030729 Cigna Shares Fall After Profit WarningJuly 15, 2003Chicago - Cigna Corp. shares sank nearly 8% on Monday after the U.S. health insurer said it would miss profit expectations for the quarter and 2003, blaming runaway medical inflation. Officials at Philadelphia-based Cigna told analysts on a conference call on Monday that a planned turnaround is proving tougher than expected. The call followed the company's profit warning, issued late on Friday. The health insurer suffered through a slew of problems since slashing profit estimates, taking $1 billion in charges and prompting a U.S. Securities and Exchange Commission probe in 2002. Cigna's recovery has been delayed by ongoing loss of health members to rivals such as UnitedHealth Group Inc. and Aetna Inc. Cigna now says membership will be down 10% at the end of the year compared with 2002. "I think clearly we have been targeted" by rival HMOs seeking to beef up membership, said Chief Executive Ed Hanway on the conference call. "It's a pretty aggressive market at the moment." In detailing blame for the profit warning, Hanway cited steeper hospital and doctor fees, and the need to reprocess claims mixed up in payment. Shares of Cigna fell from roughly $47 to nearly $44 in extremely active trading over the last two hours of trade Friday -- before the warning. Last November, the SEC opened an informal inquiry into a dramatic fall in Cigna's stock price after it cut profit estimates. CREDIBILITY STRAINED Many analysts called Cigna's woes company-specific and not reflective of the industry as a whole. Cigna is "trying to do too many things at one time," said Doug Meyer, an analyst at Fitch ratings, which downgraded Cigna debt on Monday. Cigna officials said the company is trying to stem complaints of weak customer service, exit its reinsurance business and tame double-digit medical inflation, simultaneously. In stumbling on its own forecasts, "the credibility of management has been strained somewhat," Meyer added. Sanford Bernstein analyst Ellen Wilson predicted that Cigna's need to price premiums higher to overcome soaring medical costs could hand rivals a competitive edge. "Which raises the bigger question of how Cigna will be able to keep itself from a downward spiral of enrollment loss over time," Wilson said in an investor note. For 2003, Cigna now predicts earnings of $700 million to $750 million, or $5.00 to $5.25 per share, and $1.00 to $1.15 per share for the second quarter. The company in May had revised its earnings outlook to $6.25 to $6.50 per share for the year, and $1.40 and $1.60 per share for the second quarter. Cigna shares ended down 7.75%, or $3.45, at $41.04 on Monday on the New York Stock Exchange, where they were among the biggest losers in percentage terms.
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