QUOTE AND NEWS
Motley Fool  6 hrs ago  Comment 
Cigna doesn't participate in Obamacare exchanges as much as UnitedHealth Group and WellPoint, but shares may still be attractive to investors.
Market Intelligence Center  Aug 18  Comment 
With bullish technical indicators and a 4 STARS (out of 5) buy ranking from Standard & Poor’s, CIGNA Corp. (CI) could be an attractive play for investors according to MarketIntelligenceCenter.com's patented option-trade picking algorithms. A...
SeekingAlpha  Aug 11  Comment 
By Ashleigh Rogers: Most investors are at least somewhat familiar with health insurance giant Cigna (NYSE:CI). The ~$25B behemoth is one of the most important insurance companies in the US and notably it's also one of the most stable with...
TheStreet.com  Aug 1  Comment 
NEW YORK (TheStreet) -- Barclays raised its price target for Cigna to $97 from $88 Friday, reiterating its "equal weight" rating for the company. The analyst firm also raised its EPS estimates for Cigna through 2015 following the company's...
SeekingAlpha  Jul 31  Comment 
By Clifton Bruce: Cigna Inc. (NYSE:CI) reported second quarter earnings this morning before the market opened; both revenue and profit beat Wall Street estimates. Cigna reported an increase in healthcare premiums and fees from its commercial...
Forbes  Jul 31  Comment 
Cigna Corp. (CI) this morning disclosed plans to expand its private health insurance products on government exchanges under the Affordable Care Act next year to three more states as the company successfully manages costs in the first year on the...
Wall Street Journal  Jul 31  Comment 
CignaCorp. said its second-quarter profit improved as the company recorded higher revenue from premiums and fees, particularly from its global health care and global supplemental benefits segments.
Forbes  Jul 30  Comment 
CIGNA reports its second-quarter earnings on Thursday, July 31, 2014, and the consensus earnings per share estimate is $1.85 per share.The consensus estimate has risen over the past month, from $1.84, but it's below the estimate of $1.86 from...
Forbes  Jul 28  Comment 
Investors considering a purchase of Cigna Corp (NYSE: CI) shares, but cautious about paying the going market price of $96.04/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put...
Market Intelligence Center  Jul 8  Comment 
After closing Monday at $92.43, CIGNA Corp. (CI) presents an attractive opportunity to get a 3.47% return in just 102 days, which is an annualized return of 12.42% (for comparison purposes only). To enter this trade, sell one Oct. '14 $90.00 call...




 

CIGNA Corporation (NYSE:CI) is a health insurance company - sort of. For one, three-quarters of Cigna's health insurance business isn't really insurance - Cigna manages health plans for companies who self-insure, agreeing to pay employee's health care costs. Employees get Cigna cards and access to Cigna's negotiated rates with doctors, and Cigna handles billing, but the employer bears the risk of paying for care when employees get sick. This arrangement means less risk for Cigna, but also smaller premiums. The majority of CIGNA's revenues come from these so called self-funded administrative-only plans.

Cigna also differs from its competitors in that the majority of the company's pretax operating income comes from investment income- 50% higher than its next most-invested competitor, Aetna, and almost four times that of other large national health account providers.[1] [2] This reliance on investment income makes the company much more vulnerable to market conditions than most other health insurance companies.

The company’s Medicare membership comprises only 0.3% of its total coverage, shielding CIGNA from legislation like the 2006 Deficit Reduction Act, which aims to cut Medicare funding by over $4.8 billion before 2011 and threatens competitors’ profit margins.

Company Overview

Business Financials

CIGNA earned total revenues of $18.4 billion in 2009, a slight decrease from its 2008 total revenues of $19.1 billion.[3] Despite this decrease in revenues, CIGNA was able to substantially increase its net income from $288 million in 2008 to $1.3 billion in 2009.[3] This was largely the result of CIGNA realizing a run off reinsurance gain of $185 million in 2009 as opposed to a $674 million loss the previous year.

Business Segments

CIGNA breaks its operations into five major business segments: i) Health Care, ii) Disability and Life, iii) International, iv) Run-off Reinsurance, and v) Other Operations.

The Health Care Segment (61.8% of 2009 revenue)[4]

The health care segment provides health insurance through a variety of forms such as health maintenance organizations (HMOs), point of service (POS) plans, preferred provider (PPO) plans, and more limited voluntary plans primarily to national, regional, and small-business employers. They also offer specialty plans such as dental insurance and prescription drug plans. The division offers three pricing schemes: a guaranteed cost scheme, where CIGNA takes on all medical cost risk in exchange for a monthly premium; a retrospectively experience-rated scheme, where the premium includes a margin that can be adjusted based on each individual or employers medical history; and a self-funded administrative services only (ASO) scheme, in which the customer pays a smaller fee in exchange for CIGNA taking on all administrative costs, but the customer incurs their own medical costs up to a "stop-loss" amount. In 2009, this segment earned $13.1 billion in total revenues.[4]

The Disability and Life Segment (16.2% of 2009 revenue)[5]

This segment provides group life insurance, long and short-term disability insurance, workers’ compensation, and accident insurance to national and regional employers and employees through its subsidiaries. For disability insurance, CIGNA acts for both the employer and employee, providing a fixed level of income to the employee, assisting the employee in his/her return to work, and assisting the employer in managing the cost of employee disability. All services in this division are contracted under a guaranteed cost scheme. In 2009, this segment earned $2.99 billion in total revenues.[5]

The International Segment (10.7% of 2009 revenue)[6]

This segment includes revenues from life, accident, and health insurance services offered by CIGNA’s foreign subsidiaries. These services are offered to foreign employers, as well as multinational companies. In 2009, this segment posted total revenues of $1.97 billion.[6]

Run Off Reinsurance

Prior to 2000, this segment offered to reinsure part or all of the risks written off by other insurance companies under life, accident, or health insurance policies. In 2000, CIGNA sold these subsidiaries, but still generates revenue from previously invested income and incurs contractual payments as a “run-off” to these policies. In 2009, the segment had a negative revenue of $141 million.[7]

Other Operations (3.2% of 2009 revenue)[8]

This segment includes the sale of corporate-owned life insurance (COLI) plans, or employers’ life insurance on certain employees; deferred revenue from the 1998 and 2004 sales of their life insurance, annuity, and retirement benefits businesses; and their settlement annuity business, or liability settlements for non-guaranteed payments. In 2009, this segment posted total sales of $583 million.[8]

Trends and Forces

Decline in proportional Medicare membership allows CIGNA to maintain margins in wake of funding cuts

Under Medicare and Medicaid plans, a health insurance company takes on medical cost risk for a customer in exchange for monthly premiums paid by the government. The 2006 Deficit Reduction Act, however, included a plan to cut Medicaid funding by $4.8 billion before 2011.[9] This bill, along with any additional legislation of this form, would lead to decreased profit margin for any customer under a Medicaid or Medicare plan. As this funding is cut, CIGNA increasingly low exposure to government payments offers it a competitive advantage over competitors providing a large proportion of Medicare plans. Medicare customers represented only 0.3% of CIGNA’s coverage, helping keep CIGNA insulated from this development.

Heavy reliance on self-funded accounts mediates risks, but dampens revenue growth potential

Under self-funded accounts, customers pay a smaller premium in exchange for administrative services, but incur their own medical costs up to a given "stop-loss" amount. While this prevalence of self-funded accounts eliminates some inherent risks of medical costs, it dampens revenue growth by generating smaller premiums per member. For example, Medical Membership in CIGNA's Health Care Segment grew by over 8% in 2007, but the total premiums generated by this segment grew only 7% in this same time period.[10]

Competition

CIGNA’s Health Care services face a highly competitive industry that competes on the prices and comprehensiveness of benefits, location and choice of health care providers, quality of customer service, and reputation of financial strength. Its greatest competition comes from other national account companies such as Aetna (AET), UnitedHealth Group (UNH), and WellPoint Health Networks (WLP).


References

  1. | CI 2007 10-K, Item 8: Financial Statements and Supplementary Data, pg 67
  2. Stiffel Nicolaus Report, CVH, 8/16/2007
  3. 3.0 3.1 CI 10-K 2009 Item 6 Pg. 47
  4. 4.0 4.1 CI 10-K 2009 Item 7 Pg. 62
  5. 5.0 5.1 CI 10-K 2009 Item 7 Pg. 69
  6. 6.0 6.1 CI 10-K 2009 Item 7 Pg. 71
  7. CI 10-K 2009 Item 7 Pg. 73
  8. 8.0 8.1 CI 10-K 2009 Item 7 Pg. 77
  9. CVH 2007 10-K, Risk Factors, pg 20
  10. | CI 2007 10-K, Membership, pg 49-51
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