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WellPoint Inc. said Wednesday a drop in expenses helped its first-quarter net income rise nearly 6 percent, even as it spent more than $700 million buying back shares, and the health insurer raised its 2011 earnings forecast.
The largest publicly traded health insurer based on enrollment earned $926.6 million, or $2.44 per share, in the three months that ended March 31. That's up from $876.8 million, or $1.96 per share, a year earlier, when the insurer had 67 million more shares.
Total revenue fell slightly to $14.89 billion as premiums, the largest portion of WellPoint's revenue, slipped 1.6 percent. Adjusted earnings, which exclude $36 million in investment gains, were $2.35 per share.
The performance beat analyst expectations. Analysts polled by FactSet forecast a profit of $1.89 per share on $14.65 billion in revenue.
The Indianapolis company operates Blue Cross Blue Shield plans in 14 states, including California, New York and Ohio.
WellPoint repurchased more than 11 million shares in the first quarter and also spent about $93 million on its first cash dividend payment of 25 cents per share. The insurer announced in February plans to start a quarterly dividend.
Stronger financial performances have given insurers a growing supply of cash to spend after stocking the reserves they need to keep for claims. WellPoint competitors Aetna Inc. and UnitedHealth Group Inc. also have started improved dividend payments, and Humana Inc. announced on Tuesday plans for its first dividend since 1993.
Continued moderation in medical costs, strong enrollment gains and overall execution helped WellPoint in the first quarter, Goldman Sachs analyst Matthew Borsch said in an analyst note.
WellPoint's enrollment grew 1 percent to 34.2 million compared to last year's first quarter, when it fell 2 percent, mainly due to growth in national accounts it administers for large employers that pay their own claims.
The company's selling, general and administrative expenses fell 4.5 percent to $2.08 billion, and the total spent on medical claims fell 1.4 percent to $11.23 billion, as medical costs came in lower than it expected.
The insurer said its medical-loss ratio, which essentially measures the percentage of premiums spent on medical claims, climbed slightly to 82.1 percent in the quarter, partially because of a new health care overhaul requirement.
Insurers face a new rule this year that requires them to meet minimum ratios or issue rebates to consumers. The minimums are set at 85 percent for large, employer-sponsored group coverage and 80 percent for small-group and individual plans.
Analysts expected WellPoint to be somewhat vulnerable to the new rule because it has a large individual insurance enrollment, and the minimum for those plans is expected to be more challenging for insurers to meet. WellPoint didn't detail the effect of the new rule, but its medical-loss ratio, or MLR, came in better than several analysts had expected.
Last week, UnitedHealth reported a 13 percent jump in first-quarter earnings, and that had eased some investor concern about how the new rule would affect insurers.
WellPoint now expects 2011 earnings of at least $6.70 per share, up from $6.30 per share, a forecast analysts had labeled conservative. Analysts surveyed by FactSet expect, on average, earnings of $6.62 per share this year.
Company shares climbed $1.21 to $74.18 in premarket trading.