NEW YORK (Reuters) - Health insurer WellPoint Inc <WLP.N> on Monday cut its 2008 profit outlook due to unexpectedly high costs, disappointing enrollment and worsening economic conditions, and its shares sold off along with those of rival insurers.
By Ransdell Pierson
NEW YORK (Reuters) - Health insurer WellPoint Inc <WLP.N> on Monday cut its 2008 profit outlook due to unexpectedly high costs, disappointing enrollment and worsening economic conditions, and its shares sold off along with those of rival insurers.
WellPoint, the largest U.S. health insurer by membership, fell 18 percent in after-hours electronic trading. Aetna Inc <AET.N>, UnitedHealth Group Inc <UNH.N> and Humana Inc <HUM.N> dropped 10 percent, 9 percent and 11 percent, respectively. Cigna Inc <CI.N> was little changed, after having briefly fallen almost 8 percent.
Collectively, the five U.S. insurers lost $15.6 billion in market capitalization.
!ADVERTISEMENT!WellPoint said it now expects to earn $5.76 to $6.01 a share for the year. That compares with its previous forecast of $6.41 a share. The revised forecast would reflect profit growth of 4 to 8 percent over net income of $5.56 per share reported for the year ended December 31, 2007.
"Clearly we missed trends," Chief Executive Angela Braly told analysts in a conference call. "We've identified it. We think it's an issue we can fix."
For the first quarter, WellPoint cut its profit forecast to between $1.16 and $1.26 per share, from an earlier view of $1.44 per share and the $1.26 per share reported for the first quarter of 2007.
The Indianapolis-based company, which operates Blue Cross Blue Shield plans, forecast year-end membership of 35.3 million. That is about 300,000 lower than the forecast it gave in late January, which itself was about 200,000 lower than a previous estimate.
WellPoint said its benefit expense ratio -- the percentage of premiums spent on medical costs -- would be 82.8 to 83.1 percent this year. When such ratios rise, that typically signals dwindling profitability.
WellPoint's benefit expense ratio worsened to 82.9 percent in the fourth quarter from 81 percent a year earlier, as the insurer set aside more money for medical claims than it had expected for its business that serves individuals and employers.
WellPoint said recent membership growth tended to be among less-profitable "self-funded" policies, meaning those that are managed by the insurer on behalf of clients. It cited disappointing enrollment of fully-insured accounts, more-profitable policies in which the insurer assumes all financial risk.
The company expressed confidence six weeks ago that the negative fourth-quarter trends would not plague results in 2008, and the company stood by its previous forecast for a 2008 benefit expense ratio of 81.6 percent.
"We're feeling really good about 08," Braly told analysts on a January 23 conference call.
A day earlier, health-insurer shares fell broadly after UnitedHealth reported worrisome trends in its commercial business for employers.
Although industry trends have deteriorated in recent months, health insurer stocks in general have been a good bet for investors over the past five years.
The S&P Managed Healthcare Index <.GSPHMO>, which includes the six largest U.S. health insurers, has risen 160 percent since the start of 2003, outperforming a 44 percent increase for the S&P 500 Index <.SPX>.
Consequently, some investors have favored insurers as a defensive investment when the U.S. economy hits rocky times.
(Additional reporting by Lisa Baertlein in Los Angeles, Chris Sanders in New York, Varsha Tickoo in Bangalore; editing by Carol Bishopric, Leslie Gevirtz)
