U.S health insurer, CIGNA Corp.’s ( CI - Analyst Report ) second quarter core earnings of $1.52 per share outpaced the Zacks Consensus Estimate by nine cents. Moreover, the results were up 3.4% year over year.

The company’s consolidated revenue in the quarter under review came in at $7.5 billion, up 35% year over year. The improvement in revenue was the result of higher premiums and fees and mail order pharmacy revenues.

Consolidated premiums and fees increased 40% year over year to $6.7 billion, primarily due to higher premiums in the Health Care as well as International businesses.

Net investment income was $283 million, almost unchanged year over year.

Total medical membership increased by 1.2 million year over year to 12.6 million members. The increase in membership was primarily attributable to enrollment gains Medicare and Medicaid as well as modest growth in commercial accounts.

Segment Results

Premiums and fees from the Health Care segment increased 52% year over year to $5.0 billion, owing to the positive impact of the HealthSpring acquisition, business growth, higher insurance and increased specialty penetration. Moreover, operating earnings increased 18.5% to $332 million. Management forecasts operating income of $1.21 billion–$1.27 billion from its Health Care segment.

Premiums and fees from the Disability and Life segment increased 4.5% year over year to $749 million. Operating earnings were $89 million, up modestly by 1.1% year over year. This segment is expected to post operating income of $260 million–$280 million in fiscal 2012.

Premiums and fees from the International segment increased 22% year over year to $898 million. CIGNA’s International business growth is quite impressive, and we view it as a catalyst for future growth.

In the quarter under review, income from operations improved 14% to $65 million. Management expects operating income between $265 million and $285 million for fiscal 2012 from international operations.

2012 Outlook Update

Following the better-than-expected results, Cigna now expects full year 2012 consolidated adjusted income from operations to be in the range of $1.53 billion–$1.63 billion or $5.25–$5.60 per share as against the prior outlook of $1.52 billion–$1.63 billion or $5.20–$5.55 per share.

Our take

We remain upbeat about Cigna’s future prospects. The company boasts a diversified portfolio of businesses, backed by attractive organic growth in its U.S. Health Care and International businesses. It is also expanding in the Seniors market through the acquisition of HealthSpring.

We expect these initiatives to deliver growth in 2012. With a strong balance sheet and adequate liquidity, the company is expected to continue share buybacks, which will surely contribute to the bottom line.

Peer Comparison

A number of health insurer majors have already reported their first quarter 2012 earnings. Earlier during the week, Cigna’s peer Aetna Inc.’s ( AET - Analyst Report ) reported its second quarter earnings of $1.34 cents per share missing the Zacks Consensus Estimate by 6 cents. Earnings also declined 6.3% year over year.

Cigna currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are also maintaining our long-term Neutral recommendation on the shares.