Aetna Reports Third-Quarter 2010 Results
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HARTFORD, Conn., November 03, 2010 — Aetna (NYSE: AET) today announced third-quarter 2010 operating earnings(1) of $419.6 million, or $1.00 per share, an increase of 45 percent per share over 2009. The increase was largely the result of a higher commercial underwriting margin from improved underlying performance and favorable prior-period reserve development, partially offset by lower Commercial Insured membership. Third-quarter results included favorable prior-period reserve development of $.16 per share, primarily from second quarter 2010 incurred health care costs. Excluding prior-period reserve development, third quarter 2010 operating earnings per share were $.84.(2)
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 qualified pension plans, reported:
Total company results
Aetna's conference call to discuss third 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 888-430-8705 or 719-325-2388 for international callers. The company suggests participants dial in approximately 10 minutes before the call. The access code is 3805457. 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 3805457. Telephone replays will be available from 11:00 a.m. ET on November 3, 2010 until midnight ET on November 17, 2010. About Aetna Aetna is one of the nation's leading diversified health care benefits companies, serving approximately 35.4 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.       (1) Operating earnings exclude net realized capital gains and losses and other items, if any, from net income. Although the excluded items may recur, management believes that operating earnings and operating earnings per share provide a more useful comparison of Aetna's underlying business performance from period to period. Management uses operating earnings to assess business performance and to make decisions regarding Aetna's operations and allocation of resources among Aetna's businesses. Operating earnings is also the measure reported to the Chief Executive Officer for these purposes. The following items are excluded from operating earnings because we believe they neither relate to the ordinary course of our business nor reflect our underlying business performance:
(2) Certain metrics are adjusted to exclude noted development of prior-period health care cost estimates. These metrics include operating earnings, operating earnings per share and medical benefit ratios. (3) Projected operating earnings per share exclude any future net realized capital gains or losses and other items, if any, from net income. Aetna is not able to project the amount of future net realized capital gains or losses and therefore cannot reconcile projected operating earnings to projected net income in any period. Projected operating earnings per share also exclude one-time costs associated with our agreement with CVS Caremark Corporation, which we expect to incur in the fourth quarter of 2010. Projected operating earnings per share for the full year 2010 reflect approximately 423 million weighted average diluted shares. (4) Revenue excludes net realized capital gains and losses as noted in (1) above. Refer to tables on pages 9, 10 and 12 of this press release for a reconciliation of revenue excluding net realized capital gains and losses to revenue calculated under GAAP. (5) The operating expense ratio excludes net realized capital gains and losses and other items, if any. Refer to a reconciliation of this metric to the comparable GAAP measure on page 10 of this press release. (6) In order to provide useful information regarding Aetna's profitability on a basis comparable to others in the industry, without regard to financing decisions, income taxes or amortization of other acquired intangible assets (each of which may vary for reasons not directly related to the performance of the underlying business), Aetna's pretax operating margin is based on operating earnings excluding interest expense, income taxes and amortization of other acquired intangible assets. Management also uses pre-tax operating margin to assess Aetna's performance, including performance versus competitors. (7) Revenue and operating expense information is presented before income taxes. Operating earnings, and operating earnings, excluding prior-period development information is presented net of income taxes. (8) Our Corporate Financing segment is not a business segment. It is added to our business segments to reconcile to our consolidated results. The Corporate Financing segment includes interest expense on our outstanding debt and the financing components of our pension and other postretirement benefit plan expenses. (9) Represents members in consumer-directed health plans included in Aetna's Commercial medical membership. (10) Represents members in products that allow these members access to Aetna's dental provider network for a nominal fee. (11) Represents members who purchased medications through our mail order pharmacy operations during the quarterly period and are included in pharmacy membership above. CAUTIONARY STATEMENT; ADDITIONAL INFORMATION -- -- Certain information in this press release is forward-looking, including our projections as to operating earnings per share and weighted average diluted shares. 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, particularly the implementation of health care reform legislation. Health care reform will significantly impact our business operations and financial results, including our medical benefit ratios. Components of the legislation will be phased in over the next eight years, and we will be required to dedicate material resources and incur material expenses during that time to implement health care reform. Many significant parts of the legislation require further guidance and clarification in the form of regulations. As a result, many of the impacts of health care reform will not be known until those regulations are enacted, which we expect to occur over the next several years. Other important risk factors include adverse and less predictable economic conditions in the U.S. and abroad (including unanticipated levels of or rate of increase in the unemployment rate); adverse changes in federal or state government policies or regulations as a result of health care reform or otherwise (including legislative measures that would affect our business model, limit our ability to price for the risk we assume and/or reflect reasonable costs or profits in our pricing, such as mandated minimum medical benefit ratios, eliminate or reduce ERISA pre-emption of state laws (increasing our potential litigation exposure) or mandate coverage of certain health benefits); our ability to differentiate our products and solutions from those offered by our competitors, and demonstrate that our products lead to access to better quality of care by our members; unanticipated increases in medical costs (including increased intensity or medical utilization as a result of the H1N1 or other flu, increased COBRA participation rates or otherwise; changes in membership mix to higher cost or lower-premium products or membership-adverse selection; 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 resulting from unfavorable changes in contracting or re-contracting with providers, and increased pharmacy costs); failure to achieve and/or delays in achieving desired rate increases and/or profitable membership growth due to regulatory restrictions, the slowing economy and/or significant competition, especially in key geographic markets where membership is concentrated; adverse changes in size, product mix or medical cost experience of membership; adverse pricing or funding actions by federal or state government payors; the timely receipt of regulatory and other approvals necessary to implement our agreement with CVS Caremark Corporation, which could be delayed for a variety of reasons related or not related to the agreement itself, and the ability to successfully implement the CVS Caremark agreement on a timely basis and in a cost-efficient manner and to achieve projected operating efficiencies for the agreement; our ability to integrate, simplify, and enhance our existing information technology systems and platforms to keep pace with changing customer and regulatory needs; the ability to successfully integrate our businesses (including acquired businesses) and implement multiple strategic and operational initiatives simultaneously; managing CEO succession and retention of key executive talent; the ability to reduce administrative expenses while maintaining targeted levels of service and operating performance; the outcome of various litigation and regulatory matters, including the CMS review and sanctions, litigation concerning, and ongoing reviews by various regulatory authorities of, certain of our payment practices with respect to out-of-network providers; reputational issues arising from data security breaches or other means; the ability to improve relations with providers while taking actions to reduce medical costs and/or expand the services we offer; increases in medical costs or Group Insurance claims resulting from any epidemics, acts of terrorism or other extreme events; and a downgrade in our financial ratings. For more discussion of important risk factors that may materially affect Aetna, please see the risk factors contained in Aetna's 2009 Annual Report on Form 10-K and Aetna's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010 and June 30, 2010, each on file with the Securities and Exchange Commission ("SEC"), and Aetna's Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (Aetna's "Third Quarter 10-Q"), when filed with the SEC. You also should read Aetna's Third Quarter 10-Q, when filed with the SEC, for a discussion of Aetna's historical results of operations and financial condition. |
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