WellPoint Reports First Quarter 2011 Results

INDIANAPOLIS, April 27, 2011 /PRNewswire via COMTEX/ -- WellPoint, Inc. (NYSE: WLP) today announced that first quarter 2011 net income was $926.6 million, or $2.44 per share, including net investment gains of $35.6 million after-tax, or $0.09 per share. Net income in the first quarter of 2010 was $876.8 million, or $1.96 per share, including net investment gains of $18.6 million after-tax, or $0.04 per share, partially offset by an intangible asset impairment charge totaling $13.7 million after-tax, or $0.03 per share.

Excluding the items noted above for each period, adjusted net income was $2.35 per share in the first quarter of 2011, an increase of 20.5 percent compared with adjusted net income of $1.95 per share in the prior-year quarter (refer to GAAP Reconciliation table for a reconciliation to the most directly comparable measures calculated in accordance with U.S. generally accepted accounting principles, or "GAAP").

"We are pleased with our positive start to 2011. Our membership and earnings results are higher than we originally anticipated and we are continuing to become a more efficient and effective company, as evidenced by our 4.5 percent reduction in SG&A expenses while serving 363,000 more medical members than we did in the first quarter of 2010," said Angela F. Braly, chair, president and chief executive officer. "While we are becoming more efficient, we are continuing to invest in our future and executing on our strategy to improve the lives and health of our members. As we deliver health care value for our members, we enhance value for our shareholders."

"Our first quarter results are a testament to the strong value proposition we create in our efforts to hold down the rate of rising health care costs while improving quality, and our commitment to continuously improve by building a better WellPoint. Based on these results, we are raising our year-end 2011 membership expectation to 33.9 million and increasing our full year earnings guidance," said Wayne S. DeVeydt, executive vice president and chief financial officer. "We are also managing our capital to enhance value for our customers and shareholders. During the first quarter, we paid the first cash dividend in WellPoint's history and also utilized $742 million to repurchase 11.4 million shares on the open market."

CONSOLIDATED HIGHLIGHTS

Membership: Medical enrollment totaled nearly 34.2 million members at March 31, 2011, an increase of 363,000 members, or 1.1 percent, from 33.8 million at March 31, 2010. The increase was driven by growth of 374,000 members in the National business. Enrollment growth was also achieved in the Company's Senior, State Sponsored and Federal Employee Program ("FEP") businesses, which was offset by membership declines in the Individual and Local Group businesses.

Medical enrollment increased by 875,000, or 2.6 percent, from year-end 2010. This increase was driven by growth of 727,000 members in the National business, including 486,000 net new National Account members and 241,000 additional BlueCard members. Enrollment in the Senior business increased by 73,000, and membership grew by 59,000, 52,000, and 5,000 in the Company's FEP, State Sponsored and Local Group businesses, respectively. These increases in membership were partially offset by attrition of 41,000 in the Individual business.

Operating Revenue: Operating revenue was approximately $14.7 billion in the first quarter of 2011, a decrease of $188.3 million, or 1.3 percent, from the first quarter of 2010. This decline reflected lower Commercial operating revenue resulting primarily from the conversion of two large groups to self-funding arrangements during 2010, partially offset by revenue growth driven by increases in Senior, FEP and State Sponsored membership.

Benefit Expense Ratio:The benefit expense ratio was 82.1 percent in the first quarter of 2011, an increase of 30 basis points from 81.8 percent in the first quarter of 2010. The benefit expense ratio increased primarily due to higher medical costs and membership growth in the Senior and State Sponsored businesses. The ratio for Individual business also increased as the Company complied with minimum medical loss ratio requirements in 2011. These increases were partially offset by a decline in the Commercial segment benefit expense ratio, reflecting the conversion of two large groups to self-funding arrangements during 2010 and lower than anticipated medical costs in the current year quarter.

Medical Cost Trends: Trends represent Local Group fully insured business.

For the full year of 2011, the Company continues to expect that underlying medical cost trend will be in the range of 7.5 percent, plus or minus 50 basis points. Unit cost increases continue to be the primary driver of overall medical cost trend.

Days in Claims Payable:Days in Claims Payable ("DCP") as of March 31, 2011, was 40.6 days, an increase of 1.3 days from 39.3 days at December 31, 2010. This increase in DCP was driven by the timing of prescription drug payments and provider settlement activity.

SG&A Expense Ratio: The SG&A expense ratio was 14.2 percent in the first quarter of 2011, a decrease of 40 basis points from 14.6 percent in the first quarter of 2010. This was driven by a 4.5 percent reduction in SG&A expense resulting from lower personnel costs and the Company's ongoing efficiency initiatives, partially offset by a decline in operating revenue.

Operating Cash Flow:Operating cash flow totaled $1.1 billion in the first quarter of 2011, or 1.2 times net income. In the first quarter of 2010, the Company reported a net cash outflow from operations of $322.9 million that included $1.2 billion of tax payments related to the 2009 sale of the NextRx pharmacy benefit management subsidiaries.

Share Repurchase Program & Cash Dividend: During the first quarter of 2011, the Company repurchased approximately 11.4 million shares of its common stock for $741.6 million. As of March 31, 2011, the Company's remaining Board-approved share repurchase authorization totaled $882.0 million. The Company also paid a quarterly cash dividend of $0.25 per share in the quarter, representing a distribution of cash totaling $92.8 million.

Investment Portfolio & Capital Position: During the first quarter of 2011, the Company recorded net investment gains of $54.7 million pre-tax, consisting of net realized gains from the sale of securities totaling $57.1 million, partially offset by other than temporary impairments totaling $2.4 million pre-tax. In the first quarter of 2010, the Company recorded net investment gains of $28.7 million pre-tax, consisting of net realized gains from the sale of securities totaling $48.4 million, partially offset by other-than-temporary impairments totaling $19.7 million pre-tax.

As of March 31, 2011, the Company's net unrealized gain position in the investment portfolio was $932.2 million, consisting of net unrealized gains on fixed maturity and equity securities totaling $491.5 million and $440.7 million, respectively. As of March 31, 2011, cash and investments at the parent company totaled $2.4 billion.

REPORTABLE SEGMENTS

WellPoint, Inc. has the following reportable segments: Commercial Business, which includes the Local Group, National, UniCare and Specialty Products lines of business; Consumer Business, which includes the Individual, Senior and State Sponsored lines of business; and Other, which includes Comprehensive Health Solutions, FEP business, National Government Services, inter-segment sales and expense eliminations, and corporate expenses not allocated to the other reportable segments.

Operating revenue and operating gain are the key measures used by management to evaluate performance in each segment.

Commercial Business: Operating gain for the Commercial Business segment was $1.1 billion in the first quarter of 2011, an increase of $146.7 million, or 15.0 percent, from $978.4 million in the first quarter of 2010. The increase was driven primarily by lower than anticipated medical costs in the Local Group business and a reduction in SG&A expense in the current year quarter.

Consumer Business: Operating gain for the Consumer Business segment was $205.8 million in the first quarter of 2011, a decrease of $120.2 million, or 36.9 percent, compared with $326.0 million in the prior year quarter. This decline was due primarily to lower operating gain in the Senior and State Sponsored businesses due to higher medical costs. The operating gain in the Individual business also declined from the prior year quarter as the Company complied with minimum medical loss ratio requirements in 2011.

Other: The Company achieved an operating gain of $19.4 million in the Other segment during the first quarter of 2011, compared with an operating loss of $17.7 million in the first quarter of 2010. This reflected improved results in the Company's National Government Services business and lower administrative expenses in the first quarter of 2011.

OUTLOOK

Full Year 2011:

  • Net income is now expected to be at least $6.70 per share, including net investment gains of $0.10 per share. This outlook includes no investment gains or losses beyond those recorded during the first quarter of 2011.
  • Year-end medical enrollment is now expected to be approximately 33.9 million members.
  • Operating revenue is now expected to total approximately $59.9 billion.
  • The benefit expense ratio is now expected to be approximately 84.8 percent.
  • The SG&A expense ratio is expected to be approximately 14.2 percent.
  • Operating cash flowis now expected to be approximately $2.7 billion.

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