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HC2 Completes One LTCI Deal, Seeks More

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Continental General Insurance Company, a subsidiary of HC2 Holdings Inc., today completed a major long-term care insurance (LTCI) deal with Humana Inc. — and Continental managers are out looking for more LTCI risk transfer deals.

Continental General paid $10,000 in cash to Humana Inc., for the shares of KMG America Corp., the parent company of Kanawha Insurance Company.

In exchange, Continental General received Kanawha’s assets, $195 million in extra cash from Humana, and responsibility for about 29,300 LTCI policies written by Kanawha.

(Related: Humana Finds New Home for LTCI Unit)

Continental General will emerge from the deal with about $3.8 billion in cash and invested assets, up from $1.5 billion before the close of the transaction.

Philip Falcone, HC2′s chief executive officer, said completing the deal marks a significant milestone in Continental General’s growth.

“We believe this transaction validates our platform and positions us as the counterparty of choice for future [LTCI] transactions,” Falcone said.

Falcone said Wednesday, during a conference call with securities analysts, that Continental General managers believe that completing such a large, high-quality, complicated transaction will help Continental General grow more quickly.

“I think getting the regulatory approval from a number of states we had to was a big, big step for us and gives us a lot of credibility,” Falcone said.

HC2 and Continental General

HC2 is a publicly traded New York-based company that buys and runs other companies.

It hired James Corcoran, a former New York state insurance superintendent, to run, and expand, its insurance business in 2015. One goal has been for the company to get into the business of buying unwanted blocks of LTCI business from insurers.

HC2 agreed to acquire United Teacher Associates Insurance Company and Continental General Insurance Company from American Financial Group Inc. in April 2015.

Thanks to the American Financial deal, Continent General is already administering about 58,000 LTCI policies. The company is also administering about 35,000 life policies and annuity contracts.


Humana — a Louisville, Kentucky-based health insurer — acquired Kanawha’s parent, KMG, in 2007, when life insurers still thought that interest rates would go up and help improve the performance of blocks of old LTCI business.

Humana paid $188 million for KMG at the time and assumed $50 million in debt. KMG then was providing medical stop-loss arrangements, or insurance for health plans, for about 473,000 self-insured employer health plans, in addition to the LTCI business.

KMG executives said at the time that they believed the LTCI block was performing well.

Kanawha now has about $2.4 billion in cash and invested assets, about $160 million in statutory total adjusted capital, and about $150 million in statutory surplus, according to HC2.

HC2 says in a report filed with the U.S. Securities and Exchange Commission that it has agreed with South Carolina regulators to move the official regulatory home of Kanawha to Texas, from South Carolina, and to merge Kanawha with and into Continental General.

HC2 says it also has agreed to keep Kanawha’s risk-based capital ratio to at least 450% for the required level for two years.

HC2 says it agreed separately, with Texas regulators, to keep Continental General’s risk-based capital level at 450% of the minimum for at least two years, and then at 400% for the following three years.

LTCI Deals

Wilton Re, a U.S. reinsurance affiliate of the Canada Pension Plan Investment Board, agreed Aug. 1 to assume responsibility for a block of about 87,000 old LTCI policies from CNO Financial Inc.’s Bankers Life and Casualty Company unit.

A few days earlier, analysts at Fitch Ratings had hinted that they might know about more LTCI risk transfer deals in the pipeline, by suggesting that LTCI issuers could make more LTCI risk transfer deals if they give more information about how their LTCI businesses are performing.

Impact on Agents

LTCI policyholders could see changes in mailing addresses and, possibly, service levels when Continental General takes charge of the old Kanawha LTCI policies.

In theory, the idea that buyers for LTCI issuers and old blocks of LTCI business could help improve the overall state of the stand-alone LTCI market, by giving direct writers a sense that issuers can move ahead with resolving problems with old blocks of business and, possibly, arrange for new reinsurance more easily for any new LTCI coverage they sell.

— Read HC2 Still Wants Long-Term Care Insurance Blocks)on ThinkAdvisor.

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