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On Mar 25, Zacks Investment Research downgraded U.S. health insurer Cigna Corp. (CI - Analyst Report) to a Zacks Rank #4 (Sell).

Why the Downgrade?

This U.S. health insurer reported lackluster fourth quarter earnings. Net operating earnings of $1.39 per share missed the Zacks Consensus Estimate by 6.1% and were also down 11.5% year over year. Higher expenses caused the earnings miss.  

Cigna has been witnessing an increase in medical costs recently. Management expects medical cost to increase in the range of 5-6% for 2014 which is higher compared to less than 5% in 2013. The company’s medical cost is likely to increase due to higher medical utilization, which in turn will eat into margins.

Cigna is also expected to face pressure in its Medicare Advantage (MA) business. Reimbursement cut to MA will drag down the company’s margins.

The company’s exposure to commercial mortgage loans and real estate loans is also a concern.

Owing to concerns reflecting a tough time ahead, analysts covering the stock downgraded their earnings estimates. Over the last 60 days, the Zacks Consensus Estimate for 2014 moved down by 1.6% to $7.19 as 10 of the 14 estimates  were revised downward. The same for 2015 dived down 1.2% to $7.96 as 9 of 12 estimates were pulled down over the same time frame.

Other Stocks to Consider

Some better-ranked insurance stocks worth considering are MGIC Investment Corp. (MTG - Analyst Report) with a Zacks Rank #1 (Strong Buy), and FBL Financial Group Inc. (FFG - Snapshot Report) and Kemper Corp. (KMPR - Snapshot Report) both with a Zacks Rank # 2 (Buy).

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