Aetna first quarter operating earnings is $560.2 million for 2011

Aetna (NYSE: AET) today announced first-quarter 2011 operating earnings 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.

"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:
• 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 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 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 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 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 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.