Concluding the worst is over, investors warm to WellPoint

Investors warmed to the financial news from Indianapolis-based WellPoint Inc. on Wednesday morning, bidding the company’s
stock up in late-morning trading.

Shares of the health insurer surged as much as 2.3 percent, to $65.33 apiece.
Investors were heartened after analysts interpreted WellPoint’s fourth-quarter results as a sign the health insurance
market is stabilizing.

WellPoint posted a profit of $1.16 per share in the fourth quarter, excluding a big gain
from its sale of a pharmacy-management subsidiary, easily beating analysts’ expectations.

Analysts were expecting
profits of $1.02 per share, according to a survey by Thomson Financial Network. In the same quarter a year ago, WellPoint
earned 65 cents per share as profits were depressed by heavy investment losses.

Matthew Borsch, an analyst with
Goldman Sachs in New York, told his clients that WellPoint’s results support “the theme of stabilization in industry
trends even as we also believe the downside risk from health care legislation has diminished significantly.”

WellPoint, which is the nation’s second-largest health insurer behind UnitedHealth, suffered as a result of high unemployment
last year, losing nearly 1.4 million insured members in its health plans. Small businesses contributed most to those losses.
In the fourth quarter, WellPoint lost 185,000 members, nearly all of them in the employer-sponsored segment of its business.

WellPoint now insures 33.7 million Americans.

“WellPoint had solid performance in 2009 amidst a challenging
economy,” CEO Angela Braly told investors and analysts on a morning conference call.

However, she gave a
grim outlook for employment and WellPoint’s ability to grow its employer-sponsored business, which is its largest segment.

“We do not expect the employment situation to improve until late this year,” she said, adding, “We
should see membership and top-line revenue growth in 2011 and beyond.”

Two worrisome trends in the fourth
quarter were increasing overhead and the growing percentage of premiums WellPoint spent on medical claims. The so-called medical-loss
ratio rose to 84.8 percent, up from 83.4 percent in the same quarter a year ago. Also, the company’s overhead expenses
rose to 17 percent of revenue, up from 15.1 percent in the same quarter last year.

For all of 2009, WellPoint earned
$6.09 per share, excluding extraordinary gains and losses. It slightly lowered its forecast for 2010, predicting profit of
$6 per share.

WellPoint exceeded Wall Street’s expectations in every quarter last year. In the third quarter
of 2009, the company earned $1.53 per share, beating analysts’ predictions by 15 cents per share.

WellPoint
scored an extra gain of $4.7 billion on Dec. 1 when it sold its NextRx pharmacy-management unit to St.
Louis-based Express Scripts Inc. The sale boosted per-share profit in the fourth quarter by $4.79, to
a total of $5.95 per share.

That sale spiked WellPoint’s official fourth-quarter results.
Revenue surged 26 percent, to $19 billion. Profit skyrocketed by 727 percent, to more than $2.7 billion.

Bloomberg News contributed to this report.