Back to top

Analyst Blog

Cigna Corp.’s (CI - Analyst Report) first-quarter 2013 net operating earnings of $1.72 per share outpaced the Zacks Consensus Estimate of $1.43 per share. Moreover, the results surged nearly 39% year over year.

Better-than-expected results came on the back of improved top-line, favorable operating expenses and medical costs, including favorable prior-year reserve development in the Global Health Care business.

Including income of 9 cents per share related to the Guaranteed Minimum Income Benefits (GMIB) business, net realized investment gains of 32 cents and a loss of $1.93 per share related to one-time items, Cigna reported net income of 20 cents per share, plummeting from $1.28 per share in the year-ago quarter. One-time items included charge of $507 million related to the exit of the Run-off Reinsurance businesses and $51 million related to a regulatory matter in the Disability business.

Quarterly Operational Update

Cigna’s consolidated revenues came in at $8.2 billion, up 21% year over year. The improvement in revenues was the result of a 20% increase in premiums and fees in Global Health Care, 36% in Global Supplemental Benefits and 12% in Group Disability and Life. Top line was ahead of the Zacks Consensus Estimate of $7.7 billion.

Cigna’s global medical customer base increased by 277,000 people in the first quarter of 2013 from the 2012-level.

Quarterly Review by Segment

Premiums and fees from the Global Health Care segment increased 19.6% year over year to $5.8 billion, owing to business growth, rate increases, increased specialty penetration and an additional month of HealthSpring premium.

Operating earnings soared 44% to $427 million on the back of growth in targeted medical and specialty businesses, favorable prior-year reserve development, increased medical costs and continued operating expense leverage.

Premiums and fees from the Global Supplemental Benefits segment climbed 36% year over year, driven by acquisitions, attractive customer retention and business growth, primarily in South Korea.

Operating earnings improved 27.9% year over year to $55 million due to strong customer retention, business growth, favorable claim experience and improvement in the operating expense ratio.

Premiums and fees from the Global Disability and Life segment climbed 12% year over year to $858 million.

Operating earnings declined 27.9% to $49 million attributable to unfavorable claims experience in the disability business.

Share Repurchase Update

Cigna spent $250 million to buyback 3.9 million shares as of May 2.

Business Highlights

On Feb 4, 2013, Cigna entered into an agreement with Berkshire Hathaway Inc. (BRK.A - Snapshot Report), (BRK.B - Analyst Report) to exit the Run-off Reinsurance businesses.

2013 Guidance

Cigna expects to deliver operating earnings between $1.735–$1.865 billion or $6.00–$6.45 per share .

By segment, operating income from Global Health Care is projected between $1.465 to $1.555 billion, Global Supplemental Benefits between $160 to $180 million and Group Disability and Life in the range of $270 to $290 million.

Global medical customer growth is estimated in the range of 1%–2%

Our Take

We remain upbeat about Cigna’s future prospects. We believe that the company is strongly poised to record earnings growth given a number of strategic investments undertaken.

Cigna boasts a diversified portfolio of businesses, backed by attractive organic growth in its U.S. Health Care and expansion in the Seniors market through the acquisition of HealthSpring. It also divested the Run-off Reinsurance Segment in an effort to reduce risk and strengthen financial flexibility.

With a strong balance sheet and adequate liquidity, the company is expected to continue share buybacks, which will surely contribute to the bottom line.

Cigna currently carries a Zacks Rank #2 (Buy). Among other multi-line insurers, MetLife Inc. (MET - Analyst Report) reported earnings of $1.48 per share, modestly beating both the Zacks Consensus Estimate of $1.30 and the year-ago quarter’s EPS of $1.37. American International Group, Inc. (AIG - Analyst Report) sharing same the Zacks rank is expected to report its results shortly.
 

Please login to Zacks.com or register to post a comment.