Aetna Reports Fourth Quarter And Full-year 2002 Results

Aetna (NYSE: ΑET) today announced fourth quarter 2002 operating earnings, excluding other items¹, of $142.6 million, or $0.92 per share. These results include approximately $120 million, or $0.77 per share for the quarter, and approximately $23 million, or $0.15 per share, of favorable development of prior-period medical cost estimates. Aetna reported net income of $98.2 million, or $0.63 per share for the fourth quarter 2002.

On a full-year 2002 basis, excluding other items, Aetna reported operating earnings of $450.3 million, or $2.94 per share, compared with a full-year 2001 operating loss², excluding other items, of ($63.0) million, or ($0.44) per share. For 2002, Aetna recorded a net loss of ($2.52) billion, or ($16.49) per share, compared with a net loss for 2001 of ($76.2) million, or ($0.53) per share. The net loss for 2002 reflects the recording of a $2.97 billion noncash impairment of goodwill in the first quarter.

"In 2002, Aetna improved its financial performance," said John W. Rowe, M.D., chairman and CEO. "This success was built on a seven-point reduction in the medical cost ratio, as well as lower administrative costs. This decline in MCR was driven by three factors: reduction of membership with historically higher MCRs; price increases that better aligned our prices with competitors' and with our own costs; and more effective contracting, benefit plan designs and medical management programs.

"This substantial improvement in financial performance gives us the momentum needed for the next phase of our turnaround, which will be built on new customer-focused products and service improvements that we expect will lead to profitable growth."

"Aetna delivered on its promises in 2002, and we believe the company is now firmly re-established as a top-tier competitor in the health care arena," President Ronald A. Williams said. "Our broad operational goal for 2003 and beyond is to build on our competitive advantages and grow profitably."


Quarterly Financial Results at a Glance
	Three Months Ended
	Dec 31 2002	Dec 31 2001	Sept 30 2002

Revenues	$4.7 billion	$6.0 billion	$4.8 billion
Operating earnings (loss) excluding other items¹	$142.6 million*	$(84.6) million	$151.5 million**
Per share operating earnings (loss) excluding other items¹	$0.92*	$(0.59)	$0.98**
Net income (loss)¹	$98.2 million*	$(187.6) million	$98.8 million**
* Includes approximately $23 million, or $0.15 per share, of favorable development of prior-period medical cost estimates. ** Includes approximately $17 million, or $0.11 per share, of favorable development of prior-period medical cost estimates and approximately $21 million, or $0.14 per share, related to the favorable resolution of prior-period contract matters for a large customer.


FAS No. 142 Pro Forma Basis
Financial Accounting Standard No. 142, "Goodwill and Other Intangibles" (FAS No.142), 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
	Dec 31 2002	Dec 31 2001	Sept 30 2002

Operating earnings (loss) excluding other items¹	$142.6 million	$(34.6) million	$151.5 million
Per share operating earnings (loss) excluding other items¹	$0.92	$(0.24)	$0.98
Net income (loss)¹	$98.2 million	$(137.6) million	$98.8 million

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 $120.7 million for the fourth quarter 2002, compared with a fourth quarter 2001 loss of ($48.1) million, and third quarter 2002 earnings of $127.9 million. Fourth quarter 2002 health care operating earnings include approximately $23 million of Commercial HMO favorable development of prior-period medical cost estimates. Third quarter 2002 health care operating earnings include approximately $38 million of aggregate favorable development of prior-period medical cost estimates for both the Commercial HMO and Medicare HMO products, as well as the favorable resolution of prior-period contract matters for a large customer.
A decline in the medical cost trend for Commercial HMO of 200 basis points from the third-quarter level to approximately 12 percent, including a pharmacy trend of approximately 11 percent, 400 basis points lower than the third quarter. For full-year 2002, the medical cost trend for Commercial HMO declined to approximately 14 percent, more than 300 basis points better than the medical cost trend reported for the full year 2001. For combined Commercial Risk products, the full-year cost trend was approximately 14.5 percent.
Improved pretax operating margin, driven by an increase in the net premium yield; a continuation of the previously noted decline in the medical cost trend; and continued reductions in operating costs.
A Commercial HMO medical cost ratio (MCR) of 80.4 percent for the fourth quarter 2002, compared with 89.7 percent for the fourth quarter 2001 and 81.4 percent for the third quarter 2002. Excluding the favorable prior-period developments noted above, the MCR was 81.8 percent for the fourth quarter 2002 and 83.0 percent for the third quarter 2002.
A Medicare HMO MCR of 86.4 percent for the fourth quarter 2002, compared with 92.9 percent for the fourth quarter 2001 and 79.3 percent for the third quarter 2002 (84.2 percent excluding the favorable prior-period development).
A decrease in health care operating expenses of approximately $98.9 million from the fourth quarter 2001 and $3.3 million from third quarter 2002, primarily resulting from lower membership levels and ongoing expense-reduction initiatives.
Total medical membership of approximately 13.7 million at December 31, 2002, a decrease of approximately 270,000 from September 30, 2002. This year-end membership level was somewhat higher than previously estimated in October 2002.

Full-year 2002 results for Health Care show operating earnings, excluding other items, of $361.6 million, compared with an operating loss, excluding other items, of ($161.9) million for full-year 2001, primarily reflecting improved underwriting results, driven by an increase in the premium yield and a decline in the medical cost trend, combined with continued reductions in operating costs and a decrease in amortization of intangibles.

Group Insurance business results

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

Operating earnings, excluding other items, of $34.7 million for the fourth quarter 2002, compared with $36.3 million for the fourth quarter 2001 and $38.2 million for the third quarter 2002. Results were lower than fourth quarter 2001, primarily reflecting higher benefit costs offset in part by favorable operating expense levels. Results were lower than third quarter 2002, primarily reflecting an increase in disability benefit cost ratio and lower net investment income.
Revenues for the fourth quarter 2002, excluding net realized capital gains and losses of $449.7 million, compared with $417.1 million for the fourth quarter of 2001 and $440.3 million for the third quarter of 2002.

For full-year 2002, Group Insurance reported operating earnings, excluding other items, of $142.2 million, compared with $160.1 million in 2001. The decline was primarily the result of lower net investment income and a higher benefit cost ratio.

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 $7.1 million for the fourth quarter 2002 compared with $3.8 million for the fourth quarter 2001 and $3.9 million for the third quarter 2002. The quarter-over-quarter and sequential increases were driven primarily by higher income on certain commercial mortgage loan investments.

For full-year 2002, Large Case Pensions reported operating earnings, excluding other items, of $24.2 million, compared with $31.6 million in 2001. Operating earnings were lower than the prior year mainly due to lower investment income, consistent with the continued decline in underlying liabilities and related assets, in keeping with the run-off nature of the business.

Total company results

Total Revenues. Revenues were $4.7 billion for the fourth quarter 2002, compared with $6.0 billion for the fourth quarter 2001 and $4.8 billion for the third quarter 2002. For full-year 2002, total revenues were $19.9 billion, compared with $25.2 billion in 2001. Both the quarterly and annual decreases reflect lower health membership, partially offset by higher per-member premiums to cover rising medical costs.
Total Operating Expenses. Pretax operating expenses were $1.05 billion for the fourth quarter 2002, approximately $105 million less than fourth quarter 2001 and $8.8 million less than third quarter 2002. For full-year 2002, operating expenses were $4.23 billion, compared with $4.52 billion for full-year 2001. Operating expenses for all periods exclude severance and facilities charges.
Corporate Interest expense was $19.9 million after tax for the fourth quarter 2002, compared with $26.6 million for the fourth quarter 2001 and $18.5 million for the third quarter 2002.
Net Income/Loss. Aetna reported net income of $98.2 million for the fourth quarter 2002, compared with a net loss of ($137.6) million for the fourth quarter 2001 and net income of $98.8 million for the third quarter of 2002. Net income also includes net realized capital losses of ($15.2) million for the fourth quarter 2002. For full-year 2002, Aetna recorded a net loss of ($2.52) billion, or ($16.49) per share, compared with a net loss of ($76.2) million, or ($0.53) per share, for 2001. The net loss for 2002 reflects the recording of a $2.97 billion noncash impairment of goodwill in the first quarter.

The public can access the fourth-quarter conference call today at 8:30 a.m. EDT by dialing 800-946-0719, or for international callers, 719-457-2645. At that time, Aetna will provide its 2003 earnings guidance. 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 11 a.m. today on www.aetna.com.

Aetna is one of the nation's leading providers of health care, dental, pharmacy, group life, disability and long-term care products, serving approximately 13.7 million medical members, 11.8 million dental members and 11.7 million group insurance customers, as of December 31, 2002. The company has expansive nationwide networks of more than 552,000 health care services providers, including over 332,000 primary care and specialist physicians and 3,373 hospitals. For more information about Aetna, please visit the company's website at www.aetna.com.

¹ All operating results exclude other items, net realized capital gains (losses) and income from discontinued operations, 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 accounting principles generally accepted in the United States of America for each period shown (all amounts are presented net of tax). For a reconciliation of operating results to net income (loss) for the 12 months ended December 31, 2002 and 2001, refer to the tables on page 10 of this release, under Segment Information.


Three Months Ended:
Dec 31 2002	Dec 31 2001	Sept 30 2002

Operating earnings (loss) from continuing operations before other items	$	142.6	$	(84.6)	$	151.5
Other items:
Health Care Segment:
Severance and facilities charge		(28.3)		(125.1)		(55.6)
Favorable reserve developments related to Medicare markets exited January 1, 2001		-		1.1		-
Group Insurance Segment:
Severance and facilities charge		(.9)		-		(2.3)
Net realized capital gains (losses)		(15.2)		9.6		5.2
Income (loss) from continuing operations		98.2		(199.0)		98.8
Income from discontinued operations		-		11.4		-
Net income (loss)	$	98.2	$	(187.6)	$	98.8

² All 2001 results are presented on a FAS No. 142 pro forma basis, a comparable basis to that used in 2002. Refer to pages 12 and 13 of this press release.

ADDITIONAL INFORMATION; CAUTIONARY STATEMENT -- Certain information in this press release is forward looking, including the statements regarding the turnaround and management's goal of profitable growth. 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); continued decreases in membership levels; increases in medical costs or Group Insurance claims resulting from any future 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 being 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 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 of various litigation and regulatory matters, including multiple 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 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 when filed with the Securities and Exchange Commission for further discussion of risk factors and a discussion of Aetna's historical results of operations and financial condition.

Related Links:

4Q02 Financial Supplement

4Q02 Earnings Tables