Cigna Stock Jumps After Earnings Beat Expectations

Investors snapped up shares of Cigna Corp. Thursday after the managed care company reported fourth-quarter earnings that beat analyst expectations and offered a dose of reassurance.

Philadelphia-based Cigna said it lost $209 million, or 77 cents per share, in the quarter compared with a profit of $263 million, or 93 cents per share, a year ago.

But the company also reported an adjusted profit -- excluding one-time items -- of 49 cents per share and said revenue increased 8 percent to $4.82 billion.

Analysts polled by Thomson Reuters expected, on average, a profit of 41 cents per share on $4.75 billion in revenue. They typically exclude one-time items from their estimates.

Cigna cut management bonuses by $35 million, an expense reduction that helped the company beat Wall Street estimates, Wachovia analyst Matt Perry said in a research note.

Oppenheimer analyst Carl McDonald said in an interview the company met expectations with its pension expenses and a loss from its variable annuity death benefits segment, for which it no longer writes new business and operates in what's called "run-off" mode.

"From Cigna's perspective, the only thing the market cares about right now is whether they're going to have to raise capital," he said. "It doesn't appear that they really have any kind of capital needs whatsoever."

Chairman and Chief Executive H. Edward Hanway told analysts during a conference call his company's capital position was strong, "and we expect to have the financial flexibility to deal with the current challenges in the capital markets."

Cigna shares, which dropped steeply last year, soared nearly 19 percent, or $3.37, to close at $21.39 Thursday.

Some of that movement might be attributable to the actions of a competitor, said Citi analyst Charles Boorady. He noted that Indianapolis-based WellPoint Inc. completed a $990 million bond offering at rates of 6 and 7 percent, and several insurers saw their stocks rise.

"The message that the bond markets are open to managed care companies to raise debt is very positive for the group," he said.

Overall, Boorady found Cigna's report disappointing. He noted that the insurer's medical loss ratio -- which measures premiums paid out in medical claims -- was 85.7 percent, or worse than his forecast.

Cigna also said Thursday it had lowered its 2009 forecast, due in part to the slumping economy and expected cost increases. It now expects an adjusted profit of $3.95 to $4.25 per share from operations. The insurer previously forecast $4 to $4.30 per share in profit.

Fourth-quarter results included losses totaling $405 million, or $1.51 per share, from the company's two run-off reinsurance segments: the variable annuity business and guaranteed minimum death benefits.

Cigna discontinued those segments in 2000 and operates both in run-off mode, meaning it seeks no new business.

The variable annuity death benefits invest in mutual funds. They were sold as long-term investments that provide a steady return to customers during retirement and then a death benefit. The guaranteed minimum income benefits provide reinsurance to variable annuities issued by other insurers.

The company's liabilities for both increase when market returns are bad.

Cigna also took a $35 million charge in the fourth quarter due to recently announced job cuts. The insurer said last month the slumping economy has forced it to cut 1,100 jobs, or about 4 percent of its work force.

Cigna said medical membership grew 15 percent to 11.7 million people in the fourth quarter compared with last year. But it fell 2 percent from 2008's third quarter.

The company predicted medical membership will fall an additional 3 percent in 2009, as employers cut jobs and decrease the number of people covered by private insurance.

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