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U.S.health insurer, CIGNA Corp. (CI) recently announced the details of its joint venture with the TTK Group of India. The formal announcement of the deal was made in November, 2011 and will see Cigna offering a range of health insurance products across the Indian subcontinent via its new partner.

The venture has been named Cigna TTK and will be headquartered in Mumbai, the financial capital of India. Sandeep Patel, in charge of overseeing Cigna’s Middle East business since 1998, has been appointed as the CEO and the Managing Director of the venture.

According to Cigna, TTK would be best fit for its health insurance business due to its vast consumer base and prominence among several segments of the industry. TTK is an Indian conglomerate with annual revenues of about Rs.10 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 had 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 future growth opportunities.

Last year, the company 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. However, news on that front is not 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, contributing as much as 20% to operating earnings. Cigna’s earnings from the International business are likely to be in the $275 - $295 million range for fiscal 2011.

Latest 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 weexpect more significant accretion in 2012.

International Business to Contribute More

CIGNA’s International business is expected to fuel its future growth. We believe that  its distinctive presence in China and South East Asia 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 “Go Global” strategy, we expect the International business’s 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 international business.

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 eyeing growing economies of Asia and the Middle East.

 
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