Updated from 1:46 p.m. EDT

Aetna

(AET)

, the country's largest health insurer, reported a 14% decline in its third-quarter earnings Wednesday that was much smaller than Wall Street expected.

But financial and enrollment figures for Aetna's health insurance business -- all that will remain of the company after it sells its financial services and international operations to the Dutch financial services company

ING Group

(ING) - Get Report

-- were down slightly.

Investors seemed a bit confused by Aetna's performance as the company's stock price fluctuated considerably. The stock opened down a bit, then surged as much as 12% toward the end of a conference call with Wall Street analysts, the highlight of which was the disclosure that Aetna expected to take a significant charge against its fourth-quarter earnings related to the

ING

deal.

Aetna's shares finished up $4.94, or 8%, at $62.75.

For the third quarter ended Sept. 30, Aetna reported operating earnings of $158.1 million, or $1.10 a share, a drop from the $184.1 million, or $1.21 a share, in the comparable quarter last year. A consensus of analysts polled by

First Call/Thomson Financial

had predicted that Aetna's earnings would fall to 90 cents a share in the latest quarter.

The profit is an improvement over the $134 million, or 94 cents a share, reported in the prior quarter.

Revenue rose 15%, to $8.1 billion, from $7 billion a year earlier.

"The key point on the quarter was that the place is not totally imploding," said Weston Hicks, an analyst for

J.P. Morgan

. "They did show some stability in the medical loss ratio." Hicks rates Aetna's stock a buy and was unsure whether his firm has done recent underwriting for the company.

Still, the health insurance business suffered another dismal quarter, mostly because of ever-increasing medical costs. Health care revenue was up to $6.4 billion, from $5.6 billion a year ago, but earnings fell 41%, to $77 million, from $131.3 million a year earlier. Health maintenance organization membership fell slightly in the commercial,

Medicare

and

Medicaid

areas, the so-called risk businesses, while non-risk HMO membership gained, contributing to an overall managed care membership drop to 17 billion from 17.7 billion a year earlier.

"With the ING transaction on track for a December closing, we are focusing our efforts on improving our health care business, which was roughly level with last quarter,'' said William H. Donaldson, chairman and chief executive of Aetna, in a statement.

In a conference call with analysts, Alan Weber, the company's chief financial officer, said Aetna would take a charge of $200 million to $250 million in the fourth quarter related to the sale of its financial services and international businesses to ING Group for $7.7 billion, including the assumption of debt.

"Additionally, assuming the ING transaction closes in early December, the results from AFS and International would be reflected as discontinued operations for the fourth quarter,'' Weber said.

That transaction would leave only the health care business. But Aetna also plans to exit half of its Medicare HMO business by January. After all the restructuring, shareholders will own little more than

Prudential HealthCare

, the unit Aetna bought from

Prudential Insurance

last year for $1 billion.

The purchase of the unit came with multiple headaches. The

American Medical Association

tried to block the deal, and Aetna was so worried about rising medical costs that it made Prudential agree to reimburse 75% of all medical costs above a set figure until the end of this year.

"What you have is a company that's hemorrhaging membership, and a company that is seeing its medical costs balloon," said Lori Price, an analyst for

Chase H&Q

. "It is a company that is in disrepair."

Price said the Prudential unit's cost troubles will not be easy to fix. And at year-end, she said, "it's no longer Pru's problem, it's Aetna's problem."

Price rates Aetna's stock a market perform, the equivalent of hold or neutral, and her firm has not done recent underwriting for the company.