WellPoint Inc.'s (WLP) third-quarter profit, down 11% on asset writedowns, substantially exceeded Wall Street views as a key measure of the health insurer's medical costs was lower than anticipated.

Recession-driven layoffs helped drive further enrollment declines at WellPoint, the nation's largest managed-care company by membership, which maintained its full-year earnings guidance.

WellPoint's 2009 earnings outlook, which anticipates higher flu and economic pressures in the fourth quarter, is now higher on an operating basis, thanks to strength in the third quarter. The company listed several headwinds it anticipates for next year and declined to issue 2010 guidance for now.

For the quarter ended Sept. 30, WellPoint reported a profit of $730.2 million, or $1.53 a share, compared with $820.7 million, or $1.60 a share, a year earlier. Excluding a gain of 3 cents a share from investments and a write-down of 28 cents a share for impaired assets, WellPoint's per-share earnings were $1.78, exceeding the average analyst estimate on Thomson Reuters of $1.37 a share.

Revenue rose 3.1% to $15.43 billion, also above the Thomson Reuters estimate of $15.15 billion.

The upside was driven by better-than-expected medical costs as a percentage of revenue, known as the medical cost ratio, which fell to 81.1% from 82.5% a year ago, partly because of a favorable release of claims reserves.

WellPoint executives said it would be imprudent to provide 2010 guidance now, given potential health reform changes and the wide range of possible effects from the flu and insurance for laid-off members. It plans to provide detailed 2010 guidance early next year. Company executives previously said it would be difficult to expand operating earnings next year.

"While the backdrop is challenging, we are encouraged by stronger than expected Q3 results now posted by both [UnitedHealth Group Inc. (UNH) and [WellPoint], the two biggest players," Morgan Stanley analyst Doug Simpson said. UnitedHealth, the largest health insurer by revenue, reported better-than-expected results last week.

Even adjusting for 15 cents a share in favorable reserve development, Oppenheimer analyst Carl McDonald said, "earnings were still much better than expected," with the medical cost ratio more than 100 basis points lower than his forecast. McDonald nonetheless expects WellPoint's operating earnings to fall in 2010.

While WellPoint lowered its medical-cost-ratio forecast for this year, it increased its outlook for the growth in medical costs, citing the flu and members laid off from client companies who become insured under COBRA plans. Those members generally cost the company more than those in regular employer group plans.

"We are performing well as an organization in a difficult economic environment," President and Chief Executive Angela Braly said on a conference call.

Medical membership fell 4.2% to 33.9 million as of Sept. 30 from a year earlier and dropped by 366,000, or 1.1% during the third quarter, with commercial health plans accounting for most of the decline. The company expects ongoing pressure in commercial enrollment next year because of a weak economy, although it anticipates adding a net 400,000 national members in January.

Ken Goulet, who heads WellPoint's commercial business, noted a "significant decline in literally the size of the pie" of membership in commercial health plans for which the insurer assumes full risk. "Our market share continues to stay stable and grow, meaning we're beating our competitors."

WellPoint is pricing its health plans with discipline and to exceed growth in total costs, according to Braly, who said the market remains competitive yet rational.

Chief Financial Officer Wayne DeVeydt said WellPoint expects several headwinds next year--a weak economy, active flu season, high levels of COBRA membership, Medicare Advantage reimbursement cuts--many of which are extensions of this year's industry pressures. The company also anticipates tailwinds, including proceeds from the sale sometime this quarter of its pharmacy benefits management operation and better operating efficiency.

WellPoint shares recently slid 44 cents to $46.26. Other major managed-care stocks also were in the red Wednesday.

-By Dinah Wisenberg Brin, Dow Jones Newswires; 215-656-8285; dinah.brin@dowjones.com