Bloomberg News

Cigna CEO Says Small Takeovers in Seniors Market Possible

November 01, 2011

(Updates with closing share price in seventh paragraph.)

Oct. 28 (Bloomberg) -- Cigna Corp., the U.S. health insurer that agreed to buy Medicare managed-care provider Healthspring Inc. this week, is open to smaller takeovers to gain business in the seniors market, said Chief Executive Officer David Cordani.

The majority of the insurer’s growth in the senior market will come from the Healthspring acquisition and not from other purchases, Cordani said in a telephone interview. On Oct. 24, Bloomfield, Connecticut-based Cigna said it agreed to pay $3.8 billion in cash to acquire Healthspring to increase the number of Medicare customers it serves.

Cigna, the fifth-largest U.S. health insurer, has identified targets in the seniors, retail and global markets to evaluate for possible acquisitions, Cordani said. The insurer is looking for opportunities to expand in the market serving the low-income elderly, where Medicaid and Medicare benefits overlap, through Franklin, Tennessee-based Healthspring or small acquisitions, he said.

“So many states are being challenged financially,” Cordani said. “We see an opportunity there working with Healthspring’s highly differentiated model.”

The insurer earlier today reported third-quarter profit that missed analyst estimates because of investment losses at a discontinued business.

Missed Estimates

Earnings excluding certain items were $1.20 a share, Cigna said in a statement today. The result missed by 3 cents the consensus estimate of 18 analysts surveyed by Bloomberg. When $45 million in reinsurance losses were also excluded, earnings were $1.36, Cigna said.

Cigna declined 1.6 percent to $46.63 at the close in New York. The shares have gained 27 percent this year.

The discontinued operations, ended in 2000, reinsured minimum death benefits under annuities issued by other insurers, Mariann Caprino, a spokeswoman for Cigna, said in an e-mail. Cigna benefited from lower medical spending that enabled it to keep more premium revenue as the nation’s persistent 9 percent unemployment rate prompted consumers to defer medical treatment.

When the charges are excluded, “the earnings from core operations, particularly Cigna’s U.S. health-care segment, came in ahead of expectations,” said Jason Gurda, an analyst at Leerink Swann in New York.

Full-year profit is expected to be $5.05 to $5.30 a share, the company said, reiterating an Oct. 24 forecast. That is up from $4.95 to $5.25 set on Aug. 4.

“Costs are down and pricing is higher,” said Dave Shove, an analyst at BMO Capital Markets in New York. “This is a great combination for insurance companies. Cigna has always priced conservatively which means they get an extra benefit when there are no heads in the beds.”

Net income fell 3.5 percent to $200 million, or 74 cents a share, from $307 million, or $1.13, a year earlier, the insurer said.

--Editors: Bruce Rule, Angela Zimm

To contact the reporter on this story: Pat Wechsler in New York at pwechsler@bloomberg.net.

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net.


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