Cigna Corp.'s second-quarter net income jumped 39 percent compared to last year, and it raised its 2011 earnings forecast Thursday just like other big health insurers that also recently reported strong quarters.
But shares of the Bloomfield, Conn., insurer slipped Thursday, also reflecting another industry trend. Analysts say worry about debt reduction talks in Washington and the effect they may have on Medicare funding has put investors in a selling frame of mind even after the industry wrapped up a strong first half of 2011.
Shares of the five largest health insurers — a group that also includes UnitedHealth Group Inc., WellPoint Inc., Aetna Inc. and Humana Inc. — climbed an average of 46 percent during the first six months of the year. Analysts expected big results from insurers in the second quarter, and the industry delivered.
Cigna said Thursday its second-quarter earnings climbed to $408 million, or $1.50 per share, from $294 million, or $1.06 per share, in last year's quarter. Its adjusted earnings beat analyst expectations, and the insurer's revenue climbed 3 percent to $5.51 billion.
Cigna was helped in the quarter by a much smaller loss from its guaranteed minimum income benefits business. It increased its 2011 profit forecast to join the other four big health insurers, which all beat expectations and raised their outlooks.
Louisville, Ky.-based Humana saw its profit climb 35 percent, Minnetonka, Minn.-based UnitedHealth's earnings were up 13 percent, and Hartford, Conn.-based Aetna's net income rose 9 percent. Earnings slid 3 percent for Indianapolis-based WellPoint, due mainly to problems with its Medicare Advantage enrollment in California.
Shares of all these companies started becoming more volatile last week, and declines picked up this week. Humana's stock price fell 3 percent Monday when it reported earnings.
"I think it is investors exiting health care," Jefferies analyst David Windley said.
He said investors have told his firm they're reluctant to own health care stocks before Congress finalizes additional budget cuts in November. Medicare is expected to be a big target of the cutbacks, including subsidies to insurers that offer Medicare Advantage plans, which are an alternative to government-run Medicare.
"It's kind of a, 'Wash my hands and walk away, why should I even be involved until I get clarity on that?' " Windley said regarding investor sentiment.
He thinks investors will avoid the sector until share prices fall low enough to create a buying opportunity. The volatility reminds him and other analysts of the health care overhaul debates in 2009 and 2010, when managed care stocks bobbed up and down on worry about reform's impact on the industry, which has largely been manageable so far.
The five largest health insurers all reported better-than-expected earnings in the first quarter as well. The sector has been helped in recent quarters by health care utilization that has increased at a slower pace than they expected when they set prices for their coverage.
Investors also bought shares once they realized that a new overhaul rule that essentially requires insurers to spend certain percentages of their premiums on claims or offer rebates would not be too burdensome for the industry.
Some investors also have been selling recently simply to take their profits, Bernstein analyst Ana Gupte said.
"People come in, they make their money, and they get out even if the news is good," she said.
Cigna shares slid 5 cents to $46.50 in Thursday midday trading. UnitedHealth dropped 77 cents to $46.41, WellPoint was down 29 cents to $64.44, Aetna fell 25 cents to $38.95, and Humana was down 99 cents to $72.28.