WellPoint Raises Forecast After First-Quarter Earnings Beat Estimates

WellPoint Inc. (WLP), the largest U.S. insurer by enrollment, raised its 2011 earnings forecast as the number of new customers climbed and the company’s spending on medical care was less than expected.

Full-year profit will be at least $6.70 a share, including 10 cents a share from investment gains, the Indianapolis-based company said in a statement today. The insurer in March had forecast profit of at least $6.30. First-quarter net income of $2.44 a share beat the $1.86-a-share average estimate of 10 analysts surveyed by Bloomberg.

WellPoint joined UnitedHealth Group Inc. (UNH), the largest U.S. insurer by sales, and Humana Inc. in raising its full-year target after the impact of new government mandates was less than expected. WellPoint spent 82.1 percent of revenue from premiums on care in the quarter, the first under rules that require insurers to maintain a medical-loss ratio of at least 80 percent without paying rebates.

The insurer’s results “suggest that the company has more breathing room” under the new rules than previously expected, more opportunity to improve margins,” said Jason Gurda, an analyst at Leerink Swann & Co. in New York. “I would not say reform was a big plus for insurers, just that its negative impact appears less than feared.”

WellPoint rose $2.57, or 3.5 percent, to $75.54 at 4 p.m. in New York Stock exchange composite trading today. The shares have gained 35 percent in the past 12 months.

First-quarter net income climbed 5.7 percent to $926.6 million on revenue of $14.9 billion. The company reported net income of $876.8 million, or $1.96 a share, a year earlier.

Health-Care Overhaul

Under the health-care overhaul signed into law in 2010, the ratio of medical spending required is 85 percent for employer- sponsored plans or 80 percent for individual policyholders to avoid paying rebates.

WellPoint enrolled 875,000 new members since the end of 2010, with 727,000 members in national employer-funded plans. The number was also helped by increases under government- sponsored programs such as Medicare, the U.S. plan covering the elderly and disabled and Medicaid, the federal-state plan for low-income Americans. A gain of 52,000 in Medicaid included a new contract with the state of Indiana that began in January.

Competitive Pricing

The insurer benefited from a move by national employers to narrow their offering of plans to a few with the broadest networks, said Kristin Binns, a WellPoint spokeswoman. The insurer’s national accounts grew because of WellPoint’s network offerings and competitive pricing, she said in a telephone interview.

WellPoint’s medical-loss ratio was less than analysts expected. Ana Gupte, an analyst at Sanford C. Bernstein & Co., had estimated a ratio of about 82.7 percent, 60 basis points higher than WellPoint’s result. Gupte said the company’s earnings per share also benefited from accelerated share repurchases.

“Despite the headwinds from reform, they are able to beat expectations which have been conservative,” Gupte said in an e- mail.

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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