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4Q Earnings Rise for Cigna Corp

Source: Dow Jones-Dinah Wisenberg Brin


Posted on 03 Feb 2011

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Fourth-quarter earnings rose 40% for Cigna Corp as the managed-care company benefitted from a trend of unusually light use of medical services, which helped health insurers last year, and ongoing membership growth.

Arelatively low tax rate, one-time items and recognition of claims reserves that didn't have to be used in prior periods helped results, which beat analysts' expectations.

The company for the new year projected earnings of $4.30 to $4.70, missing the average Street forecast of $4.73, although analysts consider the view conservative and note it excludes share repurchases. Cigna projected membership will be flat to 3% higher this year, excluding losses from market exits.

Cigna and some of its peers had delayed their 2011 guidance amid uncertainty over potential effects of provisions of the new health-coverage law that take effect this year.

"(Cigna) posted a strong finish to 2010, with revenue and EPS upsides," Jefferies & Co. analyst David Windley said. Guidance for 2011 appears conservative, "but this cautious outlook is a consistent theme" among the managed-care companies, he said.

Deutsche Bank analyst Scott Fidel called it "a strong quarter with upside in each key business segment," and Goldman Sachs analyst Matthew Borsch said low growth in medical costs, offset by higher operating expenses, drove the results.
Analysts noted that the percentage of premium revenue used to pay members' medical claims--a key measure known as the medical loss ratio--in

Cigna's main commercial risk segment declined to 78.5% from 84.4% a year earlier. Investors like to see insurers contain the MLRs; regulations under the new health-coverage laws, however, will require insurers to spend at least 80% or 85% of premium revenue on patient care as of 2011, dependent on type of health plan.

While several analysts considered the results hardy, Citigroup's Carl McDonald disagreed, saying the fourth quarter wasn't strong for Cigna, with resultssignificantly boosted by favorable one-time items and a much lower than normal tax rate. Rising operating expenses made for health-segment results that fell short of McDonald's expectations.

The industry benefited last year as consumers reduced their use of medical services amid the sluggish economy and high unemployment.

The managed-care industry and analysts expect lower earnings this year compared with 2010 because of health-policy changes--notably the new minimum medical-spending requirements for insurers--and likely return of demand to typical levels. Industry earnings are expected to grow in 2012 and beyond.

Cigna reported a profit of $461 million, or $1.69 a share, compared with $330 million, or $1.19 a share, a year earlier. Excluding effects of Cigna's legacy businesses and investment gains, earnings rose to $1.15 from $1.03. Revenue increased 17% to $5.43 billion, fueled by increases in premiums fees that grew with membership.

Medical membership rose 3.6% to 11.4 million from 11 million from a year earlier but dropped 6,000 during the quarter. Commercial risk membership rose nearly 15% year over year, while Medicare membership nearly tripled. Administrative, fee-for-service membership, which represents most of Cigna's health-care business, rose only slightly.


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