Aetna Reports Third Quarter 2003 Results

Third-quarter operating earnings of $1.29 per share (compared with Thompson/First Call estimate of $1.22)

74% increase in earnings per share on a comparable basis

Third-quarter net income of $1.35 per share

Aetna (NYSE: ΑET) today announced third quarter 2003 operating earnings of $1.29 per share. Operating earnings, excluding development and other items, were $1.27 per share, an increase of 74 percent from third quarter 2002. Operating earnings exclude net realized capital gains and other items.1 Aetna's net income for the third quarter of 2003 was $1.35 per share, compared with $0.64 per share for the third quarter of 2002.

Quarterly Financial Results at a Glance

Three Months Ended
September 30
September 30
Total Revenues
$4.5 billion
$4.8 billion

Operating earnings1
$207.1 million $151.5 million  
Per share operating earnings1 $1.29 $0.98 32%
Favorable development of prior-period medical cost estimates
($0.02) ($0.11)  
Favorable resolution of prior-period contract matters for a large customer -   ($0.14)  
Operating earnings, excluding development and other items $1.27 $0.73 74%
Net income $215.9 million $98.8 million  
Per share net income $1.35 $0.64 111%

"This marks Aetna's seventh-consecutive quarter of strong performance on all key financial measures," said John W. Rowe, M.D., chairman and CEO. "Our solid earnings for the third quarter are the result of successful efforts in several areas, including our disciplined underwriting and medical cost-management efforts and significant reductions in operating expenses. We continue to move beyond the issues unique to our turnaround; and are focused on enhancing the value of the Aetna franchise through profitable growth, increased operating efficiency and disciplined capital management.

"Given these results, we are increasing our operating earnings guidance for full-year 2003 to approximately $5.00 to $5.05 per share, excluding prior-period development, doubling the comparable full-year 2002 operating earnings. Looking ahead to 2004, we are confident that our positive momentum will continue as a result of our enhanced competitive position and anticipate an increase of approximately 15 percent in operating earnings per share over full-year 2003, excluding prior-period development."2

"We continue to enhance our sales and distribution capabilities with the offering of innovative new products and services," said Ronald A. Williams, president. "Aetna is well positioned to realize sustainable, profitable growth across all customer markets and to benefit from continued efficiencies."

Health Care business results

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

Group Insurance business results

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

Large Case Pensions business results

Large Case Pensions, which manages a variety of discontinued and other retirement and savings products primarily for defined benefit and defined contribution plan customers, reported:

Total company results

A live audio webcast of the third-quarter results conference call 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 Internet Investor Information link at Financial, statistical and other information related to the conference call, including additional GAAP reconciliations, will be available on Aetna's Investor Information site.

The conference call also can be accessed by dialing 800-210-9006, or 719-457-2621 for international callers. The company suggests participants dial in approximately 10 minutes prior to the call. 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 or by dialing 888-203-1112, or 719-457-0820 for international callers. The replay access code is 509060. Telephone replays will be available from 11:30 a.m. ET on October 30 until midnight ET on November 6.

Anyone listening to the Aetna Inc. call and/or webcast is encouraged to read Aetna's 2002 Annual Report on Form 10-K, filed with the Securities and Exchange Commission, and its 2003 Third Quarter Form 10-Q, to be filed with the SEC in connection with the third-quarter announcement, including the discussion of risk factors and Aetna's historical results of operations and financial condition.

Aetna is one of the nation's leading providers of health care, dental, pharmacy, group life, disability and long-term care benefits, serving approximately 13.0 million medical members, 11.0 million dental members, 7.4 million pharmacy members and 12.1 million group insurance customers, as of September 30, 2003. The company has expansive nationwide networks of more than 590,000 health care services providers, including over 355,000 primary care and specialist physicians and 3,577 hospitals. For more information about Aetna, please visit the company's web site at

1 In order to provide a comparison that the company believes provides useful information regarding its underlying performance, operating earnings exclude the following from net income: other items and net realized capital gains (losses). The company believes it is appropriate to exclude these items from operating earnings for the reasons set forth below, and management uses operating earnings to assess performance and make operating decisions. Capital gains and losses arise from various types of transactions that arise in the course of managing a portfolio of assets that support the payment of liabilities, but these transactions do not directly relate to the underwriting or servicing of products for customers, and are not directly related to the core performance of the company's business operations. Settlement of the physician class-action lawsuit of approximately $75 million, after tax ($115.4 million pretax), included as the Other Item by the company for the second quarter 2003, represents an estimate of 2003 net settlement costs of significant litigation not in the ordinary course of business. Severance and facilities charges of $57.9 million, after tax ($89.0 million pretax), included in Other Items by the company for the third quarter of 2002, represents an estimate of costs related to reductions in staff or exiting of facilities and are not direct expenses supporting ongoing business operations. The company also displays certain metrics (e.g., medical cost ratios, operating earnings and pretax operating margins) excluding changes to prior-period medical cost estimates to reflect underlying current-period health care costs and favorable resolution of prior-period contract matter for a large customer to reflect underlying current- period premium. For a reconciliation of these items to financial measures calculated under accounting principles generally accepted in the United States of America (GAAP), refer to the tables on pages 7 to 11 of this release.

2 Full-year 2002 operating earnings of $450.3 million exclude an income tax reserve release of $19.8 million, a reduction of reserves for anticipated future losses on discontinued products of $5.4 million after tax, severance and facilities charges of $104.6 million after tax, and net realized capital gains of $22.3 million after tax. The full-year 2002 operating earnings include a benefit of approximately $21 million after tax due to favorable resolution of prior-period contract matters for a large customer and favorable development of prior-period medical cost estimates of approximately $46 million after tax. Projected operating earnings for full-year 2003 exclude net realized capital gains reported to date in 2003 of $32.4 million after tax, prior-period reserve development reported by the company in each quarter to date in 2003 (approximately $107 million after tax in first quarter 2003, approximately $2 million after tax in second quarter 2003 and approximately $3 million after tax in third quarter 2003), and the settlement of the physician class-action lawsuit of approximately $75 million after tax reported in the second quarter 2003. These amounts are excluded for the reasons stated in footnote 1. Additionally, the income tax reserve release, included in Other Items by the company for the first quarter of 2002, represents the favorable conclusion of several state tax audits relating to prior periods; accordingly, this reserve release does not reflect the underlying performance of the company's business. The reduction of the reserve for anticipated future losses on discontinued products, included in Other Items by the company for the second quarter of 2002, represents a reduction of reserves previously established for certain products no longer offered by the company and does not benefit ongoing business operations. Projected operating earnings for 2003 and 2004 also exclude any future net realized capital gains or losses or future reserve development. The company is not able to project the amount of future net realized capital gains or losses or reserve development and cannot, therefore, reconcile projected 2003 and 2004 operating earnings to projected net income.

3 In order to provide useful information regarding profitability of the company on a basis comparable to others in the industry, without regard to financing decisions, income taxes and amortization of other acquired intangible assets (each of which may vary for reasons not directly related to performance of the underlying business), the company's pretax operating margin excludes interest expense, income taxes and amortization of other acquired intangible assets. Management also uses pretax operating margin to assess its performance, including performance versus competitors. Operating earnings used in the pretax margin calculation also exclude the items noted in footnote 1. For a reconciliation to margin calculated under GAAP, refer to the tables on page 10 of this release.

ADDITIONAL INFORMATION; CAUTIONARY STATEMENT -- Certain information in this press release is forward looking, including the projections of 2003 and 2004 operating earnings. 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); decreases in membership levels; increases in medical costs or Group Insurance claims resulting from any acts of terrorism; the ability to achieve targeted savings from work force reductions and to otherwise reduce administrative expenses in light of significant membership reductions recently experienced; 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 continue 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; and the outcome, including any negotiated resolution, of various litigation and regulatory matters, including 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 2002 Annual Report on Form 10-K, on file with the Securities and Exchange Commission. You also should read Aetna's 2002 Annual Report on Form 10-K and Aetna's 2003 Third Quarter Report on 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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