AET Aetna Inc. (delisted)

CIGNA Corp.’s (CI) second quarter core earnings of $1.53 per share were fairly ahead of the Zacks Consensus Estimate of $1.29. Earnings also compare favorably with $1.38 reported in the comparable period last year. Better-than-expected results were aided by strong earnings from across the board. Earnings per share (EPS) also benefitted from lower share count compared with the year-ago quarter. 

CIGNA, the fourth-largest commercial health insurer, has reported total revenue of $5.5 billion, beating the Zacks Consensus Estimate of $5.0 billion. Revenue also upped 7% year over year, driven by higher premium and fees income. 

Consolidated premiums and fees increased 6.0% year over year to $4.8 billion, mainly based on increase in International as well as Life and Disability segments’ premiums. Net investment income, at $284 million, remained flat over the prior year.

Segment Results

Premiums and fees from the Health Care segment inched up 0.6% year over year to $3.3 billion. There was a net medical membership growth of 93,000, which included a higher mix of commercial guaranteed cost members. Operating earnings upped 13% to $280 million and reflected growth in targeted medical and specialty lines of business as well as favorable prior-year development reserve.

Premiums and fees from the Disability and Life segment hiked 10% year over year to $717 million, reflecting an increase in premiums from the disability business. Operating earnings were $88 million, down 1.1% due to a charge related to litigation matter.  

Premiums and fees from the International segment increased 36% year over year to $737 million, mainly attributable to new sales growth in the Life segment, supplemental health insurance and membership growth in the expatriate employee benefits business. CIGNA’s International business growth augurs well, and we view it as a catalyst for future growth.

CIGNA ended the quarter with $720 million in cash, down from $810 million at 2010 end.

2011 Outlook

Given the solid results and the favorable operating environment, management upped its earnings guidance provided in 1Q11. Adjusted income from operations is expected to lie in the range of $1.355 to $1.435 billion, up from the earlier forecast of $1.3 to $1.4 billion. The EPS guidance has consequently been raised to the range of $4.95–$5.25 from $4.65–$5.00 forecasted earlier.

The company now expects Health Care medical membership growth, excluding membership losses from exits of non-strategic markets including Medicare IPFFS, to be approximately 2% as against the earlier projection of 1–3% growth.

Overall, the result reflects CIGNA’s strong second quarter. The company’s bottom line benefitted boosted from price increases and exits from non-strategic markets such as the Medicare Advantage individual private-fee-for-service business. The company also showed operating momentum and gained commercial risk memberships for five quarters in a row. It is also is relatively safe owing to minimum exposure to MLR regulations, unreasonable rate reviews and health insurance exchanges. We expect the company to come up with earnings surprises going forward.

CIGNA marks the close of quarterly reporting by health insurers. Most big insurers such as UnitedHealth Group Inc. (UNH), Aetna Inc. (AET), WellPoint Inc. (WLP), Humana Inc. (HUM) reported strong second quarter on the back of lower utilization.

 
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