CIGNA Outperforms, Reaffirms

CIGNA Corporation’s (CI: 33.36 -0.16 -0.48%) fourth quarter operating earnings of $1.03 per share were ahead of the Zacks Consensus Estimate of 96 cents. The company had earned 48 cents a share in the year-ago period.

The results reflect the improvements in the equity market that aided in its reinsurance business performance. Additionally, the results were also strong in its accident insurance business.

Quarterly net income was $330 million or $1.19 per share, compared with a net loss of $209 million or 77 cents per share a year earlier.

For full year 2009, CIGNA earned $1.3 billion or $4.73 per share, compared to $292 million or $1.05 per share in 2008. The prior-year results included a loss of $646 million or $2.32 per share associated with the run-off Reinsurance operations.

Total revenue decreased 3.8% year-over-year to $4.6 billion. Premiums and fees decreased 1.6% year-over-year. Net investment income was almost flat at $262 million.

Looking Ahead

CIGNA has reaffirmed its 2010 earnings outlook. The company expects earnings of $1.05 billion to $1.15 billion, or $3.75 to $4.15 per share excluding special items. The forecast is based on the assumption that its variable annuity death benefits business results will be approximately break-even for full year 2010.

Earnings by Segment

The Health Care segment, CIGNA’s primary segment, reported earnings of $194 million, down 7.2% year-over-year. Premiums and fees decreased 3.4% year-over-year to $2.8 billion, largely due to a decline in medical membership, partially offset by rate increases. Medical membership fell about 5.5% from the prior-year period to 11 million. Segment margins were down 30 basis points (bps) year-over-year to 6.0%.

The Disability and Life segment reported earnings of $66 million, up 3.1% year-over-year, primarily due to strong accident business results. Premiums and fees increased 2.9% year-over-year to $647 million. Segment margins were up 50 bps year-over-year to 9.0%.

International reported earnings of $38 million, down 13.6% year-over-year. Premiums and fees increased 12.5% year-over-year to $504 million. Segment margins fell 210 bps year-over-year to 7.2%. The decrease is primarily due to the unfavorable claims experience in the expatriate benefits business that resulted from the global economic pressures.

Run-off Reinsurance reported earnings of $9 million, up from a loss of $179 million in the prior-year quarter, driven by favorable commutation in the workers’ compensation business. Due to the improvements in the equity market, no reserve strengthening was required for the variable annuity death benefits business in this quarter.

Other Operations posted earnings of $23 million, flat compared to the prior-year quarter.

CIGNA has been facing enrollment declines, driving down premiums and fees from its Health Care segment. However, we are optimistic about the company’s performance going forward based on its successful integration of Great-West Healthcare, diversified stream of earnings and ongoing cost controls.