Cigna Corp. :CI-US: Earnings Analysis: Q3, 2017 By the Numbers : December 5, 2017

Cigna Corp. reports financial results for the quarter ended September 30, 2017.

We analyze the earnings along side the following peers of Cigna Corp. – Anthem, Inc., Centene Corporation, Humana Inc., UnitedHealth Group Incorporated and Aetna Inc. (ANTM-US, CNC-US, HUM-US, UNH-US and AET-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 10382 million, Net Earnings of USD 560 million.
  • Year-on-year change in operating cash flow of -34.24% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth due to the contribution of unusual items

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-09-30 2017-06-30 2017-03-31 2016-12-31 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 10382 10318 10395 9930 9881
Revenue Growth (%YOY) 5.07 3.52 4.79 3.92 4.58
Earnings (mil) 560 813 598 382 456
Earnings Growth (%YOY) 22.81 59.41 15.22 -10.33 -16.64
Net Margin (%) 5.39 7.88 5.75 3.85 4.61
EPS 2.21 3.15 2.3 1.47 1.76
Return on Equity (%) 3.89 5.63 4.26 2.74 3.32
Return on Assets (%) 3.62 5.29 3.94 2.52 3.03

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Market Share Versus Profits

Revenues History
Earnings History

CI-US’s change in revenue this period compared to the same period last year of 5.07% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that CI-US is holding onto its market share. Also, for comparison purposes, revenues changed by 0.62% and earnings by -31.12% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

Insurance companies sometimes tradeoff for improvements in premiums earned by relaxing standards in underwriting policies. A quick way to check against such activity is to compare the changes in loan loss provisions as well any chnages in the level of policy claims. If either of these checks point to a decline in the underwriting standards, it is quite possible that the company’s performance is a result of underwriting policy changes that could have a longer term impact compared to the shorter term pop in premiums earned.

Premiums Earned Percent History
Loss Ratio History

The company’s earnings growth has been influenced by the following factors: (1) Year-on-year improvements in premiums earned as a percent of total revenues from 76.97% to 77.35% and (2) underwriting policy improvements. As a result, its loss ratio improved from 79.36% to 77.48% year-on-year. In addition, premiums earned as a percent of revenues were 77.63% and the loss ratio 78.14% in the immediate last period.

Premiums Earned Percent Versus Loss Ratio

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

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Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

CI-US’s change in operating cash flow of -34.24% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Margins

The company’s operating margins after interest fell from 8.65% to 8.61%. In spite of this, the company’s earnings rose, influenced primarily by one-time items, which contributed to an improvement in pretax margins from 7.51% to 7.94%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Cigna Corp. provides medical, dental, disability, life and accident insurance and related products and services to businesses, governmental and non-governmental organizations and individuals. It operates through the following segments: Global Health Care; Global Supplemental Benefits; and Group Disability and Life. The Global Healthcare segment aggregates the Commercial and Government operating segments due to their similar economic characteristics, products and services and regulatory environment. The Global Supplemental Benefits segment includes supplemental health, life and accident insurance products offered in selected international markets and in the U.S. The Group Disability and Life segment provides group long-term and short-term disability, group life, accident and specialty insurance products and related services. The company was founded in 1981 and is headquartered in Bloomfield, CT.

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