Feb. 6 (Bloomberg) -- Cigna Corp., the U.S. insurer that specializes in employer-sponsored health benefits, said fourth- quarter earnings rose 13 percent as membership climbed.

Net income increased to $263 million, or 93 cents a share, from $232 million, or 76 cents, a year earlier, Philadelphia- based Cigna said today in a statement. Cigna rose in New York Stock Exchange trading after the company raised its 2008 forecast.

Cigna added 780,000 customers to its medical plans from a year earlier, including 375,000 from an Indiana company purchased in August. Even with the acquisition, earnings per share wouldn't have risen as much without $1.2 billion in stock buybacks in 2007. While analysts called the earnings report lackluster, one said it wouldn't hurt the stock.

``The downside will be limited today, particularly since Cigna is comfortable enough with the outlook to raise guidance'' for 2008, said Carl McDonald, an analyst with Oppenheimer & Co. in New York, in a note to clients today.

The company raised its 2008 earnings forecast to $4.05 to $4.25 a share from $4 to $4.20 a share. That fell short of the average $4.27 estimate of 15 analysts surveyed by Bloomberg. Cigna said its forecast doesn't include a $50 million loss related to new reporting requirements in a non-health care unit being phased out, as well as the benefit of the pending acquisition of another insurer and future share buybacks.

Cigna climbed 97 cents, or 2 percent, to $48.78 at 4 p.m. in composite trading. The company gained 23 percent in 2007, ranking third in the six-member Standard & Poor's 500 Managed Health Care Index.

Revenue Rose

Revenue for the fourth quarter increased 5.9 percent from a year earlier to $4.46 billion. Profit, excluding investment losses, matched the 98-cent average of 14 analysts surveyed by Bloomberg.

Cigna's health-care segment, its largest unit, reported the smallest quarterly gain in net income, 6 percent. The biggest increase, 32 percent, was in the international division, which provides coverage to American expatriates.

The company's investment portfolio has no direct exposure to subprime mortgages and limited holdings in residential mortgages, said Chief Financial Officer Michael Bell on a conference call with analysts today.

Cigna has less involvement with Medicare, the U.S. government health-care program for the elderly and disabled, than larger rivals in the $800 billion-a-year health insurance industry, including UnitedHealth Group Inc., of Minnetonka, Minnesota, and Humana Inc., of Louisville, Kentucky.

Medicare Profitable

Health plan profit per member generally is three times larger for Medicare beneficiaries as for commercial policyholders, analysts said.

Concentrating instead on increased enrollment in employer- sponsored health plans, Cigna bought Sagamore Health Network Inc. last year.

Cigna will add 2.2 million members this year if regulators approve the proposed acquisition of the health care division of Great-West Lifeco Inc. Excluding the Great-West acquisition, enrollment in medical plans will grow 2 to 5 percent in 2008, the company said. That is down from its earlier forecast of 3 to 5 percent.

For all of 2007, net income fell 3.5 percent from the previous year to $1.12 billion, reflecting declines in the first and second quarters. Earnings per share, excluding certain items, increased to $3.96 from $3.15 in 2006.

Medical Costs

Analysts and investors view changes in the share of premium revenue spent on medical care as a possible indicator of future profit. In health plans for which Cigna carries the financial risk to pay all benefits, the ratio was 84.6 percent in the fourth quarter, compared with 83.9 percent a year earlier and 83 percent in the third quarter of 2007.

Cigna is less vulnerable than other insurers to increases in this medical-cost ratio because about three-quarters of its health business involves handling claims for self-insured employers, according to analysts. Cigna collects administration fees from those customers and doesn't bear the risk of paying claims.

Administering self-insured coverage is one of the least profitable services performed by health insurers. The greatest profit per member comes from Medicare Advantage, a program in which the U.S. pays insurers to provide coverage.

Medicare Advantage

At the end of last year, Cigna had 31,000 members in Medicare Advantage, compared with Humana's 1.14 million.

Cigna last month began to offer Medicare Advantage to employers and groups that cover retirees, giving participants more benefits and lower out-of-pocket costs than standard Medicare.

The government pays Advantage providers 13 percent more on average than the traditional, government-run Medicare program would spend directly on care for the same patients, according to U.S. budget estimates.

The profitability of the Advantage program, which will channel $86 billion of Medicare funds through hundreds of insurers this year, is being challenged by Democrats in Congress who want to reduce the rates.

An additional $36 billion in Medicare funds will go to insurers for the program's prescription drug benefit. Cigna had 320,000 seniors in its drug plans as of Dec. 31, about 1.2 percent of national enrollment. Drug plan membership rose 75 percent from the year before, the biggest gain of any category.

To contact the reporter on this story: Avram Goldstein in Washington at agoldstein1@bloomberg.net.

Last Updated: February 6, 2008 16:24 EST