--Cigna caps reports for big managed-care firms with
better-than-expected earnings
--Company raises full-year guidance
--HealthSpring deal contributes to surging revenue
(Updates with comments on pricing, medical costs and
Medicaid.)
By Jon Kamp
Cigna Corp.'s (CI) second-quarter earnings slipped 2.8%,
pressured by losses in a business Cigna is departing, but the
health insurer still turned in a better-than-expected quarter as a
recent acquisition and membership growth pumped up revenue.
Cigna--which raised its full-year adjusted earnings guidance by
five cents a share--capped a turbulent reporting season for the
biggest managed-care firms on a solid note. While UnitedHealth
Group Inc. (UNH) and Aetna Inc. (AET) also beat Wall Street
expectations and raised guidance, WellPoint Inc. (WLP) and Humana
Inc. (HUM) had more complicated quarters and guidance cuts.
"Cigna's results look good enough to please, particularly given
the mixed bag of results reported by industry peers thus far for
[the second quarter]," Susquehanna analyst Chris Rigg said.
Shares of the Bloomfield, Conn., company rose 1.3% to $41.56 in
recent trading while shares of other big managed-care firms
declined.
The mixed industry results have stoked concerns about pressure
on profit margins from factors like rising health-care costs and
more competitive pricing for commercial insurance. Cigna, for its
part, didn't note meaningful changes compared with its earlier
projections.
The company set commercial prices this year expecting a gradual
medical-cost trend increase through the year, "and it's beginning
to manifest itself in the second quarter," Chief Executive David
Cordani said on a conference call Thursday. But the company hasn't
seen an increase on the Medicare side, he added. Cigna officials
said medical-cost trend expectations for the year haven't
changed.
On the pricing front, Mr. Cordani noted that Cigna highlighted
some rising competitive "intensity" last year, but that there's "no
meaningful change in pattern." The vast bulk of the company's
commercial customers are on administrative-services contracts,
which means they assume financial risk for medical claims.
Cigna reported a second-quarter profit of $380 million, or $1.31
a share, down from $391 million, or $1.43, a year earlier. The
company reported a bigger loss in the recent period connected to a
guaranteed minimum income benefits business it has long been
winding down. Excluding this impact, per-share earnings rose to
$1.49 from $1.47. Revenue jumped 35% to $7.46 billion.
Analysts polled by Thomson Reuters had forecast earnings of
$1.42 a share on revenue of $7.24 billion.
The company, which has traditionally focused more on commercial
health coverage, bought Medicare-focused insurer HealthSpring Inc.
in January for $3.8 billion, pushing it further into a market for
senior-focused plans. Cigna also agreed in May to buy American
Financial Group Inc.'s (AFG) Medicare supplement and
critical-illness businesses for about $295 million in cash.
Managed-care firms have been bulking up their coverage of
seniors as baby boomers age and Medicare Advantage plans--the
insurers' version of the government program--become more popular.
WellPoint also made a big move into Medicaid, the program for the
poor, by announcing last month a $4.46 billion deal to buy
Medicaid-focused insurer Amerigroup Corp. (AGP).
That announcement sent shares of Amerigroup's competitors
soaring on expectations WellPoint's big managed-care peers might
make similar moves. The market for Medicaid plans is growing
quickly as states look for help to restrain costs, and those state
relationships may give Medicaid companies an edge when competing
for so-called dual-eligible patients who also qualify for
Medicare.
Cigna is interested in the dual-eligible market, but is more
interested in growing there through HealthSpring or partnerships,
Mr. Cordani said on the call. Large-scale deals in Medicaid are not
a "high priority," he added in an interview. On Tuesday, Aetna
Chief Executive Mark Bertolini repeated his view that prices for
Medicaid-focused companies are too high.
Cigna's health-care segment posted a 52% increase in premiums
and fees, boosted by the HealthSpring deal, organic business growth
and rate increases. The margins in this business declined because
of HealthSpring and a smaller contribution from excess reserves
that Cigna previously set aside to cover expected member costs.
Total medical membership rose 9.7% to 13.8 million from 12.6
million a year ago.
The company is now expecting full-year adjusted earnings between
$5.25 and $5.60 a share. Analysts, on average, were expecting
earnings of $5.51 a share, according to Thomson Reuters.
--Melodie Warner contributed to this report.
Write to Jon Kamp at jon.kamp@dowjones.com
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