UPDATE 3-Cigna profit drops 53 percent, sees dour 2009

* Q3 EPS of 62 cents vs $1.28 a year ago

* Sees Q4 loss of 45 cents/share

* Sees FY 2009 EPS of $4-$4.30, below estimates

* Sees decline in membership for 2008, 2009

* Shares slump 18.1 percent (Recasts; adds analyst comment, shares, byline)

By Lewis Krauskopf

NEW YORK, Oct 30 (Reuters) - Health insurer Cigna Corp (CI.N) forecast disappointing profit growth for 2009 as it continues to struggle with competition and broader economic turmoil, sending shares down more than 18 percent on Thursday.

The company projected it would see its enrollment fall by about 2 percent next year as it loses members to lower-priced rival plans and employer layoffs. Cigna also cut its health insurance outlook for 2008, after doing so in August.

The dour forecast came as Cigna posted a 53 percent decline in third-quarter profit, hurt by higher liabilities because of the market swoon that will also lead to a fourth-quarter loss.

Cigna appears to have swung from taking market share to ceding ground, while rivals such as Aetna Inc (AET.N) gain, said portfolio manager David Heupel.

"The fact that they moved their healthcare segment earnings down again after they did it last quarter is a little alarming," Heupel said. "They seem to be losing a little bit of their competitive footing right now."

Cigna CEO Ed Hanway said the company was "not satisfied" with its 2009 forecast, while the company is staying disciplined on pricing to maintain its profit margins. Cigna is working to reduce operating expenses and may take a fourth-quarter charge tied to cost-cutting initiatives.

The Philadelphia-based company projected 2009 earnings of $4 to $4.30 per share, excluding items. Analysts were expecting $4.70, according to Reuters Estimates.

Health-insurer stocks have been slammed this year by a series of profit warnings, as well as recent investors worries about sizable write-downs stemming from the credit crisis. Cigna's quarterly results showed strain from the market volatility.

For the quarter, net income fell to $171 million, or 62 cents per share, from $365 million, or $1.28 per share, a year earlier.

Cigna was hurt by two businesses it no longer actively markets: a minimum income benefits business and a death benefits business, which involve annuities. In both businesses, the company said its liabilities increase in periods of declining equity markets and interest rates.

The company reported operating earnings of 89 cents per share, including 25 cents of losses from its death benefits business.

Analysts on average expected $1.06, according to Reuters Estimates.

Excluding the discontinued businesses, several analysts calculated that earnings of $1.14 exceeded their estimates, including Oppenheimer & Co analyst Carl McDonald.

But, McDonald said in a research note, "This will be a tough quarter for the market to digest."

Revenue rose 10 percent to $4.9 billion.

Cigna also said it may have to contribute to its pension plan based on funding requirements. Aetna said on Wednesday that pension expenses would weigh on results next year.

Cigna said it expected to post a fourth-quarter loss of 45 cents per share, as the death benefits business weighs. The estimate is based on market conditions at the end of October, Cigna said, and the result could ultimately differ.

Cigna projected 2008 adjusted income from operations in its healthcare segment at $690 million to $710 million. In August, it had cut the outlook to a range of $700 million to $730 million, citing weaker enrollment and cost trends.

The company sees medical membership at year-end down about 1 percent, excluding its Great-West acquisition, after previously expecting it to be flat.

Cigna projected full-year adjusted income from operations at $3.40 to $3.50 per share.

Cigna's report follows mixed earnings from rivals, including poor results from Coventry Health Care Inc (CVH.N).

Cigna shares fell $3.60 to $16.25 in morning trade on the New York Stock Exchange. They have fallen 68 percent this year, compared to a 62 percent drop for the S&P Managed Health Care index .GSPHMO. (Reporting by Lewis Krauskopf; Editing by Lisa Von Ahn, Dave Zimmerman)