Insurer Cigna's 3Q profit grows 92 percent

INDIANAPOLIS - Managed care company Cigna Corp.'s third-quarter profit soared 92 percent, as improving equity markets spurred a big turnaround in a discontinued business that hurt the insurer last year.

Philadelphia-based Cigna said Thursday it generated $16 million in income during the quarter from variable annuity products in a segment the insurer maintains but no longer sells or markets. Those products lost $133 million in the same quarter last year.

Overall, the insurer earned $329 million, or $1.19 per share, in the three months that ended Sept. 30. That compared to $171 million, or 62 cents per share, in the same quarter of 2008.

Revenue fell 8 percent to $4.5 billion.

That translates into an overall profit margin of 7.3 percent, well above the 3.4 percent Cigna recorded last year in the third quarter but below double-digit margins seen in other industries. The insurer's margin in its health care segment, which includes employer-sponsored group health insurance, was 6.3 percent.

Insurers have been bombarded with criticism over their profits during the health care overhaul debate in Congress. Advocates of a government-created public option for health insurers say it would help trim industry profits and "keep insurance companies honest."

But insurance industry executives say they have no room in their profit margins to absorb additional costs or lower premiums triggered by a public option. Additional costs would be passed on to consumers.

For this year's third quarter, the largest publicly traded health insurers all reported better-than-expected profits. But they've also seen their health insurance enrollment shrink, as companies continue to trim jobs and reduce the number of people covered by employer-sponsored health insurance.

Cigna was no exception. It said Thursday its medical enrollment fell 7 percent to 11.1 million from the third quarter of 2008.

The insurer started the year with medical enrollment of about 11.7 million and expects a decrease of 5 to 5.5 percent in 2009, although company executives say those numbers will stabilize next year.

"While our account retention rates are strong, high unemployment levels have driven higher disenrollment, which accounts for the majority of our membership losses," said Cigna President and Chief Operating Officer David M. Cordani.

In January, Cordani will replace H. Edward Hanway as company CEO under a previously announced move.

Cigna reported an adjusted profit, which excludes one-time items, of $1.13 per share.

Analysts polled by Thomson Reuters forecasted earnings of $1.03 per share on $4.59 billion in revenue. Cigna includes results from one of its discontinued businesses in its adjusted profit, but many analysts do not in their projections.

"Overall the (third-quarter) results were good and we saw only modest pressure on health care segment earnings," Wells Fargo analyst Matt Perry said in a research note.

Goldman Sachs analyst Matthew Borsch said the stock's valuation remains compelling. He noted that Cigna has much lower exposure to risks from the health care overhaul debate in Congress due to its relatively small enrollment in Medicare Advantage and individual or small group insurance products.

The company operates health care, group disability and life and international business segments. Premiums and fees in health care fell 6 percent to $2.8 billion due to the enrollment decline, which was partially offset by rate increases.

Cigna maintained its 2009 adjusted profit outlook of $1.04 billion to $1.1 billion, or $3.80 to $4 per share. Analysts expect $3.85 per share.

Company officials said Thursday they expect flat to low single-digit earnings growth next year.

Shares of Cigna rose 66 cents, or 2.2 percent, to close at $30.44 Thursday. The shares have recovered since last year when they dove below $9 as the economy slumped and concerns about health care reform and its affect on insurers started to grow.

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Associated Press Writer Damian Troise in New York contributed to this story.

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