Cigna Reports Quarterly Loss on Investment Declines (Update1)

By Avram Goldstein
Bloomberg News
February 5, 2009

Feb. 5 (Bloomberg) -- Cigna Corp., the U.S. insurer specializing in employer-sponsored medical benefits, had a fourth-quarter loss of $209 million as the value of its investments sank.

The net loss amounts to 77 cents a share and compares with net earnings of $263 million, or 93 cents, a year earlier, the Philadelphia-based company said today in a statement. Profit excluding certain items was 49 cents a share, beating analysts' estimates. Cigna lowered its earnings forecast for the year.

Cigna's investments were battered by declining stock prices and interest rates as the U.S. slid further into a recession that began at the end of 2007. Employers eliminated 2.6 million jobs last year, eroding Cigna's enrollment in workplace health plans. Even so, the company said earnings from health insurance grew 23 percent to $209 million in the quarter, helped by the acquisition of Great-West Healthcare in April.

"They're doing OK in the managed-care environment we're in," said Matt Perry, an analyst with Wachovia Securities in New York, in a telephone interview yesterday. "Expectations are lower and margins have come down for many companies."

Cigna lost $405 million on declining prices of equities and returns on fixed-income investments held for its retirement income and death-benefit businesses, though the company stopped selling new contracts for the annuities in 2000.

The net loss also included a $35 million charge after taxes, or 13 cents a share, for the costs of cutting 1,100 jobs.

Enrollment Decline

The insurer fell 35 cents, or 1.9 percent, to $18.02 yesterday in New York Stock Exchange composite trading. Cigna has dropped 64 percent in the 12 months through yesterday.

Revenue for the quarter rose 8.1 percent to $4.82 billion. Earnings, excluding certain items, of 49 cents a share exceeded the 42 cent average of 15 analysts surveyed by Bloomberg.

For 2009, Cigna forecast adjusted earnings of $3.95 to $4.25 a share compared with the average analyst projection of $3.87. On Nov. 21, Cigna had forecast earnings of $4 to $4.30 a share.

Enrollment is expected to decline 3 percent in 2009, compared with the company's previous forecast of a 2 percent drop, Cigna said.

While Cigna's health-plan enrollment climbed 15 percent to 11.7. The gain included 1.5 million customers from the Great-West acquisition. Excluding that deal, membership fell by 130,000.

About 69 percent of the company's health-plan members are covered by self-insured employers that pay Cigna flat fees for its network of doctors and hospitals and for its claims-handling services. Employers have been shifting toward such fee-based plans and away from more profitable, higher-revenue plans for which insurers bear the financial risk of paying claims.

Medical Costs Gain

Analysts and investors view changes in the share of premium revenue spent on medical care as an indicator of future profitability. For employer-based plans, that so-called medical loss ratio was 85.7 percent in the fourth quarter, compared with 84.6 percent a year earlier.

In fourth-quarter earnings reported in the past two weeks, UnitedHealth's net income declined 40 percent from a year earlier and WellPoint Inc.'s fell 61 percent. Humana Inc. of Louisville, Kentucky, said earnings dropped 28 percent. Aetna Inc., of Hartford, Connecticut, plans to release its earnings next week.

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