May 2, 2013 / 4:41 PM / 7 years ago

Cigna profit beats expectations on low medical costs

(Reuters) - Cigna Corp (CI.N) on Thursday reported higher-than-expected quarterly earnings that benefited from the insurer’s acquisition of Medicare specialist HealthSpring and low medical costs as visits to doctors and hospitals dropped.

Shares of the No. 5 U.S. health insurer were up 4.3 percent on Thursday.

Competitors including UnitedHealth Group Inc (UNH.N), WellPoint Inc WLP.N and Aetna Inc AET.N have also posted strong quarterly profit due to Americans’ low use of medical services.

Low medical spending enabled Cigna to retain and expand product sales to customers for whom it administers benefits, about 85 percent of its health insurance business. The other 15 percent of its health insurance business is more profitable as it spends less on medical services, Chief Executive David Cordani said in an interview.

Cigna and rivals are preparing for the October 1 launch of health exchanges, which were formed as part of the Affordable Care Act and will create a new market for insurance for individuals starting in 2014.

Cordani said the company would participate on a “limited” number of exchanges in specific regions.

“You should assume that where we will play are markets where we are well-established today in the employer market and with physicians and that we would be bringing to market new exchange-based alternatives. You should assume that in 2014 it wouldn’t be a de novo market for Cigna,” he said.


Cigna’s first-quarter net income fell to $57 million, or 20 cents per share, from $371 million, or $1.28 per share, a year earlier.

The results included a previously announced $507 million charge for a February deal with Berkshire Hathaway Inc (BRKa.N), which will reinsure two of Cigna’s closed annuity reinsurance businesses and remove risk from the company’s balance sheet.

Excluding that charge and other items, earnings were $497 million, or $1.72 per share, up from $359 million, or $1.24 per share, a year earlier.

On that basis, analysts were expecting $1.43 per share, according to Thomson Reuters I/B/E/S.

“The beat was driven by stronger-than-expected medical cost management,” Oppenheimer & Co analyst Michael Wiederhorn wrote in a research note.

Cigna administers health insurance benefits for companies in the United State and overseas; sells health, life, disability and accident insurance; and offers Medicare and Medicaid plans.

The company raised its 2013 earnings outlook to a range of $6.00 to $6.45 per share from its February forecast of $5.85 to $6.25 - also a raised projection. Analysts expect profit of $6.35 per share this year.

Cigna shares were up 4.3 percent at $68.18 at midday on the New York Stock Exchange on Thursday. The shares have risen about 27.5 percent so far this year.

Reporting by Caroline Humer in New York; editing by Lisa Von Ahn and Matthew Lewis

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