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Universal American (UAM) to Sell Traditional Insurance Business in $43M+ Deal; Declares Special Dividend

October 8, 2015 5:26 PM EDT

Universal American (NYSE: UAM) announced that it has entered into a definitive agreement to sell its Traditional Insurance business to Nassau Reinsurance Group Holdings, L.P. (“Nassau”). Universal American’s Traditional Insurance business includes its Medicare Supplement, Long Term Care, Disability, Life, and other ancillary insurance products, all of which have been in run-off since 2012.

Under the terms of the agreement, Nassau will acquire 100% of Constitution Life Insurance Company and The Pyramid Life Insurance Company, as well as the Traditional Insurance business written by American Progressive Life & Health Insurance Company of New York. The purchase price is approximately $43 million, subject to adjustments based on capital and surplus at closing. Universal American will also be entitled to receive potential earn-out payments through June 30, 2018 that may result in additional payments of between $13 million and $24 million. The transaction is estimated to generate an after-tax loss of approximately $150 million, including the write-off of approximately $53 million in intangible assets. The closing of the agreement is expected in early 2016 subject to customary closing conditions, including regulatory approval from the Texas, Kansas and New York insurance departments. Upon closing, Nassau will fund an additional $20 million in equity capital to support the transaction and strengthen the business moving forward.

Nassau is an insurance and reinsurance business founded in April 2015 by insurance industry executives Phillip J. Gass and Kostas Cheliotis. Nassau is backed by Golden Gate Capital, a private investment firm founded in 2000 with more than $15 billion of committed capital.

Richard A. Barasch, Chairman and CEO, commented, “Our core strength is our proven ability to partner with providers, especially primary care physicians, to improve health outcomes while reducing cost in the Medicare population. With the sale of our Traditional Insurance businesses, we can better concentrate our efforts on growing Medicare Advantage in Southeast Texas and upstate New York, for which we were recently awarded 4-Star plan status for over 96% of our total members, and continuing the positive momentum in our Medicare Shared Savings Program ACO business.

“While this transaction will generate a loss, it allows us to exit the Long Term Care business, as well as other non-strategic business lines, and will free up additional capital that can be harvested for the benefit of our shareholders.”

Phillip J. Gass, Nassau’s Chairman and CEO, said, “Nassau is excited to acquire UAM’s Traditional Insurance business, providing UAM with a complete solution to exit these business lines. With stable profitability and predictable cash flow, we believe the Traditional Insurance business is an attractive asset for Nassau that will establish our onshore reinsurance platform which we intend to grow through additional closed block reinsurance transactions. Further, with the injection of $20 million in new capital, we are bolstering the business’ financial strength to support its policyholders and allow for future growth opportunities.”

Special Cash Dividend; Repayment of Debt

Universal American also announced that its Board of Directors approved the payment of a special cash dividend of $0.75 per share, payable on October 26, 2015 to shareholders of record on October 19, 2015. As of September 30, 2015, there were approximately 84 million shares of common stock outstanding.

Universal American also announced that it will repay the outstanding balance on its term loan of $44.9 million and terminate its credit facility, including the unused revolver, effective October 14, 2015.

Mr. Barasch continued, “We are also pleased to announce a $0.75 per share special dividend to our shareholders. Cumulatively since 2010, Universal American will have returned $19.35 per share ($1.6 billion) in cash dividends to its shareholders. After payment of the dividend and the repayment of our term loan, our cash and capital position remain strong, with approximately $55 million in cash at the holding company and more than adequate capital to support the ongoing growth in our operating companies. When the sale of the Traditional Insurance business closes, the proceeds will also be available to the parent.”

A portion of the dividend will be a Qualified Dividend and a portion will be a Return of Capital which reduces the holder’s basis in their Universal American stock. The actual breakdown will be determined in the first quarter of 2016 and posted on the Company’s website.

Proforma Balance Sheet

Below is a comparison of the June 30, 2015 Reported and Estimated Proforma Balance Sheet that incorporates the terms of the sale of the Traditional Insurance business, $0.75 per share dividend, $44.9 million Credit Facility repayment and the $33.1 million cash we received in connection with the sale of our minority interest in naviHealth in August 2015:

Balance Sheet Data ($s in Millions, except per share amounts)

Reported

June 30, 2015

Estimated Proforma

June 30, 2015

Total cash and investments $871.1 $372.9
Total assets $1,901.7 $705.9
Total policyholder related liabilities $1,072.4 $96.3
Total reinsurance recoverable (ceded policyholder liabilities) $623.0 $2.9
Outstanding bank debt $44.9 $0.0
Mandatorily redeemable preferred shares $40.0 $40.0
Total stockholders' equity $607.3 $408.0
Diluted book value per common share $7.16 $4.81
Diluted common shares outstanding at balance sheet date 84.9 84.9
Non-GAAP Financial Measures ($s in Millions, except per share amounts)
Total stockholders’ equity (excluding AOCI) $600.3 $404.6
Diluted book value per common share (excluding AOCI) $7.07 $4.77
Diluted tangible book value per common share (excluding AOCI) $5.58 $3.89
Debt to total capital ratio (excluding AOCI) 12.4% 9.0%
Cash & Capital Measures ($s in Millions)
Total Unregulated Cash & Statutory Capital $370.0 $270.0
Estimated “excess” of 350% Risk Based Capital $185.0 $120.0


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