Discontinued Lines Blamed For Cigna’s Earnings Plunge
By TOM MURPHY, AP Business Writer
Cigna Corp.’s first-quarter earnings plunged 85 percent as the health insurer booked a heavy charge to exit a couple businesses that have dragged down its performance.
The Bloomfield, Conn., company had said in February it would take a charge in the first quarter for a deal with Warren Buffett’s conglomerate Berkshire Hathaway Inc., which will provide reinsurance for its guaranteed minimum income benefits and variable annuity death benefits businesses.
Cigna discontinued both businesses in 2000 and operates them in run-off mode, meaning it seeks no new business. But those businesses gave some volatility to Cigna’s bottom line. They hurt the company’s performance when the market turns bad because Cigna’s liabilities toward them increase. They will remain on Cigna’s balance sheet, but the company will no longer count the profit or loss from them on its quarterly income statements.
Cigna said Thursday that it recorded an after-tax loss of $507 million tied to leaving those businesses. It also recorded a $51 million loss related to a regulatory matter in its disability business.
Overall, the insurer earned $57 million, or 20 cents per share, in the first quarter ended March 31. That compares to earnings of $371 million, or $1.28 per share, in last year’s quarter.
Adjusted earnings in this year’s quarter totaled $1.72 per share.
Revenue climbed 21 percent to $8.18 billion from $6.75 billion a year ago.
Analysts expected, on average, adjusted earnings of $1.42 per share on $7.88 billion in revenue, according to FactSet.
Company shares rose $1.51, or 2.3 percent, to $66.89 in premarket trading.
Cigna is the nation’s fourth largest health insurer based on enrollment, but it has a broader business mix than some of its competitors. It operates health care, group disability and life segments in the United States. The insurer also has an international segment that sells individual insurance in several countries and operates an expatriate business that covers people living outside their home countries.
Premiums and fees from its global health care segment climbed nearly 20 percent to $5.82 billion in the quarter, helped in part by an extra month of premiums from HealthSpring, another insurer Cigna acquired in a $3.8 billion deal that closed Jan. 31, 2012. Revenue from the company’s global supplemental benefits also climbed 36 percent to $604 million, reflecting business growth in areas like South Korea.
Cigna also said Thursday that it was raising its forecast for 2013 earnings to a range of $6 to $6.45 per share. That’s up from a forecast it made in February for $5.85 to $6.30 per share.
Analysts expect, on average, earnings of $6.34 per share.
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