INDIANAPOLIS -Cigna's fourth-quarter earnings dropped 37 percent compared to the same period last year, when the managed care provider recorded a $101 million gain related to the completion of an IRS audit.
Results fell well short of Wall Street expectations, and Cigna shares tumbled in Thursday premarket trading.
The Bloomfield, Conn., health insurer also recorded a $28-million charge in the 2011 quarter related to its acquisition of insurer HealthSpring Inc., a $3.8-billion deal it completed on Tuesday.
Cigna earned $290 million, or $1.04 per share, in the three months that ended Dec. 31. That compares to $461 million, or $1.69 per share, in the 2010 quarter. Revenue climbed less than 1 percent to $5.46 billion.
Adjusted earnings, which exclude most one-time items, were $1.11 per share. Analysts surveyed by FactSet expected, on average, earnings of $1.19 per share on $5.5 billion in revenue.
Bernstein analyst Ana Gupte said earnings from Cigna's health care and international segments missed expectations. The analyst said the performance was hurt by selling, general and administrative expenses and a relatively high medical-loss ratio, which basically measures the percentage of premiums spent on medical care.
Cigna is the fourth-largest commercial health insurer in the U.S., based on enrollment. Its medical membership totaled nearly 11.5 million people at the end of the quarter, up slightly from the third quarter.
Cigna has a broader business mix than other health insurers, so its performance can be affected by factors some of its competitors don't face. It operates health care, group disability and life segments in the U.S. Cigna also has an international segment that sells individual insurance in several countries, and it operates an expatriate business that covers people living outside their home countries.
Its performance also can be affected by its guaranteed minimum income benefits and variable annuity death benefits businesses. Cigna discontinued both in 2000 and operates them in run-off mode, meaning it seeks no new business, but they still affect the company's performance depending on how the broader market performs.
Cigna said its guaranteed minimum income benefits business earned $7 million in the quarter compared to $85 million in the 2010 quarter.
The insurer announced its acquisition of Nashville, Tenn.-based HealthSpring last October. The deal aims to strengthen its Medicare Advantage business, a segment of the market expected to grow quickly as baby boomers age and become eligible for the plans.
Medicare Advantage plans are privately run versions of the government's Medicare insurance program for the elderly and disabled.
For the full year, Cigna earned $1.33 billion or $4.84 a share. That compares with $1.35 billion or $4.89 a share in 2010. Revenue in 2011 totaled $22 billion.
Cigna expects HealthSpring to contribute to its 2012 performance, and it forecast adjusted earnings for 2012 between $5 and $5.40 per share.
That outlook is well below the analysts' consensus of $5.68 per share. Bernstein's Gupte thinks the consensus is probably about 25 cents per share too high, because analysts have not updated their forecasts.
Cigna shares fell $2.63, or 5.8 percent, to $43.05 in pre-market trading.
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