Cigna posts lower 1Q profit on health care weakness, charges

Email|Print|Single Page| Text size – + By Deborah Yao

AP Business Writer / May 1, 2008

PHILADELPHIA—Health insurer Cigna Corp. posted an 80 percent drop in first-quarter profits due to softness in its core health care unit and hefty charges in its annuity reinsurance business.

The Philadelphia-based company also trimmed its 2008 earnings outlook. Cigna shares fell 4 percent, or $1.71, to $41 Thursday.

Cigna earned $58 million, or 21 cents per share, in the quarter, compared with $289 million, or 98 cents, in the quarter a year earlier.

Profits include $195 million, or 69 cents per share, of charges from Cigna's guaranteed minimum income benefits business mainly related to accounting and litigation matters. While the reinsurance business has been sold, Cigna retains some accounts that it still services.

Revenue rose 4.4 percent to $4.6 billion as weakness in health care was offset by other lines of business.

Excluding one-time items, Cigna reported adjusted earnings from operations of $265 million, or 94 cents per share, compared with $279 million, also 94 cents due to fewer shares outstanding.

Analysts surveyed by Thomson Financial expected a slightly higher profit -- 95 cents per share -- but lower revenue, $4.55 billion.

Chief Executive Ed Hanway told analysts in a conference call that the environment for health care was "challenging," but that it was offset by strength in Cigna's disability, life and international businesses.

"This diverse mix of business provides us with unique opportunities to grow profitably in today's difficult market," he said.

In the quarter, health care profits fell 18 percent to $138 million after taxes, as higher costs ate into premiums and fees, which rose 1 percent to $2.7 billion. Expenses included the integration costs for Colorado-based Great-West Healthcare, which Cigna agreed to acquire last year.

Health care membership rose to 10.4 million, excluding 1.4 million members acquired from Great-West, from 9.8 million a year ago.

"The company is struggling with an extremely price-competitive market, which is causing their membership growth to slow," said Dave Shove, an analyst at BMO Capital Markets. "They are maintaining their pricing discipline, but they are not selling as much ... as people hoped they would."

Cigna's group disability, life and accident insurance business earned $68 million after taxes, up from $60 million a year earlier. The boost included a $3 million one-time gain related to reserve studies. Premiums and fees were up over 9 percent to $631 million.

Cigna's insurance to expatriates earned $52 million in the quarter, up 37 percent. Premiums and fees were $472 million vs. $414 million.

Looking ahead, Cigna forecast full-year adjusted earnings of $1.16 billion or $1.22 billion, down from its prior expectation of $1.165 billion to $1.225 billion. That translates in both cases to earnings per share of $4.05 to $4.25, compared with analysts' average estimate of $4.25.

Cigna sees health care earnings coming in between $735 million and $775 million, including the Great-West acquisition. That's down from its forecast last month of $740 million to $780 million.

Medical membership is expected to rise between 2 percent and 2.5 percent organically, narrower than the prior forecast of 2 percent to 5 percent.