American Financial Group, Inc. (NYSE/NASDAQ: AFG) announced today that it reached a definitive agreement to sell its Medicare Supplement and Critical Illness businesses (headquartered in Austin, Texas and doing business as Great American Supplemental Benefits Group) to Cigna Corporation (NYSE: CI) for approximately $295 million in cash, subject to post-closing adjustments based upon statutory capital and surplus of transferred businesses as of the closing date. AFG expects to realize an after tax gain of approximately $95-$105 million on the sale, which is expected to close late in the third quarter or early in the fourth quarter of 2012.
On a GAAP basis, these businesses contributed approximately $400 million of assets, $325 million of revenues and $34 million of pretax operating earnings to AFG’s results in 2011, and $80 million of revenues and $6 million of pretax operating earnings in the first quarter of 2012. Accordingly, AFG expects this transaction to be slightly dilutive to earnings in the short term.
S. Craig Lindner, Co-CEO of American Financial Group, Inc. stated, “Completion of this transaction allows AFG to devote capital to its core specialty property and casualty insurance and annuity businesses as well as to repurchase AFG common stock, as appropriate. At the same time, we are pleased that our Medicare Supplement and Critical Illness businesses will help to expand Cigna’s presence in the U.S. Individual and Seniors segments through a broad range of consumer focused supplemental health solutions.”
AFG’s financial adviser on the transaction was Goldman, Sachs & Co.Following this transaction, AFG’s Austin-based operations will consist solely of its run-off long-term care business, which has a book value of approximately $170 million. Given its recent unsuccessful efforts to sell the long-term care business and the difficulty to predict future claims for this business, AFG plans to have an external actuarial study performed of its long-term care reserves. This study will supplement the Company's regular internal quarterly analysis and is expected to be completed no later than the fourth quarter of this year. As disclosed in AFG’s SEC filings, adverse changes in reserve assumptions in future periods could result in a charge to earnings.