Travelers nears venture with Metropolitan Life

June 14, 1994|By New York Times News Service

NEW YORK -- The Metropolitan Life Insurance Co. and Travelers Inc. are expected to announce as soon as today agreements to merge their health care businesses and for Met Life to buy Travelers' group life and related businesses, people close to the negotiations said yesterday.

The companies expect that the merger of their health care businesses into a new joint venture will create the country's largest health care company, with about 13 million customers. Although that business is spread thinly across the country, the companies hope that by combining their customers they can begin approaching in many markets the 15 percent share that other managed health care companies have needed to earn a good profit.

"This would create an entity that by its sheer size will be a strong player in many different markets," said Larry Mayewski, a senior vice president for A. M. Best & Co., an insurance rating firm. "With this new company as a platform, they can get on with the job of attracting customers to their managed-care networks."

Mary McDermott, a spokesman for Travelers, and Charles Sahner, a spokesman for Met Life, both declined to comment on the status of their talks.

The new company, whose name has not been announced, will be owned equally by Met Life and Travelers. Met Life, which has more customers and a more profitable business to contribute, will provide $280 million of capital, while Travelers will contribute $370 million. Much of the Travelers contribution will come from its sale to Met Life of its group insurance and related businesses like disability insurance for $350 million.

A key element in the business plan of the new company is the growth of the managed-care health business, in which customers enroll in a health maintenance organization or some other network of physicians and hospitals. Both Met Life and Travelers have trailed other insurance companies in developing managed-care networks, but they hope to grow more rapidly by converting existing customers who are in indemnity health insurance plans in which some or all their medical bills are paid by their insurance company.

The joint venture of Met Life and Travelers is the latest of several realignments in the health care business, as companies seek partners that will improve their competitive position, or abandon businesses where they lack size or expertise.

The largest for-profit hospital chain, for example, was created late last year with the $10.2 billion merger of Columbia Healthcare with the Hospital Corp. of America. More recently, the second-largest hospital company, Healthtrust, based in Nashville, agreed last month to buy Epic Holdings, a smaller hospital company based in Dallas.

Neither Met Life nor Travelers publicly discloses the profitability of its managed-care businesses. But according to one participant in the negotiations, Met Life's business has been operating profitably, while Travelers has incurred losses partly because of heavy investments in data processing systems.

Met Life has about 3.1 million customers in managed-care arrangements, compared with 1.8 million at Travelers. In addition, the two companies have a total of 8.1 million customers who buy indemnity policies. Converting those indemnity customers to managed-care customers is key to the new company's success, according to analysts.

Because of expectations that most who buy indemnity policies will eventually switch to less expensive managed-care arrangements, insurance companies and other health care companies place far higher values on managed-care customers.

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