WellPoint, the No. 2 U.S. health insurer, said it will look at both internal and external candidates for a replacement. Shares in the company rose more than 4 percent in after-hours trading.

John Cannon, the company's executive vice president, general counsel, corporate secretary and chief public affairs officer, will serve as interim president and CEO, WellPoint said. Lead director Jackie Ward was named non-executive chair.

"We thought the board would provide Ms. Braly with some more time to right this ship but view the executive change as a step in the right direction," BMO Capital Markets analyst Dave Shove said in a note to clients.

WellPoint still has an uphill battle ahead, with fierce competition among health plans in states like California and Virginia that may not be resolved by year's end, Shove said.

"Regardless of who is at the helm, we need to see a quarter of clean operations before we get constructive," he said. "We believe a change at the top is positive, but new leadership will not grow earnings on its own."

As CEO since 2007, Braly has shepherded WellPoint as the U.S. healthcare system faces one of the biggest transitions in its history, including a new law that will extend coverage to more than 30 million uninsured Americans and the expansion of private management of government-run health plans Medicare and Medicaid.

More recently, Braly helped orchestrate the company's planned purchase of Amerigroup Corp (AGP.N) for $4.46 billion, a deal that will nearly double its Medicaid business, managing the U.S. government's health plan for the poor.

But the company has also made missteps in its expansion, including a proposed rate increase in California that made headlines in early 2010 at the height of a Congressional fight over the healthcare overhaul. Surprising losses from its Medicare plans in northern California weighed on financial results last year.

In its most recent quarterly report, the company cut its full-year profit forecast, saying it was trying to maintain its pricing levels even with greater competitive pressure from rival health plans. [ID:nL2E8IP1MG] Since then, it has been meeting with investors to lay out its strategy for improving performance and the board recently issued a statement in support of the direction taken by management.

"Our Board continues to believe that time will prove the wisdom of potentially transformative actions taken under Angela's leadership," Ward said in a statement. "But now is the right time for a leadership change."

Cannon will help oversee the integration of Amerigroup, whose shareholders have sued over accusations that its advisers at Goldman Sachs Group Inc (GS.N) had a "hopelessly conflicted" role in the company's sale. Goldman, according to the lawsuit, pushed Amerigroup toward a quick deal with WellPoint over a more lucrative merger with another unnamed company.

(Additional reporting by Michele Gershberg in New York and Susan Kelly in Chicago; Editing by Gary Hill, Bernard Orr and Chris Gallagher)

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