Aetna (NYSE: AET) today announced first-quarter 2011 operating
earnings (1) of $560.2 million, or $1.43 per share, a per share
increase of 46 percent over 2010. The increase in the first quarter
operating earnings was largely the result of higher Commercial
underwriting margins from favorable development of prior-period
health care cost estimates and improved underlying performance,
partially offset by lower Commercial Insured membership.
First-quarter results included favorable prior-period reserve
development of $.29 per share, primarily from fourth quarter 2010
incurred health care costs. First-quarter net income per share was
$1.50.
First Quarter Financial Results at a Glance
(Millions, except per share results)
2011 2010 Change Revenue,
excluding net realized capital gains (3) $ 8,348.1 $ 8,544.8 (2 )%
Operating earnings 560.2 430.6 30 % Net income 586.0 562.6 4 %
Per share results: Operating earnings $ 1.43 $ .98 46 % Net
income 1.50 1.28 17 % Weighted average common shares -
diluted 391.2 439.6
“We are pleased that the strong momentum we achieved last year
continues into 2011,” said Chairman, CEO and President Mark T.
Bertolini. “Our core businesses are performing
well with disciplined pricing and competitive new
product designs. We are generating excitement in the
marketplace about the integrated solutions that Aetna, Medicity and
ActiveHealth Management bring to health care providers seeking to
create Accountable Care Organizations (ACOs). We expect the ACO
relationship we recently established with Carilion Clinic to be the
first in a series of ACO announcements in the coming months.”
“Our financial position, capital structure, and liquidity all
continue to be very strong,” said Joseph M. Zubretsky, senior
executive vice president and CFO. “The solid performance of
our core business continues to generate significant cash flow to
fund our investments in profitable growth opportunities, such as
the acquisitions of Medicity and Prodigy Health Group.
“We now project full-year 2011 operating earnings per share of
$4.20 to $4.30.”
Health Care business results
Health Care, which provides a full range of insured and
self-insured medical, pharmacy, dental and behavioral health
products and services, reported:
- Operating earnings of $555.3 million
for the first quarter of 2011, compared with $460.1 million for the
corresponding period in 2010. The increase in operating earnings
was primarily due to higher Commercial underwriting margins from
favorable development of prior-period health care cost estimates
and improved underlying performance, partially offset by lower
Commercial Insured membership in 2011. Operating earnings included
approximately $112 million and $93 million after tax of favorable
prior-period reserve development in the first quarter of 2011 and
2010, respectively.
- Total revenue for the first quarter of
2011 was $7.7 billion compared with $7.9 billion for the first
quarter of 2010. The decrease was primarily attributable to lower
Commercial Insured membership in 2011, as well as a decline from
changes in the customer market, product and geographic mix of
business, partially offset by premium rate increases.
- Medical benefit ratios ("MBRs") for
first quarter 2011 and 2010 were as follows:
2011
2010 Commercial
77.0% 81.1% Medicare 85.1% 87.0% Medicaid
88.5% 85.9% Total
79.2% 82.5%
- Excluding prior-period reserve
development, the Commercial MBR was 79.8 percent and 82.9 percent
for the first quarter of 2011 and 2010, respectively. Commercial
medical costs include favorable development of prior-period health
care cost estimates of approximately $143 million and $92 million
in the first quarter of 2011 and 2010, respectively. The 2011
development was primarily caused by 2010 medical cost trend
emerging favorably due to lower than projected utilization.
- Excluding prior-period reserve
development, the Medicare MBR was 86.8 percent and 89.5 percent for
the first quarter of 2011 and 2010, respectively. Medicare medical
costs include favorable development of prior-period health care
cost estimates of approximately $25 million and $38 million in the
first quarter of 2011 and 2010, respectively.
- Medicaid medical costs include
favorable development of prior-period health care cost estimates of
approximately $6 million and $13 million in the first quarter of
2011 and 2010, respectively.
- Sequentially, first-quarter 2011
medical membership decreased by 674,000 to 17.794 million; pharmacy
benefit management services membership decreased by 852,000 to
8.565 million; and dental membership decreased by 258,000 to 13.489
million.
- Net income was $577.2 million for the
first quarter of 2011, compared with $561.9 million for the first
quarter of 2010.
Group Insurance business results
Group Insurance, which includes group life, disability and
long-term care products, reported:
- Operating earnings of $42.9 million for
the first quarter of 2011, compared with operating earnings of
$28.5 million for the first quarter of 2010. The increase was
primarily the result of higher disability underwriting margins and
higher net investment income in 2011.
- Net income of $47.1 million for the
first quarter of 2011, compared with $53.4 million for the first
quarter of 2010.
- Revenues (3) for the first quarter of
2011 were $504.4 million, compared with $529.9 million for the
first quarter of 2010. First quarter total revenue, which includes
net realized capital gains, was $510.9 million in 2011 and $556.1
million in 2010.
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:
- Operating earnings of $5.8 million for
the first quarter of 2011, compared with $9.7 million for the first
quarter of 2010. The decrease is due primarily to lower net
investment income and is consistent with the run-off nature of the
segment.
- Net income of $5.5 million for the
first quarter of 2011, compared with net income of $15.0 million
for the first quarter of 2010.
Total company results
- Revenues (3) were $8.3
billion for the first quarter of 2011 compared with $8.5 billion
for the first quarter of 2010. This decrease was primarily the
result of a decline in Health Care premium revenue primarily caused
by lower Commercial Insured membership in 2011, as well as a
decline from changes in the customer market, product and geographic
mix of business, partially offset by premium rate increases.
Including net realized capital gains, revenues were $8.4 billion
and $8.6 billion for the first quarter of 2011 and 2010,
respectively.
- Total Operating Expenses
(1) were $1.6 billion for the first quarter of 2011, $23.7
million lower than the first quarter of 2010. This decrease
reflects the impact of lower Commercial membership and productivity
and other improvements, partially offset by information technology
spending related to the implementation of ICD-10 and Health Care
Reform provisions and the inclusion of Medicity’s expenses. The
operating expense ratio (4) was 18.7 percent for the first quarter
of 2011 and 18.6 percent for the first quarter of 2010. Including
net realized capital gains and litigation-related insurance
proceeds received in 2010, these percentages were 18.6 percent and
17.6 percent for the first quarters of 2011 and 2010,
respectively.
- Corporate Financing Interest
Expense was $43.0 million and $39.6 million after tax for the
first quarters of 2011 and 2010, respectively.
- Net Income was $586.0 million
for the first quarter of 2011 compared with $562.6 million for the
first quarter of 2010.
- Pre-tax Operating Margin
(5) was 11.4 percent for the first quarter of 2011 compared
with 8.7 percent for the first quarter of 2010. For the first
quarter of 2011, the after-tax net income margin was 7.0 percent
compared with 6.5 percent for 2010.
- Share Repurchases totaled 6.7
million shares at a cost of $250 million in the first quarter of
2011.
Aetna’s conference call to discuss first quarter 2011 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 800-500-0920
or 719-457-2657 for international callers. The company suggests
participants dial in approximately 10 minutes before the call. The
access code is 1857627. 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 1857627. Telephone replays will be available from 11
a.m. ET on April 28, 2011 until 11 p.m. ET on May 12,
2011.
About Aetna
Aetna is one of the nation’s leading diversified health care
benefits companies, serving approximately 33.8 million people with
information and resources to help them make better informed
decisions about their health care. Aetna offers a broad range of
traditional, voluntary 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. To learn more
about Aetna’s innovative online tools, visit
www.aetnatools.com.
Consolidated Statements of Income
For the Three Months Ended March 31,
(Millions)
2011 2010 Revenue: Health care premiums
$ 6,750.6 $ 6,895.1 Other premiums 445.3 474.7 Fees and other
revenue 899.6 899.8 Net investment income 252.6 275.2 Net realized
capital gains 39.7 76.7
Total revenue 8,387.8
8,621.5
Benefits and expenses: Health care
costs 5,348.0 5,691.0 Current and future benefits 485.5 527.0
Operating expenses: Selling expenses 290.7 321.5 General and
administrative expenses 1,272.8 1,195.7
Total operating expenses 1,563.5 1,517.2 Interest expense 66.1 60.9
Amortization of other acquired intangible assets 26.3
24.4 Total benefits and expenses
7,489.4 7,820.5 Income before income
taxes 898.4 801.0 Income taxes
312.4 238.4 Net income
$ 586.0 $ 562.6
Summary of Results
For the Three Months Ended
March 31, (Millions) 2011
2010 Operating earnings $ 560.2 $ 430.6 Litigation-related
insurance proceeds - 45.5 Net realized capital gains
25.8 86.5 Net income (GAAP measure) $ 586.0
$ 562.6 Weighted average common shares - basic
383.5 431.4 Weighted average common
shares - diluted 391.2 439.6
Per Common Share Operating
earnings $ 1.43 $ .98 Litigation-related insurance proceeds - .10
Net realized capital gains .07 .20 Net
income (GAAP measure) $ 1.50 $ 1.28
Segment
Information (6) For the Three
Months Ended March 31, (Millions)
2011 2010
Health Care: Revenue, excluding net realized capital gains $
7,709.7 $ 7,873.2 Net realized capital gains 33.7
45.4 Total revenue (GAAP measure)
$ 7,743.4 $ 7,918.6 Commercial
Medical Benefit Ratio: Premiums $ 5,013.6
$ 5,143.4 Health care costs (GAAP measure) $
3,859.4 $ 4,169.4 Favorable development of prior-period health care
cost estimates 142.7 92.5
Health care costs, excluding prior-period development $
4,002.1 $ 4,261.9 Commercial MBR (GAAP
measure) 77.0 % 81.1 % Commercial MBR, excluding prior-period
reserve development 79.8 % 82.9 % Medicare Medical Benefit
Ratio: Premiums $ 1,408.8 $
1,519.3 Health care costs (GAAP measure) $ 1,198.3 $ 1,322.0
Favorable development of prior-period health care cost estimates
24.5 38.3 Health care
costs, excluding prior-period development $ 1,222.8
$ 1,360.3 Medicare MBR (GAAP measure) 85.1 %
87.0 % Medicare MBR, excluding prior-period reserve development
86.8 % 89.5 % Total Medical Benefit Ratio: Premiums
$ 6,750.6 $ 6,895.1 Health care
costs (GAAP measure) $ 5,348.0 $ 5,691.0 Favorable development of
prior-period health care cost estimates 173.5
143.4 Health care costs, excluding
prior-period development $ 5,521.5 $ 5,834.4
Total MBR (GAAP measure) 79.2 % 82.5 % Total MBR,
excluding prior-period reserve development 81.8 % 84.6 %
Operating earnings $ 555.3 $ 460.1 Litigation-related insurance
proceeds - 45.5 Net realized capital gains 21.9
56.3 Net income (GAAP measure) $
577.2 $ 561.9
Segment Information
continued (6) For the
Three Months Ended March 31, (Millions)
2011 2010
Group Insurance: Revenue, excluding net realized
capital gains $ 504.4 $ 529.9 Net realized capital gains
6.5 26.2 Total revenue (GAAP
measure) $ 510.9 $ 556.1
Operating earnings $ 42.9 $ 28.5 Net realized capital gains
4.2 24.9 Net income (GAAP
measure) $ 47.1 $ 53.4
Large
Case Pensions: Revenue, excluding net realized capital (losses)
gains $ 134.0 $ 141.7 Net realized capital (losses) gains
(.5 ) 5.1 Total revenue (GAAP measure)
$ 133.5 $ 146.8 Operating
earnings $ 5.8 $ 9.7 Net realized capital (losses) gains
(.3 ) 5.3 Net income (GAAP measure)
$ 5.5 $ 15.0
Total Company: Revenue, excluding net realized capital gains
(A) $ 8,348.1 $ 8,544.8 Net realized capital gains
39.7 76.7 Total revenue (GAAP measure)
(B) $ 8,387.8 $ 8,621.5 Business
segment operating expenses (C) $ 1,562.3 $ 1,543.9 Corporate
Financing segment operating expenses (7) 1.2
43.3 Operating expenses, including Corporate
Financing segment (D) 1,563.5 1,587.2 Litigation-related insurance
proceeds - (70.0 ) Total
operating expenses (GAAP measure) (E) $ 1,563.5
$ 1,517.2
Operating Expenses
Ratios: Business segment operating expense ratio (C)/(A) 18.7 %
18.1 % Operating expense ratio (D)/(A) 18.7 % 18.6 % Total
operating expense ratio (E)/(B) (GAAP measure) 18.6 % 17.6 %
Membership March
31, December 31, March 31, (Thousands)
2011 2010 2010
Medical Membership: Commercial 16,175 16,824 17,176 Medicare
407 445 451 Medicaid 1,212 1,199
1,061 Total Medical Membership 17,794 18,468
18,688
Consumer-Directed Health Plans (8)
2,412 2,184 2,206
Dental
Membership: Commercial 11,881 12,137 12,381 Medicare &
Medicaid 626 639 572 Network Access (9) 982 971
1,000 Total Dental Membership 13,489 13,747
13,953
Pharmacy Benefit Management Membership:
Commercial 7,901 8,555 8,923 Medicare PDP (stand-alone) 447 608 601
Medicare Advantage PDP 190 227 233 Medicaid 27
27 30 Total Pharmacy Benefit Management Services
8,565 9,417 9,787
Operating Margins
For the Three
Months Ended March 31, (Millions)
2011 2010
Reconciliation to Income Before Income Taxes:
Operating earnings before income taxes,
excluding interest expense and amortization
of other acquired intangible assets (A)
$ 951.1 $ 739.6 Interest expense (66.1 ) (60.9 ) Amortization of
other acquired intangible assets (26.3 ) (24.4 ) Litigation-related
insurance proceeds - 70.0 Net realized capital gains
39.7 76.7 Income before income
taxes (GAAP measure) $ 898.4 $ 801.0
Reconciliation to Net Income:
Operating earnings, excluding interest
expense and amortization of other acquired
intangible assets, net of tax
$ 620.3 $ 486.1 Interest expense, net of tax (43.0 ) (39.6 )
Amortization of other acquired intangible assets, net of tax (17.1
) (15.9 ) Litigation-related insurance proceeds, net of tax - 45.5
Net realized capital gains, net of tax 25.8
86.5 Net income (GAAP measure) (B)
$ 586.0 $ 562.6
Reconciliation of Revenue: Revenue, excluding net realized
capital gains (C) $ 8,348.1 $ 8,544.8 Net realized capital gains
39.7 76.7 Total
revenue (GAAP measure) (D) $ 8,387.8 $
8,621.5
Operating and Net Income Margins:
Pretax operating margin (A)/(C) 11.4 % 8.7 % After-tax net income
margin (B)/(D) (GAAP measure) 7.0 % 6.5 %
(1) Operating earnings and operating earnings per share 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:
- Following a Pennsylvania Supreme Court
ruling in June 2009, we received $45.5 million ($70.0 million
pretax) in April 2010 from one of our liability insurers related to
certain litigation we settled in 2003, which we recognized in the
first quarter of 2010.
- Net realized capital gains and losses
arise from various types of transactions, primarily in the course
of managing a portfolio of assets that support the payment of
liabilities. However, 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 Aetna’s business
operations.
For a reconciliation of these items to financial measures
calculated under U.S. generally accepted accounting principles
(“GAAP”), refer to the tables on pages 8 through 10 and 12 of this
press release.
(2) Projected operating earnings per share exclude any future
net realized capital gains and losses and other items, if any, from
net income. Aetna is not able to project the amount of future net
realized capital gains and losses and therefore cannot reconcile
projected operating earnings to projected net income in any period.
Projected operating earnings per share for the full year 2011
reflect approximately 384 million weighted average diluted
shares.
(3) 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.
(4) The operating expense ratio excludes net realized capital
gains and losses and other items, if any. For a reconciliation of
this metric to the comparable GAAP measure refer to page 10 of this
press release.
(5) 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 pretax
operating margin to assess Aetna’s performance, including
performance versus competitors.
(6) Revenue and operating expense information is presented
before income taxes. Operating earnings is presented net of income
taxes.
(7) 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.
(8) Represents members in consumer-directed health plans
included in Aetna’s Commercial medical membership.
(9) Represents members in products that allow these members
access to Aetna’s dental provider network for a nominal fee.
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 and changes in
Aetna’s future cash requirements, capital requirements, results of
operations, financial condition and/or cash flows. 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 seven 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, including medical loss
ratios, require further guidance and clarification both at the
federal level and in the form of regulations and actions by state
legislatures to implement the law. As a result, many of the impacts
of health care reform will not be known for 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 health care reform and/or other federal or state
government policies or regulations as a result of health care
reform, changes in health care reform or otherwise (including
legislative, judicial or regulatory measures that would affect our
business model, restrict funding for various aspects of health care
reform, 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 difficult
economy and/or significant competition, especially in key
geographic areas where membership is concentrated; adverse changes
in size, product mix or medical cost experience of membership; our
ability to diversify our sources of revenue and earnings; adverse
program, pricing or funding actions by federal or state government
payors; the ability to successfully implement our agreement with
CVS Caremark Corporation 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 success of our
health information technology initiatives; the ability to
successfully integrate our businesses (including Medicity and other
acquired businesses) and implement multiple strategic and
operational initiatives simultaneously; managing executive
succession and key talent retention, recruitment and development;
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
sanctions imposed on us by CMS, the CMS risk adjustment audits of
certain of our Medicare contracts, guaranty fund assessments and
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; our ability to maintain our
relationships with third party brokers, consultants and agents who
sell our products; 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 2010 Annual
Report on Form 10-K on file with the Securities and Exchange
Commission (the “SEC”). You also should read Aetna’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2011, when
filed with the SEC for a discussion of Aetna’s historical results
of operations and financial condition.
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