Aetna Reports Second Quarter 2002 Results

Earnings of $0.32/share before prior-period favorable claim development
Positive operating earnings reported in all segments
Company on track to deliver $300 million in expense cuts
Company to provide updated earnings guidance during 8:30 a.m. call

HARTFORD, Conn., August 1, 2002 — Aetna (NYSE: ΑET) today announced second quarter 2002 operating earnings, excluding other items¹, of $91.3 million, or $0.59 per share. These results include $49.3 million, or $0.32 per share, for the quarter and favorable development of prior-period medical cost estimates of approximately $42 million, or $0.27 per share.

"I am pleased to report another solid quarter, evidence of continued progress in our turnaround and further demonstration that our new operating model, which focuses on retaining and growing profitable business, is working well," Chairman and CEO John W. Rowe, M.D., said. "Our turnaround-related actions initiated during 2001 had a more favorable impact than we estimated at the time, and this contributed to the favorable claim development we are reporting today."

"We are encouraged by the response we are receiving from customers and brokers to our consumer-driven Aetna HealthFund product, which is aimed at large national customers, and our fully insured HealthFund product, which is targeted to the middle market," said President Ronald A. Williams. "Our new, small-group suite of products, which includes an option to purchase group life insurance and disability coverage in addition to health insurance, provides value and ease of administration for small employers. With these and other initiatives, our goal is to profitably grow membership next year."

"In addition, Aetna will continue to lead by example with initiatives such as our recent call for national standards for genetic testing," Dr. Rowe said. "Finally, we continue to transform Aetna into an efficient, high-performing organization; and we are on track to deliver approximately $300 million in operating expense cuts, aligning our costs with our lower membership levels while continuing to improve service quality."


Quarterly Financial Results at a glance
	Three Months Ended
	June 30 2002	June 30 2001	March 31 2002

Revenues	$5.1 billion	$6.5 billion	$5.3 billion
Operating earnings (loss) excluding other items¹	$91.3 million*	$(95.9) million	$64.9 million
Per share operating earnings (loss) excluding other items¹	$0.59*	$(0.67)	$0.44
* Operating results include approximately $42 million, or $0.27 per share, of favorable development of prior-period medical cost estimates.


FAS No. 142 Pro Forma Basis
Financial Accounting Standard No. 142, "Goodwill and Other Intangibles," was implemented on January 1, 2002. This standard requires the elimination of goodwill and certain types of intangible asset amortization on a prospective basis. Accordingly, operating earnings for 2002 do not include amortization of goodwill. The following supplemental table provides operating results for the 2001 period on a comparable basis to that of 2002:
	Three Months Ended
	June 30 2002	June 30 2001	March 31 2002

Operating earnings (loss) excluding other items¹	$91.3 million	$(44.3) million	$64.9 million
Per share operating earnings (loss) excluding other items¹	$0.59	$(0.31)	$0.44

Health Care business results

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

Operating earnings, excluding other items, of $68.3 million, including the approximately $42 million favorable development of prior-period medical cost estimates, compared with a second quarter 2001 loss of $(70.2) million, and first quarter 2002 earnings of $44.7 million.
A commercial HMO medical cost ratio (MCR) of 84.1 percent for the second quarter 2002, compared with 91.3 percent for the second quarter 2001 and 86.2 percent for the first quarter 2002. The second quarter 2002 MCR includes the effects of the favorable claim development noted above. Excluding the portion of the development related to the commercial HMO business, the MCR was 86.1 percent.
A reduction in health care operating expenses of $10.8 million from the first quarter 2002, resulting from ongoing cost-reduction efforts.
A Medicare HMO medical cost ratio of 82.8 percent for the second quarter 2002, compared with 95.2 percent for the second quarter 2001 and 80.5 percent for the first quarter 2002. The second quarter 2002 Medicare HMO MCR also includes a portion of the favorable claim development noted above. Excluding the portion of the development related to the Medicare business, the MCR was 86.8 percent.
A severance and facilities charge of $17.5 million, related to targeted work force reductions aimed at aligning resources with reduced membership and improving operating efficiencies.
Total health membership of approximately 14.4 million at June 30, 2002, a decrease of approximately 595,000 from March 31, 2002.

Group Insurance business results

Group Insurance, which includes Group Life, Disability and Long-Term Care products, reported:

Operating earnings of $36.3 million, compared with $37.6 million in the second quarter 2001 and $33.0 million in the first quarter 2002. Results were lower than second quarter 2001 primarily due to a slightly higher benefit cost ratio and lower net investment income partially offset by a lower effective tax rate. Results were higher than first quarter 2002 primarily due to higher net investment income and a lower benefit cost ratio.
Membership of approximately 12.0 million, an increase of approximately 168,000 from first quarter 2002.

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, excluding the other item, of $6.9 million, compared with $10.1 million for the second quarter 2001 and $6.3 million for the first quarter 2002. 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 investment income in the continuing book of business.

Total company results

Total Revenues. Revenues were $5.1 billion for the second quarter 2002, compared with $6.5 billion for the second quarter 2001 and $5.3 billion for the first quarter 2002. The decrease primarily was the result of lower health membership, partially offset by higher per-member premiums.
Total Operating Expenses. Pretax operating expenses were $1.06 billion for the second quarter 2002, compared with $1.14 billion for the second quarter 2001 and $1.07 billion for the first quarter 2002.
Corporate Interest expense was $20.2 million after tax for the second quarter 2002, compared with $21.8 million for the second quarter 2001 and $19.1 million for the first quarter 2002.
Net Income/Loss. Aetna reported net income of $108.2 million for the second quarter 2002, compared with $10.6 million for the second quarter 2001 and a net loss of $2.83 billion for the first quarter of 2002, when the company recorded a $2.97 billion noncash impairment of goodwill. Net income also includes net realized capital gains of $29.0 million for the second quarter 2002.
The company noted that it did not experience any significant losses in its investment portfolio this year associated with the well-publicized financial failures of certain corporations.

The public can access the second-quarter conference call today at 8:30 a.m. EDT by dialing 800-633-8620, or for international callers, 415-537-1823. At that time, Aetna will update parts of its 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 14.4 million health care members, 11.9 million dental members and 12.0 million group insurance customers, as of June 30, 2002. Information about Aetna is available at www.aetna.com.

¹All operating results exclude income from discontinued operations, net realized capital gains, 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 income (loss) under generally accepted accounting principles for each period shown:


Three Months Ended:
June 30 2002	June 30 2001	March 31 2002

Operating earnings (loss) from continuing operations before other items	$	91.3	$	(95.9)	$	64.9
Other items:
Health Care Segment:
Income tax reserve release (prior period related)		-		-		19.8
Severance and facilities charge		(17.5)		-		-
Favorable reserve developments related to Medicare markets exited January 1, 2001		-		5.3		-
Large Case Pensions Segment:
Reduction of reserve for anticipated future losses on discontinued products		5.4		61.4		-
Net realized capital gains		29.0		39.8		3.3
Income from continuing operations		108.2		10.6		88.0
Income from discontinued operations		-		-		50.0
Income before cumulative effect adjustment		108.2		10.6		138.0
Cumulative effect adjustment		-		-		(2,965.7)
Net income (loss)	$	108.2	$	10.6	$	(2,827.7)

ADDITIONAL INFORMATION; CAUTIONARY STATEMENT - Certain information in this press release is forward looking, including, without limitation, the statements regarding targeted membership growth and projected operating expense savings and service quality, and operating efficiency improvements. 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 operating model; 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 2001 Form 10-K and 2002 second 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.

Related Links:

2Q02 Financial Supplement
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2Q02 Financial Supplement

2Q02 Earnings Tables
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2Q02 Earnings Tables