August 1, 2013 / 10:18 AM / in 5 years

Cigna profit exceeds expectations; lower costs help

(Reuters) - Cigna Corp, which provides U.S. and overseas health insurance as well as disability and life insurance, reported a second-quarter profit that beat expectations on Thursday as medical costs fell and revenue rose.

A weaker U.S. economy has forced people to cut back on medical services in the past few years, reducing insurers’ payments on claims. Companies like UnitedHealth Group Inc, WellPoint Inc, and Aetna Inc have beaten expectations for the quarter because of this trend.

Cigna’s net income rose to $505 million, or $1.76 per share, from $380 million, or $1.31 per share, a year earlier.

Excluding investment gains and a loss on its pharmacy benefit management contract, profit was $1.78 per share. On that basis, analysts expected $1.60, according to Thomson Reuters I/B/E/S.

“The results looked solid. The company’s three primary divisions all exceeded my expectations, and the company’s outlook for the balance of 2013 has a conservative bias,” said Chris Rigg, an analyst at Susquehanna Financial Group.

He said the outlook did not account for as many shares as Cigna might repurchase, or that the use of medical services like doctors visits and hospital admissions could remain at the low levels of the past several years.

Cigna stock was down 1.3 percent at $76.81 in late-morning trading. Rigg said the shares were likely off because of gains in recent months.

Cigna and its competitors will face changes to their business in 2014, when state-based health insurance exchanges begin selling insurance to individuals - expected mostly to be subsidized based on income.

Cigna has been planning to sell insurance on the exchanges in five states, and said Thursday those plans were on track.

The exchanges are part of U.S. President Barack Obama’s healthcare reform law.


Revenue rose to $7.98 billion from $7.42 billion, while analysts looked for $7.4 billion.

The company took in $5.69 billion in premiums and fees in its largest division, global health care; $613 million in the global supplemental benefits business, which includes foreign health policies and supplemental Medicare coverage; and $846 million in its disability and life insurance division.

Chief Executive David Cordani said the company will drop plans and leave markets affecting about 2 percent to 3 percent of its 440,000 members because of government cuts to Medicare Advantage funding in 2014.

Other insurers are making similar plans.

“As we look to 2014, as we talked about before, (have) no doubt the environment is a disruptive environment. That will impact both product offerings and price points of the product offerings,” Cordani said during a conference call.

The company sees 2013 earnings of $6.25 to $6.65 per share, compared to a previous forecast of $6 to $6.45 per share. The analysts’ average estimate is $6.49.

Reporting by Caroline Humer; Editing by Lisa Von Ahn, Sofina Mirza-Reid and Jeffrey Benkoe

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