Aetna reports third-quarter 2010 results

HARTFORD, Conn., November 03, 2010 - Aetna (NYSE: AET) today announced third-quarter 2010 operating earnings of $419.6 million, or $1.00 per share, an increase of 45 percent per share over 2009. The increase was largely the result of a higher commercial underwriting margin from improved underlying performance and favorable prior-period reserve development, partially offset by lower Commercial Insured membership. Third-quarter results included favorable prior-period reserve development of $.16 per share, primarily from second quarter 2010 incurred health care costs. Excluding prior-period reserve development, third quarter 2010 operating earnings per share were $.84.

"Aetna's third-quarter results reinforce our significant performance improvement in 2010 after an unusually weak 2009," said Ronald A. Williams, chairman and CEO. "Our strong operating results were driven by a reduction in utilization of health care services after the surge we saw in 2009, combined with appropriate pricing and effective medical quality and cost management. Going forward, Aetna is focused on creating value for customers with innovative products and services that drive cost transparency and member engagement while improving quality."

Said Mark T. Bertolini, president, "We recognize that our customers, now more than ever, need our help controlling medical costs. We offer the right benefit designs, effective provider networks, health and wellness programs, and unique information tools to help our members think and act like consumers when purchasing health care. In addition, we are committed to investing in new business opportunities and diversified revenue streams that will drive ongoing growth."

"As a result of our better-than-projected performance in the first three quarters, including favorable prior-period development, we now project full-year 2010 operating earnings per share to be approximately $3.60" said Joseph M. Zubretsky, executive vice president and CFO. "Going forward, our strong capital structure and liquidity continue to provide us with financial strength and flexibility to help fuel future growth."

Health Care business results

Health Care, which provides a full range of insured and self-insured medical, pharmacy, dental and behavioral health products and services, reported:

  • Operating earnings of $442.2 million for the third quarter of 2010, compared to $345.7 million for the corresponding period in 2009. The increase in operating earnings was primarily due to improved underwriting margins from improved underlying performance and $69 million ($107 million pretax) of favorable prior-period reserve development primarily related to second quarter 2010 incurred health care costs, partially offset by lower Commercial Insured membership in 2010. Third quarter 2009 operating earnings included approximately $21 million ($32 million pretax) of favorable prior-period development.
  • Revenues(4) for the third quarter of 2010 decreased to $7.8 billion from $8.0 billion for the third quarter of 2009. This decrease was primarily due to a decline in premium revenue resulting from lower Commercial Insured membership and a decline from the mix of business, partially offset by premium rate increases. Including net realized capital gains, total revenue for the third quarter 2010 decreased to $7.9 billion from $8.0 billion for the third quarter 2009.
  • Medical benefit ratios ("MBRs") for third quarter 2010 and 2009 were as follows:
    3Q10

    • Excluding prior-period reserve development, the Commercial MBR(2) was 82.2 percent for the third quarter of 2010. Commercial medical costs include favorable development of prior-period health care cost estimates of approximately $90 million in 2010 (primarily related to second quarter 2010 incurred health care costs) and approximately $12 million in 2009.
    • Excluding prior-period reserve development, the Medicare MBR(2) was 85.3 percent and the Medicaid MBR(2) was 92.7 percent for the third quarter of 2010. Medicare medical costs included favorable development of prior-period health care cost estimates of approximately $6 million in 2010 and approximately $12 million in 2009. Medicaid medical costs included favorable development of prior-period health care cost estimates of approximately $11 million in 2010 and approximately $8 million in 2009.
  • Sequentially, third-quarter medical membership decreased by 74,000 to 18.528 million; pharmacy benefit management services membership decreased by 168,000 to 9.527 million; and dental membership decreased by 114,000 to 13.798 million.
  • Net income was $507.5 million for the third quarter of 2010, compared with $356.5 million for the third quarter of 2009.


Group Insurance business results

Group Insurance, which includes group life, disability and long-term care products, reported:

  • Operating earnings of $34.6 million for the third quarter of 2010, compared with $33.3 million for the third quarter of 2009.
  • Net income of $50.8 million for the third quarter of 2010, compared with $46.2 million for the third quarter of 2009.
  • Revenues(4) for the third quarter of 2010 were $501.7 million, compared with $528.2 million for the third quarter of 2009. Total revenue, which includes net realized capital gains, was $526.6 million in 2010 and $541.1 million in 2009.


Large Case Pensions business results

Large Case Pensions, which manages a variety of discontinued and other retirement and savings products, primarily qualified pension plans, reported:

  • Operating earnings of $5.6 million for the third quarter of 2010, compared with $6.7 million for the third quarter of 2009.
  • Net income of $2.1 million for the third quarter of 2010, compared with $1.0 million for the third quarter of 2009.


Total company results

  • Revenues(4) decreased to $8.5 billion for the third quarter of 2010 compared with $8.7 billion for the third quarter of 2009. This decrease primarily reflects a decline in Health Care premium revenue primarily due to lower Commercial Insured membership in 2010, as well as a decline from the mix of business, partially offset by premium rate increases.
  • Total Operating Expenses(1) were $1.6 billion for the third quarter of 2010, $19.6 million higher than the third quarter of 2009. The operating expense ratio(5) was 18.9 percent in 2010 and 18.1 percent in 2009. Including net realized capital gains and litigation-related insurance proceeds, these percentages were 18.2 percent and 18.1 percent for 2010 and 2009, respectively.
  • Corporate Financing Interest Expense was $41.5 million and $39.4 million after tax for the third quarter of 2010 and 2009, respectively.
  • Net Income was $497.6 million for the third quarter of 2010, compared with $326.2 million for the third quarter of 2009.
  • Pre-tax Operating Margin(6) was 8.7 percent for the third quarter of 2010, compared with 6.3 percent for the third quarter of 2009. For the third quarter of 2010, the after-tax net income margin was 5.8 percent compared to 3.7 percent for 2009.
  • Share Repurchases totaled 17.8 million shares at a cost of $526 million in the third quarter of 2010.


Aetna's conference call to discuss third quarter 2010 results will begin at 8:30 a.m. ET today. The public may access the conference call through a live audio webcast available on Aetna's Investor Information link on the Internet at www.aetna.com. Financial, statistical and other information, including GAAP reconciliations, related to the conference call also will be available on Aetna's Investor Information web site.

The conference call also can be accessed by dialing 888-430-8705 or 719-325-2388 for international callers. The company suggests participants dial in approximately 10 minutes before the call. The access code is 3805457. Individuals who dial in will be asked to identify themselves and their affiliations.

A replay of the call may be accessed through Aetna's Investor Information link on the Internet at www.aetna.com or by dialing 888-203-1112, or 719-457-0820 for international callers. The replay access code is 3805457. Telephone replays will be available from 11:00 a.m. ET on November 3, 2010 until midnight ET on November 17, 2010.

About Aetna

Aetna is one of the nation's leading diversified health care benefits companies, serving approximately 35.4 million people with information and resources to help them make better informed decisions about their health care. Aetna offers a broad range of traditional and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, and medical management capabilities and health care management services for Medicaid plans. Our customers include employer groups, individuals, college students, part-time and hourly workers, health plans, governmental units, government-sponsored plans, labor groups and expatriates. For more information, see www.aetna.com.

 

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