Cigna quarterly profit hit by higher medical costs, shares tumble

Adds analyst comment in paragraph 5, company comments from conference call in paragraphs 4,6 and 9, investor comment in paragraph 10, updates shares

By Sriparna Roy

Jan 30 (Reuters) - Cigna CI.N forecast annual profit below Wall Street expectations on Thursday and missed estimates for the fourth quarter, as high-cost claims in employer-sponsored plans drove up expenses in its backup insurance product.

Shares of the health insurer fell more than 10% in early trading.

The company's stop-loss insurance products protect the sponsor of the health plan, typically an employer, when medical claims pass a predesignated threshold.

Cigna recorded more high-cost claims due to increased usage of specialty medications such Merck's MRK.N blockbuster cancer therapy Keytruda and other inpatient surgeries like oncology and cardiac procedures, Chief Financial Officer Brian Evanko said on a call with analysts.

"The magnitude of the miss is greater than expectations," said Mizuho analyst Ann Hynes.

HIGH COSTS

Insurers have been grappling with high medical costs in government-sponsored plans due to a mix of factors including high demand among older adults and an influx of sicker patients for Medicaid plans.

Cigna is in the process of selling its Medicare Advantage business to Health Care Service Corp. The deal is expected to close in the first quarter of 2025.

Cigna expects stop-loss medical costs to be higher in 2025, and said prices for plans for this year were set before accounting for the higher stop-loss expenses.

"Their inability to fully recognize the stop-loss pressure in renewal pricing this year will take at least two years to recover," said Mark Andraos, partner and wealth advisor at Regency Wealth Management.

The company forecast annual per-share profit of at least $29.50, below analysts' estimates of $31.50, according to data compiled by LSEG.

For the quarter, its medical care ratio - the percentage of premiums spent on medical care - came in at 87.9%, up from 82.2% a year ago, and higher than expectations of 84.84%.

It expects the ratio, a closely watched metric which tracks medical costs, to be between 83.2% and 84.2% for 2025. Analysts expect the ratio to be at 81.56%.

On an adjusted basis, its quarterly profit per share of $6.64 missed estimates of $7.82.