Cigna's 3Q profit falls; 2010 expectations rise

AP News
Posted: Oct 29, 2010 11:58 AM
Cigna's 3Q profit falls; 2010 expectations rise

Cigna Corp. said Friday its third-quarter profit fell nearly 7 percent on losses from some discontinued businesses, but commercial enrollment grew and the managed care company raised its 2010 profit expectations.

The Philadelphia insurer earned $307 million, or $1.13 per share, in the three months that ended Sept. 30. That's down from the $329 million, or $1.19 per share, in the same period last year.

Adjusted net income was $1.10 per share, and revenue climbed more than 16 percent to $5.27 billion.

Analysts polled by Thomson Reuters forecast, on average, a profit of $1.06 per share on $5.26 billion in revenue. But comparing these averages to Cigna's adjusted net income can be difficult because the insurer includes results from a discontinued business. Many analyst projections do not.

Cigna's net income included a loss of $44 million, mainly due to falling interest rates, from two businesses it discontinued in 2000.

The insurer operates its variable annuity death benefit and guaranteed minimum income benefit businesses in run-off mode, meaning it seeks no new business. The company's liabilities toward them can increase depending on how the overall market does.

Cigna also saw a $21 million benefit in the quarter because enrollees used the health care system less than expected, something other major health insurers also have reported. Cigna is the fourth-largest commercial health insurer based on enrollment.

The company expected health care use to accelerate more than it did this year and last, Chief Executive Officer David Cordani said. Growth in outpatient and professional services was slower than expected, but people sought out preventive care and kept up with their prescription medication during the quarter, so Cordani says he's not seeing "inappropriate rationing of care."

Cigna had a "strong, high-quality" third quarter, Goldman Sachs analyst Matthew Borsch said in a research note.

The analyst said Cigna's earnings diversity means its performance should be sustainable next year and beyond compared with other insurers that will be affected more by Medicare Advantage funding cuts and minimum requirements for the percentage of premiums they spend on care. That aspect of the health care overhaul law starts next year.

Cigna operates health care, group disability and life insurance in the United States. It also sells individual insurance in several countries and operates an expatriate business that provides coverage for people living outside their home countries.

Cigna's medical enrollment climbed 3 percent to 11.4 million in the third quarter compared with the same quarter last year, and the insurer expects it to grow about 3.5 percent in 2010.

Premiums and fees in the health care segment rose 19 percent to $3.35 billion compared with last year, primarily due to that membership growth and change in membership to a higher percentage of commercial and Medicare customers.

"We have good momentum stepping into 2011 off a very strong 2010," Cordani said.

Looking ahead, the company now expects a full-year profit between $4.35 and $4.50 per share, up from prior guidance of $4.10 to $4.40 per share.

Analysts expect a profit of $4.42 per share.

Company shares fell a penny to $35.65 in late Friday morning trading, while broader trading indexes were down slightly.