Health insurer Aetna Inc. (AET) Thursday said quarterly profit rose 16 percent as it added new customers and hiked premiums.

Better-than-expected customer gains and a stabilization of underlying medical cost increases drove Aetna to raise its full-year forecast above Wall Street expectations. As the managed health-care industry consolidates, investors see mergers and membership gains as key growth drivers.

"This is consistent with our findings that Aetna is taking share," Sanford Bernstein analyst Ellen Wilson said in an investor note, adding Aetna has the "greatest potential for EPS upside in the (managed health care) group."

Membership and cost trends at the third-biggest U.S. health insurer mirror those reported Wednesday by WellPoint Inc. (WLP), which was created last year by a merger and is now the No. 1 health plan.

Aetna's first-quarter net income rose to $424 million, or $1.39 per share, from $365.8 million, or $1.14 per share, a year earlier.

Operating earnings, excluding favorable reserve development, were $1.10 per share. Wall Street analysts on average expected $1.07.

The Hartford, Conne.-based insurer forecast 2005 operating earnings of $4.52 to $4.57 per share, ahead of the average analyst estimate of $4.50.

Aetna's membership in the quarter rose by 719,000 to 14.4 million, fueling a jump in revenue to $5.4 billion from $4.8 billion a year earlier.

The company lifted its net medical membership growth estimate for the year to a range of 1.0 million to nearly 1.8 million from an earlier view of 950,000 to 1.05 million.

Aetna Chief Executive Officer John Rowe said he expects medical costs for 2005 to stabilize and be slightly lower than previously expected.

He said he sees a "stable and somewhat lower trend" into 2005, compared with last year's 8 percent to 8.5 percent increases in overall medical costs.

Moderation in costs is coming across the board from hospital, physician and pharmacy costs, Rowe said.

Shares of Aetna were down 40 cents, or less than 1 percent, at $72.05 on the New York Stock Exchange (search).