Insurers and Financial Results and Public Companies and Insurance and WellPoint and Health Care & Life Sciences and Health Care & Insurance

WellPoint gains confidence as profits rise

July 28, 2010
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WellPoint Inc.’s profit grew 4 percent in the second quarter and the company significantly hiked its full-year profit forecast.

The Indianapolis-based health insurer earned $722.4 million during the quarter, or $1.71 per share. Excluding investment gains that totaled 4 cents per share, WellPoint earned $1.67 per share.

On that basis, Wall Street analysts were expecting earnings of $1.55 per share, according to a survey by Thomson Reuters.

"Our quarterly results exceeded our expectation primarily due to higher-than-anticipated favorable reserve development and continued strong performance in our capital management areas,” said WellPoint CEO Angela Braly in a statement. “We are also seeing positive results in our core operations from many of the strategic initiatives we put in place over the last two years.”

WellPoint now expects to post profits of $6.30 for the year, up from a forecast of $6 per share the company gave in April.

The company continues to boost its per-share profit by repurchasing shares. In the second quarter, WellPoint spent $2.9 billion to buy back nearly 50 million shares of its own stock.

But revenue is falling as unemployment zaps members from its health insurance plans. In the second quarter, WellPoint’s revenue was $14.2 billion, excluding investment gains, down 7 percent from the same quarter a year ago.

Analysts expected WellPoint to post revenue of $14.6 billion.

WellPoint lost 343,000 members from its insurance plans in the second quarter. The company reiterated its forecast of having 33.1 million health plan members by the end of 2010.

WellPoint’s customers have moderated their spending on health care, however. The company said it spent 82.9 percent of customers’ premiums on medical care during the second quarter, down from 83.9 percent during the same quarter a year ago.

For all of 2010, WellPoint now expects its so-called medical loss ratio to be 83.9 percent, down from its April forecast of 84.3 percent.

Medical loss ratios are a critical part of the new health reform law for WellPoint and its health insurance peers. The new law will require insurers to pay as much as 85 percent of premiums on medical care or else return the difference to customers.

Even as WellPoint’s profits have picked up this year, fears about health reform legislation’s impact on WellPoint has weighed on the company’s shares. They have lost 9.4 percent of their value so far in 2010, closing Tuesday at $52.80 apiece.

WellPoint stock was down 3.4 percent, or $1.80 per share, in morning trading Tuesday.

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