Aetna reports net income of $457.6 million for second-quarter 2012

AetnaJul 31 2012

Aetna (NYSE: AET) today announced second-quarter 2012 operating earnings of $452.0 million, or $1.31 per share, compared to the $1.35 per share reported in the second quarter of 2011. Favorable before-tax prior-period reserve development in the second quarters of 2012 and 2011 was approximately $38 million and $188 million, respectively. Excluding the after-tax impact of this development, operating earnings were $427.9 million and $401.5 million in the second quarters of 2012 and 2011, respectively, and increased in 2012 primarily due to higher underwriting margins and increased membership in our Medicare business.    

Net income for the second quarter of 2012 was $457.6 million, or $1.32 per share, including $.01 per share of net realized capital gains. Net income for the second quarter of 2011 was $536.7 million, or $1.39 per share, including $.04 per share of net realized capital gains.

"Aetna's solid second-quarter financial results build upon our strong performance in the first quarter," said Mark T. Bertolini, Aetna chairman, CEO and president. "Our results confirm the confidence we have heading into the second half of the year. Aetna's performance is based on sustained execution on the fundamentals of our business: membership and revenues are growing; we are pricing with discipline; and medical cost trend is in line with our projections.

"We continue to project membership growth for 2012, supported by a second-quarter increase of more than 100,000 members across our businesses. We have had some excellent recent mid-year success, with the expansion of our Missouri Medicaid relationship and winning the commercial account for the State of Maine. We are optimistic about our ability to sustain momentum into 2013, with wins such as the new group Medicare opportunity awarded by our long-standing customer Teacher Retirement System of Texas to convert existing commercial members into Medicare Advantage members," said Bertolini.

"Based on our second quarter results, we are increasing our full-year 2012 operating earnings guidance to a range of $5.00 to $5.10 per share," said Joseph M. Zubretsky, Aetna senior executive vice president and CFO. "We have generated returns for our shareholders with strong revenue growth, solid margins and disciplined capital deployment.

"Aetna's investments are aimed at improving health care delivery and producing opportunities for profitable growth. Our Accountable Care Solutions (ACS) business strategy accomplishes both by collaborating with health systems around the country to promote high quality, efficient care at lower costs and drive member growth for our core businesses. Our latest ACS successes include a joint venture with Inova Health System in Virginia, an expanded technology and care-management relationship with Banner Health Network in Arizona, and accountable care organizations with Hunterdon HealthCare Partners in New Jersey and Aurora Health Care in Wisconsin," said Zubretsky.

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 $443.5 million for the second quarter of 2012, compared with $512.9 million for the second quarter of 2011. Favorable before-tax development of prior-period health care cost estimates in the second quarters of 2012 and 2011 was approximately $38 million and $188 million, respectively, primarily from first quarter 2012 and first quarter 2011 incurred health care costs, respectively. Excluding the impact of favorable prior-period reserve development in the second quarters of 2012 and 2011, operating earnings increased in 2012 primarily due to higher underwriting margins and increased membership in our Medicare business, partially as a result of the 2011 acquisition of Genworth Financial's Medicare Supplement business.
• Net income was $447.3 million for the second quarter of 2012, compared with $522.6 million for the second quarter of 2011.
• Revenues of $8.18 billion for the second quarter of 2012, compared with $7.69 billion for the second quarter of 2011. The increase is due to higher Medicare premium from Medicare Advantage membership growth and the addition of Genworth's Medicare Supplement business, higher Commercial Health Care premium primarily from higher premium rates partially offset by lower Commercial Insured membership, and higher fees and other revenue primarily from the inclusion of revenues from our other 2011 acquisitions. Total Revenue for the second quarter of 2012, which includes net realized capital gains, was $8.19 billion compared with $7.71 billion for the second quarter of 2011.
• Medical benefit ratios (MBRs) for the second quarters of 2012 and 2011 were as follows:

• Sequentially, second-quarter 2012 medical membership increased by 114,000 to 18.029 million, primarily reflecting growth in our Commercial businesses; dental membership decreased by 23,000 to 13.590 million and pharmacy benefit management services membership increased by 18,000 to 8.661 million.

Group Insurance business results

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

• Operating earnings of $46.0 million for the second quarter of 2012, compared with $44.4 million for the second quarter of 2011.
• Net income of $44.7 million for the second quarter of 2012, compared with $47.3 million for the second quarter of 2011.
• Revenues of $525.7 million for the second quarter of 2012, compared with $499.5 million for the second quarter of 2011. Second-quarter Total Revenue, which includes net realized capital (losses) gains, was $523.7 million in 2012 and $503.9 million in 2011.

Large Case Pensions business results

Large Case Pensions, which manages a variety of discontinued and other retirement and savings products, primarily for qualified pension plans, reported:

• Operating earnings of $3.9 million for the second quarter of 2012, compared with $6.2 million for the second quarter of 2011.
• Net income of $7.0 million for the second quarter of 2012, compared with $7.5 million for the second quarter of 2011.

Total company results

• Revenues  for the second quarter of 2012 were $8.83 billion, compared with $8.32 billion for the second quarter of 2011. The increase is primarily the result of higher Health Care premium and higher fees and other revenue as a result of our 2011 acquisitions. Total Revenue, which includes net realized capital gains, was $8.84 billion and $8.34 billion for the second quarters of 2012 and 2011, respectively.
• Operating Expenses were $1.65 billion for the second quarter of 2012. The business segment operating expense ratio was 18.7 percent in the second quarter of 2012 and 19.1 percent in the second quarter of 2011. Including net realized capital gains, these ratios were 18.6 percent and 19.1 percent for the second quarters of 2012 and 2011, respectively.
• Corporate Financing Interest Expense was $41.9 million after-tax and $39.9 million after-tax for the second quarters of 2012 and 2011, respectively.
• Net Income was $457.6 million for the second quarter of 2012 compared with $536.7 million for the second quarter of 2011.
• Pre-tax Operating Margin was 8.9 percent for the second quarter of 2012 compared with 10.7 percent for the second quarter of 2011. For the second quarter of 2012, the after-tax net income margin was 5.2 percent compared to 6.4 percent for 2011.
• Share Repurchases totaled 13.8 million shares at a cost of approximately $581 million in the second quarter of 2012.