expect the International business contribution to total earnings to rise approximately one-third, from the current one-fifth.

One of its peers 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 primarily focuses on Europe and Cigna on Asia. However, going forward we expect to see more overlap as both companies are eyeing the growing economies of Asia and the Middle East.

Cigna currently retains a Zacks # 3 Rank, which translates into a short-term ‘Hold’ rating. Considering the fundamentals, we are also maintaining our long-term “Neutral” recommendation on the shares. 

 
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