Aetna reports operating earnings of $450.2M for second-quarter 2010

Aetna (NYSE: AET):

“Our second-quarter results reflect the positive impact of disciplined, focused initiatives to improve our performance”

• Second-quarter 2010 operating earnings per share were $1.05; operating earnings per share were $0.75 excluding favorable prior-period reserve development, compared to the Thomson-First Call mean of $0.74
• Net income per share for the second quarter 2010 was $1.14
• Commercial medical benefit ratio was 80.1 percent; Commercial medical benefit ratio was 83.2 percent excluding prior-period reserve development, which related primarily to first quarter 2010
• Medical membership totaled 18.6 million members at June 30, 2010
• Aetna now projects 2010 operating earnings per share of $3.05 to $3.15

Aetna (NYSE: AET) today announced second-quarter 2010 operating earnings of $450.2 million, or $1.05 per share, an increase of 54 percent over 2009. The increase was largely the result of a higher Commercial underwriting margin from favorable prior-period reserve development and improved underlying performance, partially offset by lower Commercial Insured membership. Second-quarter results included favorable prior-period reserve development of $0.30 per share, primarily from first quarter 2010 incurred health care costs. Excluding prior-period reserve development, second quarter 2010 operating earnings per share were $0.75.

For the first half of 2010, operating earnings per share were $2.03, including $0.22 per share of favorable prior-period reserve development from 2009 incurred health care costs.

"Our second-quarter results reflect the positive impact of disciplined, focused initiatives to improve our performance," said Ronald A. Williams, chairman and CEO. "Going forward, our focus on performance improvement will enable us to continue to make investments that help address the challenges our customers face with respect to affordability and quality in health care.

"Aetna's leadership in helping to build a better, more information-driven health care marketplace has been a fundamental dimension of our strategy during the past decade, and it continues to evolve. For example, last quarter we expanded the availability of our payment estimator, an innovative decision support tool, to our entire customer base. This will create a unique level of cost transparency for our customers at a time when they face significant challenges."

"Our improved performance in the first half of 2010, along with a strong capital position, gives us confidence in our ability to execute on our goals," said Joseph M. Zubretsky, executive vice president and CFO. "We expect the remainder of 2010 will reflect the impact of business investments for future profitable growth, as well as the need to prepare for health care reform and regulatory changes. As a result, we now project full-year 2010 operating results per share to be in the range of $3.05 to $3.15."

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 $467.4 million for the second quarter of 2010, compared to $336.0 million for the corresponding period in 2009. The increase in operating earnings reflects $199 million ($128 million after tax) of favorable prior-period reserve development, primarily related to first quarter 2010 incurred health care costs, and improved underwriting margins, partially offset by lower Commercial Insured membership in 2010. Second quarter 2009 operating earnings included $65 million ($42 million after tax) of unfavorable prior-period development.
• Revenues for the second quarter of 2010 decreased by 2 percent to $7.9 billion from $8.0 billion for the second quarter of 2009. This decrease was primarily due to a decline in premium revenue resulting from lower Commercial Insured membership and a slight decline from the mix of business, partially offset by premium rate increases.
• Medical benefit ratios ("MBRs") for second-quarter 2010 and 2009 were as follows:

• Excluding prior-period reserve development, the Commercial MBRs were 83.2 percent and 84.6 percent for the second quarter of 2010 and 2009, respectively. Commercial medical costs include favorable development of prior-period health care cost estimates of approximately $160 million in 2010 (primarily related to first quarter 2010 incurred health care costs) and unfavorable development of prior-period health care cost estimates of approximately $65 million in 2009.
• Medicare and Medicaid medical costs for the second quarter of 2010 include $34 million and $5 million, respectively, of favorable prior-period reserve development. In the second quarter of 2009, favorable prior-period reserve development for Medicare was $13 million and unfavorable prior-period reserve development for Medicaid was $13 million.

• Year-to-date 2010 Commercial MBR was 80.6 percent, or 81.5 percent excluding favorable prior-period reserve development from 2009 incurred health care costs.
• Sequentially, second-quarter medical membership decreased by 86,000 to 18.602 million; pharmacy benefit management services membership decreased by 90,000 to 9.695 million; and dental membership decreased by 41,000 to 13.912 million.
• Net income of $494.6 million for the second quarter of 2010 compared with $362.8 million for the second quarter of 2009.

Group Insurance business results

Group Insurance, which includes group life, disability and long-term care products, reported:

• Operating earnings of $44.4 million for the second quarter of 2010, compared with $42.5 million for the second quarter of 2009.
• Net income of $50.5 million for the second quarter of 2010, compared with $52.0 million for the second quarter of 2009.
• Revenues, excluding net realized capital gains, for the second quarter of 2010 were $517.0 million, compared with $535.7 million for the second quarter of 2009. Total revenue, which includes net realized capital gains, was $526.5 million in 2010 and $545.2 million in 2009.

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 $6.1 million for the second quarter of 2010, compared with $7.7 million for the second quarter of 2009.
• Net income of $13.6 million for the second quarter of 2010, compared with $9.5 million for the second quarter of 2009.

Total company results

• Revenues excluding net realized capital gains decreased 2 percent to $8.5 billion for the second quarter of 2010, compared with $8.7 billion for the second quarter of 2009. This decrease primarily reflects a decline in Health Care premium revenue primarily due to lower Commercial Insured membership in 2010 and a slight decline from the mix of business, partially offset by premium rate increases.
• Total Operating Expenses were $1.6 billion for the second quarter of 2010, $75.9 million higher than the second quarter of 2009. The operating expense ratio was 18.6 percent in 2010 and 17.4 percent in 2009. Including net realized capital gains and litigation-related insurance proceeds, these percentages were 18.2 percent and 16.9 percent for 2010 and 2009, respectively.
• Corporate Financing Interest Expense was $39.4 million and $39.5 million after tax for the second quarter of 2010 and 2009, respectively.
• Net Income was $491.0 million for the second quarter of 2010, compared with $346.6 million for the second quarter of 2009.
• Pre-tax Operating Margin was 9.2 percent for the second quarter of 2010, compared with 6.3 percent for the second quarter of 2009. For the second quarter of 2010, the after-tax net income margin was 5.7 percent compared to 4.0 percent for 2009.
• Share Repurchases totaled 7.8 million shares at a cost of $229 million in the second quarter of 2010.

SOURCE Aetna