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Cigna's Q3 earnings surge

On the strength of membership growth, and revenue generated in the Medicare Advantage and Part D segments via its acquisition of HealthSpring, Cigna today announced third quarter 2012 earnings that more than doubled its earnings from a year ago.

The company, in an earnings call this morning, reported a profit of $466 million, or $1.61, per share for the quarter ended Sept. 30, a large increase from last year when it reported third quarter profits of $183 million and 67 cents per share. Cigna's earnings beat Wall Street earnings expectations by more than 18 percent, according to consensus earnings estimates from analysts polled by Thomson Reuters.

As a result, Cigna upped its full year earnings estimate for 2012 to $5.70 to $5.90 per share from its previous guidance of $5.25 to $5.60 per share. With its earnings announcement today, Cigna becomes the third major insurer this quarter to beat estimates and raise guidance, following similarly strong earnings reports from UnitedHealth and Aetna.

"Our third quarter 2012 results were strong, driven by consistent and disciplined execution of our strategy," said David M. Cordani, Cigna's president and CEO, in a conference call announcing the results. "We continue to make strategic investments to position Cigna to deliver long-term value for the benefit of our customers and shareholders."

Chief among those recent investments and already providing a significant boost to company earnings is its acquisition of Medicare specialist HealthSpring. The sale was completed earlier this year for $3.8 billion. Through this purchase, Cigna significantly expanded its reach into the government market, adding 340,000 members to its Medicare Advantage rolls and another 800,000 with Medicare Part D prescription coverage.

At the time the HealthSpring deal was announced, analysts were skeptical, saying that the per member acquisition cost of nearly $10,000 each was steep.

Among its three major business segments, Cigna reported revenue growth in premiums and fees of 51 percent in its healthcare segment, 22 percent in it international segment and nine percent in its life and disability line of business.

"It is a very strong quarter that has exceeded expectations in all segments," noted Sanford Bernstein analyst Ana Gupte, in an email. "Healthcare earnings are particularly strong with growth and solid metrics in the Medicare and Commercial segments."

Membership in Cigna's healthcare segment increased by 128,000 in the quarter and now stands just shy of 14 million at 13.971 million members. Since the beginning of the year, membership has grown by more than 1.25 million, inclusive of the HealthSpring acquisition.

The markets responded favorably to the earnings surprise. In early trading on the New York Stock Exchange, Cigna's shares were up more than 3 percent at $52.65 per share.

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