UNH Expands in the Middle East - Analyst Blog

UnitedHealthcare International, owned by U.S. health insurer UnitedHealth Group, Inc. (UNH), has announced an agreement with Dubai-based Al Sagr National Insurance Co. to expand in the Middle East.

Per the agreement, UnitedHealth will provide health insurance and other allied services to employers who have employees in Middle Eastern countries such as Saudi Arabia, the United Arab Emirates, Jordan, Qatar, Oman, Lebanon, Bahrain and Kuwait.

The U.S. insurer has not yet projected the amount of revenue accretion from the agreement. We think the deal will offer a decent addition to the revenues given a surging demand for medical facilities and health care services as a result of population growth in the Middle East. Moreover, demographic changes, increase in income and access to modern facilities has led to greater instances of lifestyle related diseases like diabetes, heart diseases and obesity in the region. Increasing awareness has automatically raised the demand for health care services.

Many countries in the Middle East are focused on providing the best-in-class health care services for both the local as well as the expatriate population. A majority of them have in fact made health insurance mandatory for expatriates.

On the other end of the spectrum, U.S. health insurers have been forced to look for other revenue options. Geographical diversification features prominently in their plan of action as the Health Care Reform imposes a lot of restrictions on the insurers. Apart from diversifying globally, UnitedHealth is also expanding its health service business, branded as Optum, and has made a number of acquisitions recently in this regard.

Also, other U.S. health insurers, CIGNA Corp. (CI) and Aetna Inc. (AET) have recently ventured into international markets. Cigna is expanding its expatriate business throughout Asia and Europe while Aetna is eyeing markets in China, Southeast Asia and India. Both these companies expect international business to fuel long-term growth.

UnitedHealth currently retains a Zacks # 2 Rank, which translates into a short-term ‘Buy’ rating. Considering better-than-average fundamentals, we are also maintaining our long-term “Outperform” recommendation on the shares.

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