WellPoint second-quarter net income increases to $722.4 million

• Net income was $1.71 per share, including net investment gains of $0.04 per share
• Medical enrollment totaled 33.5 million at June 30, 2010
• Full year 2010 net income is now expected to be at least $6.30 per share, including net investment gains of $0.08 per share, partially offset by an impairment charge of $0.03 per share

WellPoint, Inc. (NYSE: WLP) today announced that second quarter 2010 net income was $722.4 million, or $1.71 per share, including net investment gains of $19.6 million after-tax, or $0.04 per share.  Net income in the second quarter of 2009 was $693.5 million, or $1.43 per share, and included net investment losses of $38.0 million after-tax, or $0.07 per share.  

Excluding net investment gains and losses in each period, adjusted net income was $1.67 per share in the second quarter of 2010, an increase of 11.3 percent from adjusted net income of $1.50 per share in the prior year quarter (see GAAP Reconciliation table below for a reconciliation to the most directly comparable measures calculated in accordance with U.S. generally accepted accounting principles, or "GAAP").

"Our quarterly results exceeded our expectation primarily due to higher-than-anticipated favorable reserve development and continued strong performance in our capital management areas.  We are also seeing positive results in our core operations from many of the strategic initiatives we put in place over the last two years," said Angela F. Braly, chair, president and chief executive officer. "It is our goal to make health care reform work for our customers and the country.  We will continue working collaboratively with our industry partners, the health care delivery system and governmental agencies as the regulations for health care reform are developed."

"We repurchased nearly 50 million shares of our common stock for $2.9 billion during the first two quarters of 2010, following the sale of our NextRx subsidiaries. We intend to utilize an additional $1.0 billion for share repurchases in the second half of this year, subject to market and industry conditions," said Wayne S. DeVeydt, executive vice president and chief financial officer. "Based on our year-to-date results, we have raised full year 2010 guidance for EPS and operating cash flow, and we are optimistic about our future growth prospects."

CONSOLIDATED HIGHLIGHTS

Membership: Medical enrollment was 33.5 million members at June 30, 2010, a decrease of 729,000 members, or 2.1 percent, from approximately 34.2 million at June 30, 2009.  Most of the decline occurred in the non-Blue business, which experienced a reduction of 568,000 members and included the transfer of the Company's UniCare individual and group business in Texas and Illinois to another Blue Cross & Blue Shield plan during 2010.  Enrollment also declined as a result of continued high unemployment and overall economic conditions.

In the second quarter of 2010, medical membership decreased by 343,000, or 1.0 percent, which was in-line with the Company's expectation.  Enrollment in the non-Blue business decreased by 85,000 members, while the remaining decline was driven by in-group attrition in the National and Local Group businesses, including a sequential reduction of 103,000 in BlueCard enrollment.  Fully insured enrollment decreased by 967,000 members during the quarter, primarily due to the conversion of a low margin, 873,000-member municipal account to a self-funded arrangement on April 1, 2010.  The Company continues to expect that year-end 2010 membership will total approximately 33.1 million.

Operating Revenue: Operating revenue totaled approximately $14.2 billion in the second quarter of 2010, a decrease of $1.0 billion, or 6.8 percent, from the second quarter of 2009.  The conversion of the large municipal group to a self-funded arrangement accounted for approximately half of the decline.  The remaining reduction was partially attributable to the transfer of UniCare business in Texas and Illinois and to lower fully insured membership resulting from economic conditions.  Operating revenue was also lower due to the sale of the NextRx pharmacy benefit management subsidiaries ("NextRx") in the fourth quarter of 2009.  

Benefit Expense Ratio: The benefit expense ratio was 82.9 percent in the second quarter of 2010, a decrease of 100 basis points from 83.9 percent in the second quarter of 2009.  The decline was driven by the Local Group business and included the impact of the large municipal account conversion, as this account historically maintained a benefit expense ratio higher than the Company's average.  This decline was partially offset by an increase in the benefit expense ratio for Individual business due to the delay in implementing rate increases in California.  

Premium and Cost Trends: Trends represent Local Group fully insured business.  

For the full year of 2010, the Company continues to project that underlying medical cost trend will be in the range of 8.0 percent, plus or minus 50 basis points, and believes that full year cost trend will be closer to the lower end of the range.  Unit cost increases continue to be the primary driver of overall medical cost trend.

The Company continues to price its business so that expected premium yield exceeds total cost trend, where total cost trend includes medical costs and selling, general and administrative ("SG&A") expense.  

Days in Claims Payable: Days in Claims Payable ("DCP") as of June 30, 2010, was 42.1 days, a decrease of 1.3 days from 43.4 days at March 31, 2010.  DCP declined primarily due to prior period reserve development in the second quarter.  The remaining decline related to the timing of pharmacy claims payments and a seasonal decrease in claims payment cycle times, partially offset by the impact of the large municipal account conversion.

SG&A Expense Ratio: The SG&A expense ratio was 15.3 percent in the second quarter of 2010, an increase of 90 basis points from 14.4 percent in the second quarter of 2009.  The increase reflected lower operating revenue partially offset by a reduction in operating expenses.

Operating Cash Flow: For the first six months of 2010, the Company had a net cash outflow from operations of $66.8 million primarily due to $1.2 billion of tax payments related to the 2009 sale of NextRx.  Operating cash flow totaled a positive $256.1 million for the second quarter of 2010, compared with $377.6 million in the second quarter of 2009.  The second quarter is a seasonally low quarter for the Company's operating cash flow, as two estimated federal income tax payments are made during the quarter.  Operating cash flow results for the first six months of 2010 exceeded the Company's plan, and operating cash flow is now expected to total $1.2 billion for the full year of 2010.

Share Repurchase Program: During the first six months of 2010, the Company repurchased 49.7 million shares of its common stock for approximately $2.9 billion, following the sale of the Company's NextRx subsidiaries.  As of June 30, 2010, the Company's remaining Board-approved share repurchase authorization totaled approximately $1.0 billion.  The Company expects to utilize this authorization in the second half of 2010, subject to market and industry conditions.  

Investment Portfolio & Capital Position: During the second quarter of 2010, the Company recorded net investment gains of $30.4 million pre-tax, consisting of net realized gains from the sales of securities totaling $36.5 million, partially offset by other-than-temporary impairments totaling $6.1 million.  In the second quarter of 2009, the Company experienced net investment losses of $58.3 million pre-tax, resulting primarily from other-than-temporary impairment charges.  As of June 30, 2010, the Company's net unrealized gain position was $807.5 million, consisting of net unrealized gains on fixed maturity and equity securities totaling $671.4 million and $136.1 million, respectively.  

As of June 30, 2010, statutory capital levels in the Company's insurance subsidiaries exceeded state regulatory levels by approximately $6.6 billion and Blue Cross and Blue Shield Association requirements by approximately $3.7 billion.  Cash and investments at the parent company totaled approximately $2.1 billion.

REPORTABLE SEGMENTS

WellPoint, Inc. has the following reportable segments: Commercial Business, which includes the Local Group, National, UniCare, and Specialty Products lines of business; Consumer Business, which includes the Individual, Senior, and State Sponsored lines of business; and Other, which includes Comprehensive Health Solutions (including NextRx for the three and six months ended June 30, 2009), FEP business, National Government Services, inter-segment sales and expense eliminations, and corporate expenses not allocated to the other reportable segments.  

Operating revenue and operating gain are the key measures used by management to evaluate performance in each segment.

Commercial Business: Operating gain for the Commercial Business segment was $745.7 million in the second quarter of 2010, an increase of $162.9 million, or 28.0 percent, from $582.8 million in the second quarter of 2009.  The increase was driven by operating improvements in the Local Group business and included an estimated $40 million of higher-than-anticipated favorable reserve development recognized in the current year quarter.

Consumer Business: Operating gain for the Consumer Business segment was $300.9 million in the second quarter of 2010, a decrease of $81.2 million, or 21.3 percent, compared with $382.1 million in the second quarter of 2009.  The decline in operating gain was driven primarily by lower performance in the Individual business due to the delay in implementing rate increases in California.  Results for the Company's Medicare Advantage business also declined from the prior year quarter primarily due to the reduction in federal reimbursement rates for 2010.  The Company's Consumer segment recognized an estimated $60 million of higher-than-anticipated favorable reserve development in the second quarter of 2010.  Approximately $100 million of higher-than-anticipated favorable development was recognized in the second quarter of 2009.

Other: Operating gain in the Other segment declined by $112.4 million, or 90.8 percent, compared with the second quarter of 2009, due to the sale of NextRx in the fourth quarter of 2009.

OUTLOOK

Full Year 2010:

• Net income is now expected to be at least $6.30 per share, including net investment gains of $0.08 per share recorded during the first six months of 2010, partially offset by the first quarter 2010 intangible asset impairment charge of $0.03 per share.  This outlook includes no net investment gains or losses or asset impairment charges beyond those recorded during the first six months of 2010, and is subject to the Company's ability to secure and maintain sufficient premium rates.
• Year-end medical enrollment is expected to be approximately 33.1 million, consisting of 19.5 million self-funded members and 13.6 million fully insured members.  
• Operating revenue is now expected to total approximately $58.0 billion.
• The benefit expense ratio is now expected to be approximately 83.9 percent.  
• The SG&A expense ratio is now expected to be approximately 14.8 percent.  
• Operating cash flow is now expected to total $1.2 billion, including the unfavorable impact of the $1.2 billion of first quarter tax payments related to the sale of NextRx.