Aetna Inc posted better-than-expected quarterly profit on improved medical cost trends, and shares of the health insurer rose 2.9 percent amid easing fears about the new U.S. health reform law.

Aetna, which also raised its full-year forecast on Thursday, is the latest health insurer to easily top profit expectations this quarter following stronger-than-expected reports from UnitedHealth Group Inc , WellPoint Inc and Humana Inc . The S&P Managed Health Care index <.GSPHMO> also was up 2.9 percent.

All the four big names that offer fully insured products posted very, very strong earnings confirming that fundamentals are strengthening, Sanford Bernstein analyst Ana Gupte said.

Analysts also said the stocks were rising amid signals the implementation of the healthcare overhaul would not be as onerous on the insurers as feared, specifically related to provisions requiring how much the companies must spend on medical costs.

Aetna, the No. 3 U.S. health insurer, had advised investors that 2010 is a repositioning year, partly due to re-pricing its commercial plans to reflect increased medical costs that dragged down results in 2009.

We've had to apply higher prices to certain segments in order to strike that balance, and we think we are off to a good start in having done that, Chief Financial Officer Joseph Zubretsky said in an interview.

Quarterly net income rose to $562.6 million, or $1.28 per share, from $437.8 million, or 95 cents per share, a year earlier.

Earnings were 98 cents per share excluding a gain tied to a legal settlement, and 77 cents per share excluding a further benefit from unused claim reserves from prior periods. Analysts on average expected 72 cents, according to Thomson Reuters I/B/E/S.

Revenue edged up to $8.62 billion.

Results benefited from medical costs well below our expectations before and after favorable reserve development, Collins Stewart analyst Brian Wright said in a research note.

Zubretsky said while the company clearly beat expectations, some of the outperformance came from a mild flu season that led to lower costs at the end of 2009, a benefit that may not be sustainable. The CFO noted the company was maintaining its medical cost outlook for the rest of 2010.

It's far too soon to project any favorability for the remainder of the year based on what we've seen to date, Zubretsky said.

The company spent 82.5 percent of premiums on medical costs, down from 83.0 percent a year earlier. In its commercial business including employer-based plans, that percentage dipped to 81.1 percent from 81.7 percent.

The company's enrollment stood at 18.69 million at the end of March, down about 2 percent from a year ago.

Aetna projected full-year operating earnings of $2.75 to $2.85 per share, up from a prior range of $2.55 to $2.65.

Aetna is planning for costs related to the reform law this year, as prepares for new health benefits that phase in later in 2010 and the medical cost spending requirements expected to kick in next year.

Zubretsky declined to specify the expected reform costs but said that put a little bit of pressure on our forecast for the remainder of the year.

The company said in March that it expected first-quarter operating earnings to top the consensus Wall Street forecast, which was 66 cents per share at the time, although the company maintained its full-year outlook.

Shares of Aetna rose 88 cents to $31.38 on the New York Stock Exchange. Through Wednesday, they had fallen 3.8 percent this year, more than the 1.4 percent decline for the S&P Managed Health Care index <.GSPHMO>.

(Reporting by Lewis Krauskopf; Editing by Lisa Von Ahn, Dave Zimmerman)