Cigna Corp.’s (CI) 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), (BRK.B) 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) 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) sharing same the Zacks rank is expected to report its results shortly.
AMER INTL GRP (AIG): Free Stock Analysis Report
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CIGNA CORP (CI): Free Stock Analysis Report
METLIFE INC (MET): Free Stock Analysis Report
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