UnitedHealth Group has announced that it is cutting its full-year earnings outlook because of tough competition in the health benefits business.

The health insurance provider forecast earnings per share of $2.95 to $3.05 before special items, down from an earlier outlook of $3.55 to $3.60. Analysts were expecting profit of $3.50 a share this year, according to Reuters Estimates.

The insurer said it expected full-year revenue of $81 billion, in line with Wall Street estimates. According to the company, an intensely competitive commercial business environment was putting greater-than-expected pressure on premium yields.

Chief Executive Stephen Hemsley said: “During the second quarter, our risk-based businesses produced a lower level of gross margin than expected, and we also experienced a continuation of the pressures we saw in the first quarter.”

UnitedHealth said it would pay $895 million to settle a federal securities class-action lawsuit involving the mammoth California Public Employees' Retirement System over historical stock options practices.

Additionally, UnitedHealth said it had agreed to resolve an Employee Retirement Income Security Act class-action litigation, also relating to stock options, for which it will pay $17 million.

In April, the company posted a lower-than-expected first-quarter profit and slashed its full-year earnings forecast because of falling revenue growth and margins for its commercial plans for employers and Medicare plans for the elderly. UnitedHealth cut membership forecasts in both areas.