Cigna Slashes Forecast as Fight for Anthem Deal Looms

Updated on
  • CEO Cordani says insurer will evaluate all options for deal
  • Shares tumble amid loss at life, disability operations

Cigna Corp. cut its full-year forecast after the health insurer posted second-quarter earnings that fell well short of analysts’ estimates, sending the shares on their steepest decline in five months.

Earnings, excluding certain items, were $1.98 a share, Bloomfield, Connecticut-based Cigna said Friday in a statement, compared with the $2.37 average of analysts’ estimates. The company expects full-year adjusted earnings of $7.75 to $8.10 a share, down from $8.95 to $9.35. The stock slumped as much as 6.4 percent, the biggest drop since February.

Cigna has an agreement to be acquired by Anthem Inc. for $48 billion, though the transaction has been cast into doubt after the U.S. Justice Department sued to block it on antitrust grounds. Earlier this week, Anthem Inc. Chief Executive Officer Joe Swedish said his company will fight the U.S. in court to win approval of the takeover. On Friday, however Cigna CEO David Cordani stopped short of fully committing to battle at Anthem’s side.

“To be clear, we have and continue to fulfill our obligations,” Cordani said. “If there is a successful combination to be completed, it is clearly our intent and commitment to continue to provide support as we have, dedicating significant resources, time and effort to do so.” Later on the call, he was asked whether Cigna, having taken time to evaluate the suit and its options, had decided to let the court battle play out.

“Yes, and a ‘but,’” Cordani said. Cigna will fulfill its contractual obligations, he said, adding, “We will take the appropriate steps, obviously, to protect the interests of our shareholders, which includes ongoing evaluation and monitoring of all options.”

Disappointing Quarter

The quarter’s disappointing results stemmed from a loss at the company’s business that sells disability coverage and life insurance via employers. The unit swung to a $12 million operating loss, from a $106 million profit a year earlier. Cigna said it’s working to improve the disability claims management process, and that second-quarter results were also hurt by life insurance claims.

“We are taking a series of corrective actions to stabilize and improve group disability and life results,” Cordani said in the statement. About three-quarters of the forecast cut was from the disability and life business, and the rest from the health-care unit, the company said.

Cordani outlined his plans to improve results should Anthem not acquire his company. He said Cigna would have at least $5 billion in deployable cash, and could also take on debt to do an alternative deal. The stock has declined about 7 percent this year, as of Thursday’s close.

Other highlights from Cigna’s second-quarter results:

  • Net income fell 13 percent to $510 million, or $1.97 a share, from $588 million, or $2.26. 
  • Revenue increased 4.9 percent to $9.96 billion.
  • Cigna said medical membership was steady at 15.1 million people on June 30, compared with three months before.
  • Cigna spent 78.8 cents of every premium dollar on medical claims in its commercial business, up from 77.5 cents per dollar a year earlier. The figure, known as a medical loss ratio, was 86.4 cents per dollar at the government business, compared with 84.4 cents a year earlier.
(Updates with CEO’s comments on merger from third paragraph.)
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