U.S. health insurer WellPoint Inc on Wednesday reported a decline in second-quarter profit, but its closely watched medical costs as a percentage of premiums ratio improved and it beat Wall Street estimates.
WellPoint, which runs Anthem and Empire Blue Cross Blue Shield Plans, is the third large health insurer to beat analysts' earnings estimates for the quarter but shares have sold off as investors worried that a run in low medical costs might be ending.
WellPoint beat Wall Street expectations because this ratio was less than foreseen, Leerink Partners analyst Ana Gupte said in a research note.
"The quarter should offer relief to nervous investors," Gupte said.
WellPoint said it spent 82.7 percent of the premiums that it brought in on medical claims in what is known as the medical benefit expense ratio. That is down from 83.9 percent a year earlier.
WellPoint said net income fell to $731 million, or $2.56 per share, from $800 million, or $2.64 per share, a year earlier. Excluding gains, it reported earnings of $2.44 per share. Analysts had been expecting $2.26.
The decline in net income is partly due to a rise in sales, general and administrative expenses to 15.8 percent of operating revenue from 13.9 percent a year earlier because of new fees and continued spending due to healthcare reform.
It raised its expectations for 2014 earnings by 20 cents to at least $8.60 per share.
(Reporting by Caroline Humer; Editing by W Simon, Lisa Von Ahn and Nick Zieminski)