Cigna Swings to Second-Quarter Net Loss

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U.S. health insurer Cigna Corp. (CI) on Friday said it swung to a quarterly loss after failing to accurately gauge medical costs and taking a big charge for winding down a unit.

Cigna Chief Executive Edward Hanway told investors that steeper-than-expected medical costs and a drop-off in membership drove results lower. Every major Cigna rival enjoyed profit growth this quarter.

The Philadelphia-based company is struggling to right itself after pricing problems, taking more than $1 billion in charges last year and wrestling with customer-service woes.

"Cigna is now the poster child for problems in the health-care sector," analyst Kathy Shanley of Gimme Credit wrote in a note to investors on Friday.

Cigna reported a second-quarter net loss of $53 million, or 38 cents per share, compared with a profit of $214 million, or $1.50 per share.

Before items, including a $286 million after-tax charge to increase reserves as it pays off contracts in its reinsurance line, Cigna earned $158 million, or $1.13 per share.

That exceeded expectations by Wall Street analysts polled by Reuters Research, a unit of Reuters Group Plc, who on average expected the company to earn $1.08 per share.

Cigna shares closed 2.6 percent lower at $45.55 on the New York Stock Exchange on Friday. The price is about half what it was a year ago.

The health insurer this week said it is mulling options to break off its pension unit, either by sale or setting up a separate company. Some analysts are wary of that move.

"Cigna is clearly a company that is experiencing pretty significant difficulties," said David Havens, a debt analyst at UBS. The pension move is "being done because they are getting bashed over the head by their more highly rated competitors," he said.

The $286 million charge relates to payments for claims in its death benefit annuity or reinsurance business, which it is exiting. The 2002 charges also stemmed from the reinsurance unit.

Cigna also on Friday gave a third-quarter earnings outlook surpassing the average estimate by analysts.

The company forecast third-quarter earnings per share of between $1.15 and $1.35, before items. Wall Street analysts polled by Reuters Research had expected $1.16.

The company on Friday stood by its 2003 earnings forecast, which calls for profit of $700 million to $750 million, or $5.00 to $5.25 per share.

Cigna's recovery is delayed in part by an ongoing loss of members to rivals such as UnitedHealth Group Inc. (UNH) and Aetna Inc. (AET).

Total medical membership for the quarter slid again by 8 percent, with roughly 12 million enrolled in its plans, compared with about 13 million a year ago.

Hanway told investors on a conference call to expect membership to drop another 2 percent by year end.

Revenue for the second quarter, excluding discontinued operations, also slipped to $4.63 billion from $4.74 billion.