EX-99.1 2 ex99_1.htm PRESS RELEASE ex99_1.htm
  
151 Farmington Avenue
Hartford, Conn.  06156
Media Contact:
Fred Laberge
860-273-4788
labergear@aetna.com
 
   
Investor Contact:
Jeffrey A. Chaffkin
860-273-7830
chaffkinj@aetna.com
 
 
News Release _____________________________________________________________________________________
 
 
AETNA REPORTS SECOND QUARTER 2009 RESULTS
 

·  
Second-quarter 2009 operating earnings per share (1) of $.68, as compared to the Thomson-First Call mean of $.78 per share
·  
Net income per share in the second quarter 2009 of $.77
·  
Higher than projected Commercial medical costs and a Commercial medical benefit ratio of 85.9 percent, 84.6 percent excluding unfavorable reserve development
·  
Medical membership totaled 19.1 million members at June 30, 2009
·  
Aetna now projects full-year 2009 operating earnings per share of $2.75 to $2.90 (2)
 
 
HARTFORD, Conn., July 27, 2009 ― Aetna (NYSE: AET) today announced second-quarter 2009 operating earnings of $308.5 million, or $.68 per share, a 28 percent decrease from the prior-year quarter.  Operating earnings (1) exclude net realized capital gains (losses) and an other item.  Second-quarter 2009 net income was $346.6 million, or $.77 per share, a 21 percent decrease from the prior-year quarter.
 
The second-quarter 2009 operating earnings were affected by significantly higher Commercial medical costs, which reflect higher second quarter 2009 medical costs and additional unfavorable reserve development, primarily from 2008.  These factors resulted in a lower Commercial underwriting margin in the company’s Health Care business.  The second-quarter operating earnings also reflect the impact of lower-than-projected 2009 Medicare revenue, which the company previously disclosed.
 
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The higher-than-projected medical costs experienced were not fully captured in 2009 pricing, which resulted in a higher Commercial medical benefit ratio for the second quarter of 2009.  The company is taking appropriate actions to address higher medical costs, including pricing actions, enhanced medical management and provider contracting.  The company expects that full-year 2009 operating earnings will continue to be adversely affected by a higher Commercial medical benefit ratio.  As a result, the company has revised its full-year 2009 operating earnings per share projection to a range of $2.75 to $2.90.
 
Quarterly Financial Results at a Glance
                   
   
Three Months Ended June 30,
 
(Millions, except per share results)
 
2009
   
2008
   
Change
Revenue, excluding net realized capital gains (losses)
  $ 8,657.6     $ 7,850.2       10 %
Operating earnings
    308.5       466.3       (34 )%
Net income
    346.6       480.5       (28 )%
                         
Per share results:
                       
Operating earnings
    .68       .94       (28 )%
Net income
    .77       .97       (21 )%
                         
Weighted average common shares - diluted
    450.7       495.8          
                         

"Our second quarter results do not meet our expectations or the standards we have established over several years of strong operational execution and financial performance,” said Ronald A. Williams, chairman and CEO.  “We continue to see upward pressure on medical costs beyond what we projected in early June, which we believe is driven in part by changing provider behavior in the face of a deep recession.  We did not fully capture the impact of these forces in our 2009 pricing.  This is disappointing, but it can be fixed.”
 
Mark Bertolini, president, said, “We believe these increases in Commercial medical costs are largely the result of continued higher claim intensity, such as services rendered in a higher cost setting and more tests and procedures per visit, resulting in higher costs for emergency room, ambulatory, laboratory and preventive services. We are taking immediate actions to address these issues.”
 
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"We have factored the most recent medical cost experience into our actuarial methodologies in setting our June 30 reserves and into our revised full-year outlook,” said Joseph M. Zubretsky, executive vice president and CFO.  "Meanwhile, we continue to have a very strong financial profile and capital position, and our health care revenue growth is strong.  In addition, we continue to effectively manage our operating expenses while making the appropriate investments to ensure our long-term competitive strength.
 
“Given our updated outlook, we now project operating earnings per share for full-year 2009 to be in the range of $2.75 to $2.90 and our full-year 2009 Commercial medical benefit ratio to be in the range of 84.0 percent to 84.5 percent,” Zubretsky said.
 
"Aetna has a sound strategy.  We have built a diverse portfolio of high-performing businesses; our brand continues to resonate in our key markets; and we have a sound business model.  We are confident that we can achieve our goal of long-term profitable growth,” Williams said.
 
 
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 $336.0 million for the second quarter of 2009, compared with $430.9 million for the second quarter of 2008.  The decrease in operating earnings reflects an 18 percent increase in medical costs partially offset by an 11 percent increase in revenue.
 
·
Revenues for the second quarter of 2009 increased by 11 percent to $8.0 billion from $7.2 billion for the second quarter of 2008.  Premium revenues grew by 12 percent primarily from membership growth and rate increases for renewing membership.  Fees and other revenue increased 7 percent in 2009 primarily driven by membership growth.

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·  
Medical benefit ratios ("MBRs") for second-quarter 2009 and 2008 were as follows:
 
           
2009
2008
Commercial
         
85.9%
80.5%
Medicare
         
89.4%
86.9%
Medicaid
         
92.2%
89.8%
Total
         
86.8%
81.9%

 
Ø  
The Commercial MBR reflects approximately $65 million ($42 million after tax) of unfavorable development of prior-period health care cost estimates, primarily related to 2008 dates of service.  Excluding this development, the Commercial MBR for the second quarter of 2009 was 84.6 percent, reflecting medical cost increases that were significantly higher than premium increases.
Ø  
The Medicare MBR reflects the impact of lower-than-projected 2009 Medicare revenue, which the company previously disclosed.
 
·
Sequentially, second-quarter medical membership remained essentially flat at 19.052 million; pharmacy membership remained essentially flat at 11.234 million; and dental membership increased by 33,000 to 14.569 million.
 
·
Net income of $362.8 million for the second quarter of 2009, compared with $424.3 million for the second quarter of 2008.
 
 
Group Insurance business results
Group Insurance, which includes group life, disability and long-term care products, reported:
 
·
Operating earnings of $42.5 million for the second quarter of 2009, compared with $38.5 million for the second quarter of 2008, primarily due to higher life underwriting margins partially offset by lower disability underwriting margins.
 
·
The Group Insurance benefit ratio was 87.0 percent for the second quarter of 2009, compared with 85.9 percent for the second quarter of 2008.
 
·
Net income of $52.0 million for the second quarter of 2009, compared with net income of $33.3 million for the second quarter of 2008.
 
·
Revenues excluding net realized capital gains (losses) for the second quarter of 2009 were $535.7 million, compared with $503.8 million for the second quarter of 2008.  Second-quarter total revenue, which includes net realized capital gains (losses), was $545.2 million and $495.8 million in 2009 and 2008, respectively.
 
 
 
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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 $7.7 million for the second quarter of 2009, compared with $9.7 million for the second quarter of 2008, reflecting the run-off mode of this business.
 
·
Net income of $9.5 million for the second quarter of 2009, compared with net income of $35.7 million for the second quarter of 2008.  Net income for the second-quarter 2008 included a $28.5 million after-tax benefit related to the reduction of reserves for discontinued products.
 
Total company results
 
·
Revenues excluding net realized capital gains (losses) increased 10 percent to $8.7 billion for the second quarter of 2009, compared with $7.9 billion for the second quarter of 2008. The growth in second-quarter revenue reflects an 11 percent increase in premium revenue and an 8 percent increase in fees and other revenue.  This revenue growth reflects a higher level of membership and premium rate increases.
 
·
Total Operating Expenses were $1.5 billion for the second quarter of 2009, $66.0 million higher than the second quarter of 2008, reflecting a previously disclosed increase in the financing component of pension expense partially offset by $38.2 million in insurance proceeds related to certain litigation we settled in 2003.  The operating expense ratio (3) was 17.4 percent and 17.8 percent for the second quarter of 2009 and 2008, respectively.  Including net realized capital gains (losses) and the litigation-related insurance proceeds, these percentages were 16.9 percent for the second quarter of 2009 and 17.9 percent for the second quarter of 2008.
 
·
Corporate Financing Interest Expense was $39.5 million after tax for the second quarter of 2009, compared with $36.8 million after tax for the second quarter of 2008.  The increase for second quarter was due to higher average debt levels in 2009.
 
·
Net Income was $346.6 million for the second quarter of 2009, compared with $480.5 million for the second quarter of 2008.  Net income includes $13.2 million of net realized capital gains in the second quarter of 2009 and $14.3 million of net realized capital losses in the second quarter of 2008.

 
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·
Pre-tax Operating Margin (4) was 6.3 percent for the second quarter of 2009, compared with 10.2 percent for the second quarter of 2008.  For the second quarter of 2009, the after tax net income margin was 4.0 percent compared to 6.1 percent for 2008.  The decrease in year-over-year operating margin is due primarily to the decrease in operating earnings.
 
·
Share Repurchases totaled 10.9 million shares at a cost of $271 million in the second quarter of 2009.
 
Aetna’s conference call to discuss second quarter 2009 results and full-year 2009 guidance 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 888-318-7470 or 719-325-2383 for international callers.  The company suggests participants dial in approximately 10 minutes before the call.  The access code is 5460217.  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 5460217.  Telephone replays will be available from 11:00 a.m. ET on July 27, 2009 until midnight ET on August 10, 2009.
 
About Aetna
Aetna is one of the nation’s leading diversified health care benefits companies, serving approximately 36.8 million people with information and resources to help them make better informed decisions about their health care. Aetna offers a broad range of traditional 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.
 
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Consolidated Statements of Income
                         
                         
                         
   
For the Three Months
   
For the Six Months
 
   
Ended June 30,
   
Ended June 30,
 
(Millions)
 
2009
   
2008
   
2009
   
2008
 
Revenue:
                       
Health care premiums
  $ 7,030.5     $ 6,288.9     $ 14,022.7     $ 12,542.4  
Other premiums
    475.9       473.3       961.0       948.5  
Fees and other revenue
    892.4       829.3       1,785.4       1,654.6  
Net investment income
    258.8       258.7       508.0       501.9  
Net realized capital gains (losses)
    13.2       (22.1 )     8.4       (80.6 )
Total revenue
    8,670.8       7,828.1       17,285.5       15,566.8  
                                 
Benefits and expenses:
                               
Health care costs
    6,102.4       5,153.3       11,906.6       10,239.5  
Current and future benefits
    503.8       500.8       1,007.1       1,009.7  
Operating expenses:
                               
  Selling expenses     303.8       275.6       626.3       579.4  
  General and administrative expenses
    1,160.2       1,122.4       2,390.0       2,219.5  
   Total operating expenses
    1,464.0       1,398.0       3,016.3       2,798.9  
Interest expense
    60.7       56.6       122.2       111.0  
Amortization of other acquired intangible assets
    24.5       27.3       49.0       55.1  
Reduction of reserve for anticipated future
                               
  losses on discontinued products
    -       (43.8 )     -       (43.8 )
     Total benefits and expenses
    8,155.4       7,092.2       16,101.2       14,170.4  
                                 
Income before income taxes
    515.4       735.9       1,184.3       1,396.4  
Income taxes
    168.8       255.4       399.9       484.3  
Net income
  $ 346.6     $ 480.5     $ 784.4     $ 912.1  
                                 
 
 
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Summary of Results
                                     
                                     
                                     
   
For the Three Months
         
For the Six Months
       
   
Ended June 30,
         
Ended June 30,
       
(Millions)
 
2009
   
2008
   
Change
   
2009
   
2008
   
Change
 
Business segment operating earnings
  $ 386.2     $ 479.1       (19 )%   $ 906.9     $ 960.2       (6 )%
      Corporate Financing segment operating loss (5)
    (77.7 )     (12.8 )             (155.8 )     (24.3 )        
Operating earnings
    308.5       466.3       (34 )%     751.1       935.9       (20 )%
      Litigation-related insurance proceeds
    24.9       -               24.9       -          
      Reduction of reserve for anticipated future
                                               
    losses on discontinued products
    -       28.5               -       28.5          
      Net realized capital gains (losses)
    13.2       (14.3 )             8.4       (52.3 )        
Net income (GAAP measure)
  $ 346.6     $ 480.5       (28 )%   $ 784.4     $ 912.1       (14 )%
                                                 
Weighted average common shares - basic
    442.8       480.6               447.7       487.4          
                                                 
Weighted average common shares - diluted
    450.7       495.8               456.1       502.4          
                                                 
                                                 
                                                 
                                                 
Per Common Share
                                               
Business segment operating earnings
  $ .85     $ .97       (12 )%   $ 1.99     $ 1.91       4 %
      Corporate Financing segment operating loss (5)
    (.17 )     (.03 )             (.34 )     (.05 )        
Operating earnings
    .68       .94       (28 )%     1.65       1.86       (11 )%
      Litigation-related insurance proceeds
    .06       -               .05       -          
      Reduction of reserve for anticipated future
                                               
    losses on discontinued products
    -       .06               -       .06          
      Net realized capital gains (losses)
    .03       (.03 )             .02       (.10 )        
Net income (GAAP measure)
  $ .77     $ .97       (21 )%   $ 1.72     $ 1.82       (5 )%
                                                 

 
 
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Segment Information (6)
                         
                         
   
For the Three Months
   
For the Six Months
 
   
Ended June 30,
   
Ended June 30,
 
(Millions)
 
2009
   
2008