Aetna Reports Fourth-Quarter and Full-Year 2010 Results

HARTFORD, Conn., Feb 04, 2011 (BUSINESS WIRE) -- Aetna (NYSE: AET) today announced fourth-quarter 2010 operating earnings of $255.0 million, or $.63 per share, a per share increase of 58 percent over 2009. Full-year 2010 operating earnings were $1.6 billion, or $3.68 per share, a per share increase of 34 percent over 2009. The increase in both the fourth quarter and full-year 2010 operating earnings were largely the result of higher Commercial underwriting margins driven by management actions to appropriately price the business, and lower utilization, as well as a reduced number of shares outstanding, partially offset by lower Commercial Insured membership. Full-year 2010 operating earnings also reflect favorable prior-period reserve development. Net income for the fourth quarter was $215.6 million, or $.53 per share, including $.10 per share of net realized capital gains and other items. Full-year net income was $1.8 billion, or $4.18 per share, a per share increase of 47 percent over 2009.

"Aetna's strong operating results in 2010 demonstrate the significant performance improvement we have made by remaining disciplined while focusing on customer needs," said Ronald A. Williams, chairman. "As it becomes even more imperative to address quality and affordability in health care, Aetna will play an increasingly important role. I am confident that we are well-positioned with the right management team and long-term strategy to capitalize on the domestic and global opportunities in health care."

"Our company's success, as always, is centered on creating value for our customers by offering innovative products and services that improve quality and help manage costs through integrated benefit designs and member engagement," said Mark T. Bertolini, CEO and president. "Even as we continue to navigate through a difficult economy, we are squarely focused on making investments in our business that can help meet the needs of current and future customers."

"Aetna's strategic approach to capital management and diversification is centered on creating value for shareholders by deploying our strong cash flows to reinvest in our business, make acquisitions and return capital to shareholders," said Joseph M. Zubretsky, senior executive vice president and CFO. "Our acquisition of Medicity, the innovative transaction with Vitality Re and the increased dividend announced separately today underscore our commitment to enhancing total return to our shareholders.

"Aetna projects full-year 2011 operating earnings per share of $3.70 to $3.80," Zubretsky added.

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 $280.4 million for the fourth quarter of 2010, compared to $261.6 million for the corresponding period in 2009. The increase in operating earnings was primarily due to higher Commercial underwriting margins driven by management actions to appropriately price the business, and lower utilization, partially offset by lower Commercial Insured membership in 2010. Operating earnings included approximately $67 million after tax of favorable prior-period reserve development in both the fourth quarter of 2010 and 2009.
  • Revenues for the fourth quarter of 2010 decreased 2 percent to $7.9 billion from $8.0 billion for the fourth quarter of 2009. This decrease was primarily due to a decline in 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. Including net realized capital gains and the 2009 ESI settlement, total revenue for the fourth quarter 2010 decreased 2 percent to $7.9 billion from $8.1 billion for the fourth quarter 2009.
  • Excluding prior-period reserve development, the Commercial MBR was 82.3 percent and 86.1 percent for the fourth quarter of 2010 and 2009, respectively. Commercial medical costs include favorable development of prior-period health care cost estimates of approximately $88 million in the fourth quarter of 2010 (primarily related to third quarter 2010 incurred medical costs) and approximately $59 million in the fourth quarter of 2009.
  • Medicare medical costs included approximately $28 million of favorable development of prior-period health care cost estimates in the fourth quarter of 2009. There was no significant development of prior period Medicare health care cost estimates in the fourth quarter of 2010. Medicaid medical costs included favorable development of prior-period health care cost estimates of approximately $16 million in the fourth quarters of both 2010 and 2009.
  • Sequentially, fourth-quarter 2010 medical membership decreased by 60,000 to 18.468 million; pharmacy benefit management services membership decreased by 112,000 to 9.415 million; and dental membership decreased by 51,000 to 13.747 million.
  • Net income was $244.7 million for the fourth quarter of 2010, compared with $232.4 million for the fourth quarter of 2009.

Full-year 2010 operating earnings for Health Care were $1.7 billion, compared with $1.4 billion in 2009. The increase in operating earnings was primarily due to higher Commercial underwriting margins driven by management actions to appropriately price the business, lower utilization and favorable prior period reserve development, partially offset by lower Commercial Insured membership in 2010. Our underwriting margins in 2010 and 2009 included $76 million after tax of favorable prior-period reserve development and $75 million after tax of unfavorable prior-period reserve development, respectively. Full-year 2010 net income was $1.8 billion, compared to $1.4 billion in 2009. Full-year 2010 Commercial MBR was 80.6 percent, compared to 84.5 percent for 2009.

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

  • Operating earnings of $20.5 million for the fourth quarter of 2010, compared with an operating loss of $14.1 million for the fourth quarter of 2009. The increase was primarily due to higher disability and long-term care underwriting margins and lower operating expenses partially offset by lower life underwriting margins. In both periods, underwriting margins were impacted by increases in long-term disability reserves due to lower discount rates, reflecting declining yields in the investment portfolio supporting this business. In 2009, the reserve increase also resulted from longer disability claim durations.
  • Net income of $24.9 million for the fourth quarter of 2010, compared with $1.3 million for the fourth quarter of 2009.
  • Revenues for the fourth quarter of 2010 were $502.6 million, compared with $510.1 million for the fourth quarter of 2009. Fourth quarter total revenue, which includes net realized capital gains, was $509.4 million in 2010 and $525.5 million in 2009.

Full-year 2010 operating earnings for Group Insurance were $128.0 million, compared with $103.8 million in 2009. The increase was primarily due to a decrease in operating expenses as well as improved underwriting margins in our disability products, partially offset by lower underwriting margins in our long-term care and life products. Full-year 2010 net income was $179.6 million, compared to $145.6 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 $6.4 million for the fourth quarter of 2010, compared with $8.6 million for the fourth quarter of 2009.
  • Net loss of $1.7 million for the fourth quarter of 2010, compared with net income of $9.7 million for the fourth quarter of 2009.

Full-year 2010 operating earnings for Large Case Pensions were $27.8 million, compared with $32.2 million for 2009. The decrease is consistent with the run-off nature of this segment. Full-year 2010 net income was $29.0 million, compared to $26.4 million for 2009.

Total company results

  • Revenues were $8.5 billion for the fourth quarter of 2010 compared with $8.7 billion for the fourth quarter of 2009. This 2 percent decrease was primarily due to 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. For full-year 2010, revenues were $34.0 billion compared with $34.7 billion for 2009. Including net realized capital gains and the 2009 ESI settlement, revenues were $8.5 billion and $8.8 billion for the fourth quarter of 2010 and 2009, respectively, and $34.2 billion and $34.8 billion for full year 2010 and 2009, respectively.
  • Total Operating Expenses were $1.8 billion for the fourth quarter of 2010, $103.8 million higher than the fourth quarter of 2009 reflecting seasonal spending and the implementation of the agreement with CVS Caremark and other major programs. The operating expense ratio was 21.2 percent in the fourth quarter 2010 and 19.5 percent in the fourth quarter 2009. Including net realized capital gains and other items, these percentages were 22.1 percent and 20.5 percent for the fourth quarter of 2010 and 2009, respectively.

    For full-year 2010, the operating expense ratio increased to 19.3 percent from 18.2 percent for 2009 reflecting seasonal spending and the implementation of the agreement with CVS Caremark and other major programs. Including net realized capital gains and other items, these percentages were 19.0 percent and 18.4 percent for full-year 2010 and 2009, respectively.
  • Corporate Financing Interest Expense was $44.9 million and $39.4 million after tax for the fourth quarter of 2010 and 2009, respectively. Corporate Financing interest expense was $165.5 million after tax for full-year 2010, compared with $158.2 million for 2009.
  • Net Income was $215.6 million for the fourth quarter of 2010, compared with $165.9 million for the fourth quarter of 2009. For full-year 2010, net income increased 38 percent to $1.8 billion, compared to $1.3 billion in 2009.
  • Pre-tax Operating Margin was 5.5 percent for the fourth quarter of 2010, compared with 4.1 percent for the fourth quarter of 2009. For the fourth quarter of 2010, the after-tax net income margin was 2.5 percent compared to 1.9 percent for 2009. For full-year 2010, the pre-tax operating margin was 8.0 percent compared to 6.4 percent for 2009. The after tax net income margin for full-year 2010 was 5.2 percent compared to 3.7 percent for 2009.
  • Share Repurchases totaled 19.5 million shares at a cost of $599 million in the fourth quarter of 2010, bringing full-year total share repurchases to 52.4 million, at a cost of $1.6 billion.

Aetna's conference call to discuss fourth 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 877-548-7906 or 719-325-4869 for international callers. The company suggests participants dial in approximately 10 minutes before the call. The access code is 3403615. 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 3403615. Telephone replays will be available from 11:00 a.m. ET on February 4, 2011 until 11 p.m. ET on February 18, 2011.

About Aetna
Aetna is one of the nation's leading diversified health care benefits companies, serving approximately 35.3 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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