Health Care business results
Health Care, which provides a full range of insured and self-insured health care, indemnity, and dental products and services, reported:
- Operating earnings of $44.7 million, compared with a first quarter 2001 loss of $(72.7) million and fourth quarter 2001 loss of $(98.1) million.
- A commercial HMO medical cost ratio of 86.2 percent in the first quarter 2002, compared with 90.0 percent for the first quarter 2001 and 89.7 percent for the fourth quarter 2001. This significant improvement resulted primarily from premium increases outpacing increased medical costs.
- A reduction in health care operating expenses of $44.0 million from the first quarter 2001 and $76.9 million from the fourth quarter 2001, resulting from ongoing cost-reduction efforts.
- A Medicare HMO medical cost ratio of 80.5 percent, compared with 93.7 percent for the first quarter 2001 and 92.9 percent for the fourth quarter 2001. These decreases were due primarily to lower utilization, a small amount of favorable reserve development and benefit plan changes.
- Total health membership of approximately 15.0 million at March 31, 2002.
Group Insurance business results
Group Insurance, which includes Group Life, Disability and Long-Term Care products, reported:
- Operating earnings of $33.0 million, compared with $45.2 million in the first quarter 2001 and $36.3 million in the fourth quarter 2001. The decline from first quarter 2001 was driven by lower net investment income. The decline from the fourth quarter 2001 was primarily the result of seasonally higher Group Life claim experience.
- Membership of approximately 11.9 million, an increase of approximately 400,000 from fourth quarter 2001.
Large Case Pensions business results
Large Case Pensions, which manages a variety of discontinued and other retirement and savings products for defined benefit and defined contribution plan customers, reported:
- Operating earnings of $6.3 million, compared with $10.6 million in the first quarter 2001
and $3.8 million in the fourth quarter 2001. The year-over-year decrease was consistent
with the continued decline in underlying liabilities and related assets in keeping with the
run-off nature of the business. The sequential increase was driven primarily by higher
interest margins and lower expenses.
Total company results
- Total Revenues. Revenues were $5.26 billion in the first quarter 2002, compared with $6.43 billion in the first quarter 2001 and $6.04 billion in the fourth quarter 2001. These decreases primarily were the result of lower health membership, partially offset by higher per-member premiums.
- Total Operating Expenses. Pretax operating expenses were $1.07 billion in the first quarter 2002, compared with $1.11 billion in the first quarter 2001 and $1.15 billion in the fourth quarter 2001.
- Corporate Interest expense was $19.1 million after tax in the first quarter 2002, compared with $19.7 million after tax in the first quarter 2001 and $26.6 million after tax in the fourth quarter 2001.
- Net Income/Loss. Aetna reported a net loss of $2.83 billion in the first quarter of 2002, primarily as a result of recording a $2.97 billion noncash impairment of goodwill. In the first quarter 2002 Aetna adopted Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." This standard requires companies to value goodwill assets and to record any impairment on those assets. Goodwill no longer will be amortized as a result of implementing this standard. This impairment has the effect of reducing the goodwill asset and a corresponding amount of shareholders' equity. This impairment does not affect operating earnings, but is factored into the company's net results.
The public can access the first-quarter conference call today at 9 a.m. EDT by dialing 888-209-4007. At that time, Aetna will give its full 2002 earnings outlook. A live audio Webcast and replays will be available through Aetna's Investor Information link on the Internet at
www.aetna.com. A transcript of the call will be available at 3 p.m. today on
www.aetna.com.
Aetna is one of the nation's leading providers of health care and related group benefits,
serving approximately 15.0 million health care members, 12.1 million dental members and 11.9 million group insurance customers, as of March 31, 2002.
Information about Aetna is available at
www.aetna.com.
1 All operating results exclude discontinued operations, net realized capital gains and losses, cumulative effect adjustments and other items, in order to provide a comparison that the company believes better reflects its underlying business performance. Set forth below is an itemization of other items excluded from operating results and a reconciliation of operating results to net loss under generally accepted accounting principles for each period shown:
ADDITIONAL INFORMATION; CAUTIONARY STATEMENT - Aetna's 2002 Proxy Statement was filed with the Securities and Exchange Commission on March 18, 2002 and mailed to Aetna's shareholders on or about March 20, 2002. Aetna filed additional participant information with the SEC on April 4, 2002. Aetna's shareholders should read these materials and all additional materials that Aetna files with the SEC, because they contain important information relating to the 2002 Annual Meeting. Certain information in this press release is forward looking. Forward-looking information is based on management's estimates, assumptions and projections, and is subject to significant uncertainties and other factors, many of which are beyond Aetna's control. Important risk factors could cause actual future results and other future events to differ materially from those currently estimated by management. Those risk factors include, but are not limited to: unanticipated increases in medical costs (including increased medical utilization, increased pharmacy costs, increases resulting from unfavorable changes in contracting or recontracting with providers, changes in membership mix to lower-premium or higher-cost products or membership-adverse selection; as well as changes in medical cost estimates due to the necessary extensive judgment that is used in the medical cost estimation process, the considerable variability inherent in such estimates, and the sensitivity of such estimates to changes in medical claims payment patterns and changes in medical cost trends); increases in medical costs or Group Insurance claims resulting from the aftermath of the events of September 11, 2001 and the continued threat of terrorism; the ability to achieve targeted savings from work force reductions and to otherwise reduce administrative expenses in light of significant membership reductions being experienced in 2002; the ability to maintain targeted levels of service, and improve relations with providers, as well as operating performance, while making significant staff reductions and taking actions to reduce medical costs; the ability to successfully implement Aetna's new customer model approach; lower levels of investment income from continued lower interest rates; adverse government regulation (including legislative proposals to eliminate or reduce ERISA pre-emption of state laws that would increase potential litigation exposure, and other proposals, such as the Patients' Bill of Rights, that would increase potential litigation exposure or mandate coverage of certain health benefits); adverse pricing actions by government payors; changes in size, product mix and medical cost experience of membership in key markets, particularly given the significant membership reductions being experienced in 2002; and the outcome of litigation and regulatory matters, including numerous purported health care class actions and ongoing reviews of business practices by various regulatory agencies. For more discussion of important factors that may materially affect Aetna, please see the risk factors contained in Aetna's 2001 Report on Form 10-K, on file with the Securities and Exchange Commission. You also should read Aetna's 2002 first quarter Form 10-Q when filed with the Securities and Exchange Commission for a discussion of Aetna's historical results of operations and financial condition.
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