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Aetna Reports 2nd Quarter 2017 Results

Aetna has announced second-quarter 2017 net income(1) of $1.2 billion, or $3.60 per share. Adjusted earnings(2) for second-quarter 2017 were $1.1 billion, or $3.42 per share. Aetna's strong second-quarter performance resulted in net income of $822 million and adjusted earnings of $2.1 billion for the six months ended June 30, 2017.

“Our strong second quarter results speak to our continued focus on disciplined pricing and execution of our targeted growth strategy,” said Mark T. Bertolini, Aetna chairman and CEO. “Based on our continued outperformance, we are once again increasing our full-year 2017 earnings projections.”

“Our core businesses continued to outperform during the second quarter, carrying forward positive momentum from the start of the year,” said Shawn M. Guertin, Aetna executive vice president and CFO. “Additional 2017 earnings power allows us to improve our full-year outlook while also accelerating our timeline for targeted investments in growth initiatives.”

Aetna presents both GAAP and non-GAAP financial measures in this press release to provide investors with additional information. Refer to footnotes (1) through (6) for definitions of non-GAAP financial measures and pages 9 through 11 for reconciliations of the most directly comparable GAAP financial measures to non-GAAP financial measures.

Total Company Results

  • Net income(1) was $1.2 billion for second-quarter 2017 compared with $791 million for second-quarter 2016. The significant increase in net income during second-quarter 2017 was primarily due to the increase in adjusted earnings described below and lower transaction and integration-related costs in 2017 compared to 2016.
  • Adjusted earnings(2) were $1.1 billion for second-quarter 2017 compared with $783 million for second-quarter 2016. The substantial increase in adjusted earnings during second-quarter 2017 was primarily due to continued strong performance in Aetna's Health Care segment. The increase also reflects a larger decrease in Aetna's estimate of risk adjustment payables for the prior year for its individual and small group ACA compliant products in the second quarter of 2017 compared to the second quarter of 2016.
  • Total revenue and adjusted revenue(3) were both $15.5 billion for the second-quarter 2017 and were $16.0 billion and $15.9 billion, respectively, for second-quarter 2016. The decrease in total revenue and adjusted revenue during second-quarter 2017 was primarily due to lower premiums in Aetna's Health Care segment, including lower membership in Aetna's ACA compliant individual and small group products, and the temporary suspension of the health insurer fee ("HIF") in 2017.
  • Total company expense ratio was 16.4 percent and 17.5 percent for the second quarters of 2017 and 2016, respectively. The adjusted expense ratio(5) was 16.5 percent and 17.1 percent for the second quarters of 2017 and 2016, respectively. The improvement in both ratios during 2017 was primarily due to the temporary suspension of the HIF in 2017 and the execution of Aetna's expense management initiatives, partially offset by targeted investment spending on Aetna's growth initiatives. The total company expense ratio also improved due to lower transaction and integration-related costs in second-quarter 2017 compared to 2016.
  • After-tax net income margin was 7.7 percent and 5.0 percent for second quarters of 2017 and 2016, respectively. The adjusted pre-tax margin(6) was 11.7 percent and 8.9 percent for the second quarters of 2017 and 2016, respectively. The improvement in both second-quarter 2017 ratios was primarily due to continued strong performance in Aetna's Health Care segment. The improvement in the adjusted pre-tax margin was partially offset by the negative impact of the temporary suspension of the HIF in 2017.
  • Total debt to consolidated capitalization ratio(7) was 37.3 percent at June 30, 2017 compared with 53.6 percent at December 31, 2016. The total debt to consolidated capitalization ratio at June 30, 2017 reflects the repayment of approximately $11.6 billion aggregate principal amount of Aetna's senior notes during 2017.
  • Effective tax rate was 35.0 percent for second-quarter 2017 compared with 41.4 percent for second-quarter 2016. The decrease in Aetna's effective tax rate for second-quarter 2017 was primarily due to the temporary suspension of the non-deductible HIF in 2017.

Health Care Segment Results

Health Care, which provides a full range of insured and self-insured medical, pharmacy, dental and behavioral health products and services, reported:

  • Income before income taxes(1) of $1.7 billion for second-quarter 2017 compared with $1.3 billion for second-quarter 2016. Pre-tax adjusted earnings(2) were $1.8 billion for the second-quarter 2017 compared with $1.3 billion for second-quarter 2016. The increase in both income before income taxes and pre-tax adjusted earnings was primarily due to continued strong performance across Aetna's core Health Care businesses. The increase also reflects Aetna's updated estimate of risk adjustment payables for the prior year for individual and small group ACA compliant products described above.
  • Total revenue and adjusted revenue(3) were both $14.8 billion for second-quarter 2017 and both $15.2 billion for second-quarter 2016. The decrease in total revenue and adjusted revenue was primarily due to lower membership in Aetna's ACA compliant individual and small group products and the temporary suspension of the HIF in 2017, partially offset by higher premium yields in Aetna's Commercial and Government businesses and membership growth in Aetna's Medicare products.
  • Medical membership at June 30, 2017 decreased by 358 thousand compared with March 31, 2017. The decrease primarily reflects declines in Aetna's Medicaid products primarily due to the exit of the Missouri Medicaid program during second-quarter 2017 and declines in Aetna's Commercial Insured products primarily due to lower membership in Aetna's ACA compliant individual and small group products. The decrease was partially offset by increases in Aetna's Commercial ASC and Medicare Insured products.
  • Medical benefit ratios ("MBRs") for the three and six months ended June 30, 2017 and 2016 were as follows:
      Three Months Ended June 30,     Six Months Ended June 30,
      2017     2016     Change     2017     2016     Change
Commercial     78.6 %     83.4 %     (4.8 ) pts.     79.0 %     80.6 %     (1.6 ) pts.
Government     81.3 %     81.4 %     (0.1 ) pts.     83.3 %     82.4 %     0.9   pts.
Total Health Care     80.0 %     82.4 %     (2.4 ) pts.     81.3 %     81.5 %     (0.2 ) pts.
                                                     

 

 

 

 

 

 

  • Aetna's second-quarter 2017 Commercial MBR decreased compared with second-quarter 2016 primarily due to improved performance across Aetna's core Commercial business. The decrease also reflects Aetna's updated estimate of risk adjustment payables for the prior year for individual and small group ACA compliant products described above. The decrease was partially offset by the unfavorable impact of the temporary suspension of the HIF in 2017.
  • Aetna's second-quarter 2017 Government MBR remained relatively flat compared with second-quarter 2016 primarily due to improved performance in Aetna's Government business, largely offset by the unfavorable impact of the temporary suspension of the HIF in 2017.
  • In second-quarter 2017, Aetna experienced favorable development of prior-period health care cost estimates in its Medicare, Commercial and Medicaid products, primarily attributable to first-quarter 2017 performance.
  • Prior year's health care costs payable estimates developed favorably by $750 million and $709 million during the first six months of 2017 and 2016, respectively. This development is reported on a basis consistent with the prior years' development reported in the health care costs payable table in Aetna's annual audited financial statements, and does not directly correspond to an increase in 2017 operating results.
  • Days claims payable(7) was 54 days at June 30, 2017, a sequential increase of one day compared to March 31, 2017 and a decrease of two days compared with June 30, 2016. The year over year decrease was driven by a number of factors, including the operational maturation of new Medicaid contracts, decreased claims processing times and changes in business mix, primarily related to the decline in Aetna's individual Commercial product membership.

Group Insurance Segment Results

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

  • Income before income taxes(1) of $57 million for second-quarter 2017 compared with $74 million for second-quarter 2016. Pre-tax adjusted earnings(2) were $42 million for second-quarter 2017 compared with $57 million for second-quarter 2016. Income before income taxes and pre-tax adjusted earnings decreased primarily due to lower underwriting margins in Aetna's life products.
  • Total revenue of $642 million and $647 million for the second quarters of 2017 and 2016, respectively. Adjusted revenue(3) was $627 million and $630 million for the second quarters of 2017 and 2016, respectively.

Large Case Pensions Segment Results

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

  • Income before income taxes(1) of $115 million for second-quarter 2017 compared with $135 million for second-quarter 2016. The decrease in income before income taxes was primarily due to a larger reduction of Aetna's reserve for anticipated future losses on discontinued products in 2016 compared to 2017.
  • Pre-tax adjusted earnings(2) were $3 million for both the second quarters of 2017 and 2016.
  • Total revenue of $81 million for second-quarter 2017 compared with $82 million for second-quarter 2016. Adjusted revenue(3) was $78 million for both the second quarters of 2017 and 2016.

Aetna's conference call to discuss second-quarter 2017 results 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 website at www.aetna.com/investor. Financial, statistical and other information, including GAAP reconciliations, related to the conference call also will be available on Aetna's Investor Information website.

The conference call also can be accessed by dialing 1-877-709-8150, or +1-201-689-8354 for international callers. The company suggests participants dial in approximately 10 minutes before the call. No access code is required. 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 website at www.aetna.com/investor or by dialing 1-877-660-6853, or +1-201-612-7415 for international callers. The replay conference ID is 13665591. Telephone replays will be available until 11 p.m. ET on August 17, 2017.

(1) Net income refers to net income attributable to Aetna reported in Aetna's Consolidated Statements of Income in accordance with U.S. generally accepted accounting principles ("GAAP"). Income before income taxes refers to income before income taxes attributable to Aetna in accordance with GAAP. Unless otherwise indicated, all references in this press release to net income, net income per share and income before income taxes exclude amounts attributable to non-controlling interests.

(2) Non-GAAP financial measures such as adjusted earnings, adjusted earnings per share, pre-tax adjusted earnings, adjusted operating expenses, adjusted revenue, adjusted expense ratio and adjusted pre-tax margin exclude from the relevant GAAP metrics, as applicable:

  • Amortization of other acquired intangible assets;
  • Net realized capital gains or losses; and
  • Other items, if any, that neither relate to the ordinary course of Aetna's business nor reflect Aetna's underlying business performance.

Although the excluded items may recur, management believes the non-GAAP financial measures Aetna discloses, including those described above, provide a more useful comparison of Aetna's underlying business performance from period to period. Prior to March 31, 2017, operating earnings was the measure reported to the chief executive officer for purposes of assessing financial performance and making operating decisions, such as the allocation of resources among Aetna's business segments. Effective March 31, 2017, the chief executive officer assesses consolidated Aetna results based on adjusted earnings and assesses business segment results based on pre-tax adjusted earnings because income taxes are recorded in Aetna's Corporate Financing segment and are not allocated to Aetna's business segments. Also effective March 31, 2017, transaction and integration-related costs were reclassified to Aetna's Corporate Financing segment because they do not reflect Aetna's underlying business performance. The prior periods have been restated to reflect this presentation. Non-GAAP financial measures Aetna discloses, including those described above, should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP.

For the periods covered in this press release, the following items are excluded from the non-GAAP financial measures described above, as applicable, because Aetna believes they neither relate to the ordinary course of Aetna's business nor reflect Aetna's underlying business performance:

  • During the six months ended June 30, 2017, Aetna incurred losses on the early extinguishment of long-term debt due to (a) the mandatory redemption of $10.2 billion aggregate principal amount of certain of its senior notes issued in June 2016 (collectively, the "SMR Notes") following the termination of the definitive agreement (the "Humana Merger Agreement") to acquire Humana Inc. ("Humana") and (b) the early redemption of $750 million aggregate principal amount of its outstanding senior notes due 2020.
  • During the six months ended June 30, 2017, Aetna recorded an expense for estimated future guaranty fund assessments related to Penn Treaty Network America Insurance Company and one of its subsidiaries (collectively, "Penn Treaty"), which was placed in rehabilitation in 2009 and placed in liquidation in March 2017. This expense does not directly relate to the underwriting or servicing of products for customers and is not directly related to the core performance of Aetna's business operations.
  • Aetna recorded transaction and integration-related costs during the three and six months ended June 30, 2017 and 2016 primarily related to its proposed acquisition of Humana (the "Humana Transaction"). The negative transaction costs for the three months ended June 30, 2017 reflect the release of previously accrued expenses upon reconciliation to the final actual expenses incurred related to the Humana Transaction. Transaction costs include costs associated with the termination of the Humana Merger Agreement, the termination of Aetna's agreement to sell certain assets to Molina Healthcare, Inc. and advisory, legal and other professional fees which are reflected in Aetna's GAAP Consolidated Statements of Income in general and administrative expenses. Transaction costs also include the negative cost of carry associated with the debt financing that Aetna obtained in June 2016 for the Humana Transaction. Prior to the mandatory redemption of the SMR Notes, the negative cost of carry associated with these senior notes was excluded from adjusted earnings and pre-tax adjusted earnings. The negative cost of carry associated with the $2.8 billion aggregate principal amount of Aetna's senior notes issued in June 2016 that are not subject to mandatory redemption (the "Other 2016 Senior Notes") was excluded from adjusted earnings and pre-tax adjusted earnings through the date of the termination of the Humana Merger Agreement. The components of the negative cost of carry are reflected in Aetna's GAAP Consolidated Statements of Income in interest expense and net investment income. Subsequent to the termination of the Humana Merger Agreement, the interest expense and net investment income associated with the Other 2016 Senior Notes were no longer excluded from adjusted earnings and pre-tax adjusted earnings.
  • In 1993, Aetna discontinued the sale of fully guaranteed large case pensions products and established a reserve for anticipated future losses on these products, which Aetna reviews quarterly. During both the three months ended June 30, 2017 and 2016, Aetna reduced the reserve for anticipated future losses on discontinued products. Aetna believes excluding any changes in the reserve for anticipated future losses on discontinued products from adjusted earnings provides more useful information as to Aetna's continuing products and is consistent with the treatment of the operating results of these discontinued products, which are credited or charged to the reserve and do not affect Aetna's operating results.
  • Other acquired intangible assets relate to Aetna's acquisition activities and are amortized over their useful lives. However, this amortization does not directly relate to the underwriting or servicing of products for customers and is not directly related to the core performance of Aetna's business operations.
  • Net realized capital gains and losses arise from various types of transactions, primarily in the course of managing a portfolio of assets that support the payment of liabilities. However, these transactions do not directly relate to the underwriting or servicing of products for customers and are not directly related to the core performance of Aetna's business operations.
  • The corresponding tax benefit or expense related to the items excluded from adjusted earnings discussed above. The tax benefit or expense was calculated utilizing the appropriate tax rate for each individual item excluded from adjusted earnings.

For a reconciliation of financial measures calculated under GAAP to these items, refer to the tables on pages 9 through 11 of this press release.

(3) Adjusted revenue excludes net realized capital gains and losses and interest income on the proceeds of Aetna's senior notes issued in June 2016 as noted in (2) above. Refer to the tables on pages 9 through 11 of this press release for a reconciliation of total revenue calculated under GAAP to adjusted revenue.

(4) Projected full-year 2017 net income per share and adjusted earnings per share reflect a range of 334 million to 335 million weighted average diluted shares. Projected full-year 2017 adjusted earnings per share exclude from projected full-year 2017 net income per share the loss on early extinguishment of long-term debt, the projected Penn Treaty-related guaranty fund assessments, projected transaction and integration-related costs (including termination costs) primarily related to the Humana Transaction, the reduction of the reserve for anticipated future losses on discontinued products, estimated amortization of other acquired intangible assets, net realized capital gains and losses, other items, if any, that neither relate to the ordinary course of Aetna's business nor reflect Aetna's underlying business performance and the corresponding income tax benefit or expense related to the items excluded from net income per share discussed above. Amortization of other acquired intangible assets relates to Aetna's acquisition activities. The table below reconciles projected 2017 net income per share to projected 2017 adjusted earnings per share:

Reconciliation of Projected 2017 Net Income Per Share to Projected 2017 Adjusted Earnings Per Share
Projected net income per share (GAAP measure)     $5.46 to $5.56  
Loss on early extinguishment of long-term debt     .74  
Penn Treaty-related guaranty fund assessments     .69  
Transaction and integration-related costs (including termination costs)     3.59  
Reduction of reserve for anticipated future losses on discontinued products     (.33 )
Amortization of other acquired intangible assets     .70  
Net realized capital losses     .92  
Income tax benefit     (2.32 )
Projected adjusted earnings per share     $9.45 to $9.55  
         

Aetna will experience net realized capital gains or net realized capital losses during the remainder of 2017, however Aetna cannot project the amount of such future gains or losses. Therefore, Aetna has assumed no net realized capital gains or losses after June 30, 2017 for purposes of projecting net income and net income per share. Aetna's annual net realized capital gains or losses ranged from a net realized capital loss of $65 million to a net realized capital gain of $86 million during calendar years 2014 through 2016.

(5) The adjusted expense ratio excludes net realized capital gains and losses and other items, if any, that are excluded from adjusted revenue or adjusted operating expenses, as noted in (2) above. For a reconciliation of the comparable GAAP measure to this metric for the periods covered by this press release, refer to page 11 of this press release.

(6) In order to provide useful information regarding Aetna's profitability on a basis comparable to others in the industry, without regard to financing decisions, income taxes or amortization of other acquired intangible assets (each of which may vary for reasons not directly related to the performance of the underlying business), Aetna's adjusted pre-tax margin is based on adjusted earnings excluding interest expense and income taxes. Management also uses adjusted pre-tax margin to assess Aetna's performance, including performance versus competitors.

(7) Days claims payable is calculated by dividing the health care costs payable at each quarter end by the average health care costs per day in each respective quarter. The total debt to consolidated capitalization ratio is calculated by dividing total long-term debt and short-term debt ("Total Debt") by the sum of Total Debt and total Aetna shareholders' equity.

(8) Aetna's Corporate Financing segment is not a business segment. It is added to Aetna's business segments to reconcile segment reporting to Aetna's consolidated results. The Corporate Financing segment includes interest expense on Aetna's outstanding debt and the financing components of Aetna's pension and other postretirement employee benefit plan expenses (benefits), and, effective March 31, 2017, all transaction and integration-related costs and income taxes. The prior periods have been restated to reflect this presentation. As described in (2) above, the adjusted earnings of the Corporate Financing segment exclude other items, if any, that neither relate to the ordinary course of Aetna's business nor reflect Aetna's underlying business performance.

(9) Interest expense included in the reconciliation to adjusted earnings before income taxes, excluding interest expense and the reconciliation to adjusted earnings excluding interest expense, net of tax for the six months ended June 30, 2017 and the three and six months ended June 30, 2016 excludes costs associated with the term loan credit agreement executed in connection with the Humana Transaction and the negative cost of carry on transaction-related debt incurred in connection with the Humana Transaction. Interest expense for the three and six months ended June 30, 2016 excludes costs associated with bridge credit agreement executed in connection with the Humana Transaction. These costs are included within transaction and integration-related costs. Refer to (2) above for further discussion.

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Aetna Reports First-Quarter 2016 Results

Aetna announced first-quarter 2016 operating earnings of $810.8 million, or $2.30 per share. Net income for the first quarter of 2016 was $726.6 million, or $2.06 per share. Net income for the first quarter of 2016 includes $0.24 per share of net charges.

“We started the year on a positive note, carrying over momentum from 2015 where we generated record annual operating earnings and revenues,” said Mark T. Bertolini, Aetna chairman and CEO. “Based on first quarter results, we increased our full-year 2016 operating earnings per share projection to a range of $7.90 to $8.10.

“We believe we remain on track to close our acquisition of Humana in the second half of 2016, which will help enable us to offer consumers a broader choice of products, access to higher quality and more affordable care, and a better overall experience. We have obtained approximately two-thirds of the necessary state change of control approvals required to close the transaction, and we continue to cooperate with the Department of Justice as we move toward a combined organization that will accelerate our efforts to build a healthier world,” said Bertolini.

“We are encouraged by our first quarter results and our improved 2016 outlook, particularly at this early stage in the year,” said Shawn M. Guertin, Aetna executive vice president and chief financial officer. “Our operating results reflect the ongoing execution of our growth strategy, and our financial position, capital structure and liquidity all continue to be very strong.”

Total company results

  • Operating earnings were $810.8 million for the first quarter of 2016 compared with $844.3 million for the first quarter of 2015. The decrease in operating earnings is primarily due to lower operating earnings in Aetna's Group Insurance segment primarily as a result of lower underwriting margins in Aetna's disability products.
  • Net income was $726.6 million for the first quarter of 2016 compared with $777.5 million for the first quarter of 2015. Net income in both periods reflects net charges, which are detailed in the Summary of Results table.
  • Operating revenues  were $15.7 billion for the first quarter of 2016 compared with $15.1 billion for the first quarter of 2015. The increase in operating revenues is primarily the result of higher Health Care premium yields and membership growth in Aetna's Government business, partially offset by membership declines in Aetna's group Commercial Insured products. Total revenue was $15.7 billion and $15.1 billion for the first quarters of 2016 and 2015, respectively.
  • Operating expenses were $2.8 billion for the first quarter of 2016. The operating expense ratio was 18.0 percent and 18.4 percent for the first quarters of 2016 and 2015, respectively. The improvement in the operating expense ratio during 2016 is primarily due to the increase in operating revenues described above, which outpaced the increase in operating expenses due to the execution of Aetna's expense management initiatives. The total company expense ratio was 18.2 percent and 18.7 percent for the first quarters of 2016 and 2015, respectively.
  • Pretax operating margin was 9.5 percent for the first quarter of 2016 compared with 10.3 percent for the first quarter of 2015. The pretax operating margin decreased primarily as a result of a higher percentage of Aetna's 2016 operating revenue being derived from the lower margin Government business. The after-tax net income margin was 4.6 percent and 5.2 percent for the first quarters of 2016 and 2015, respectively.
  • Effective tax rate remained relatively flat at 43.5 percent for the first quarter of 2016 compared with 43.2 percent for the first quarter of 2015.

Health Care segment 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 were $832.0 million for the first quarter of 2016 compared with $835.6 million for the first quarter of 2015. Operating earnings remained relatively flat primarily as a result of lower underwriting margins in Aetna's Commercial business, substantially offset by higher fees and other revenue primarily due to higher average fee yields.
  • Net income was $758.8 million for the first quarter of 2016 compared with $766.5 million for the first quarter of 2015.
  • Operating revenues  were $15.0 billion for the first quarter of 2016 compared with $14.4 billion for the first quarter of 2015. The increase is due primarily to higher premium yields and membership growth in Aetna's Government business, partially offset by membership losses in Aetna's group Commercial Insured products. Total revenues were $15.0 billion and $14.4 billion for the first quarters of 2016 and 2015, respectively.
  • Sequentially, first-quarter 2016 medical membership declined by 498 thousand primarily reflecting declines in Aetna's Commercial ASC products, partially offset by growth in Aetna's Government business.
  • Medical benefit ratios (MBRs) for the three months ended March 31, 2016 and 2015 were as follows:
                  Three Months Ended
                  March 31,
                  2016       2015
          Commercial       77.8 %       77.4 %
          Government       83.4 %       81.3 %
          Total Health Care       80.5 %       79.1 %
  • Aetna's first-quarter 2016 Commercial MBR increased over the first quarter of 2015 due primarily to the extra calendar day of service in the first quarter of 2016.
  • Aetna's first-quarter 2016 Government MBR increased over the first quarter of 2015 due primarily to lower favorable development of prior-years' health care cost estimates in 2016.
  • In the first quarter of 2016, Aetna experienced favorable development of prior-years' health care cost estimates in its Commercial, Medicaid and Medicare products, primarily attributable to fourth-quarter 2015 performance.
  • Prior-years' health care costs payable estimates developed favorably by $626.8 million and $653.1 million during the first quarters of 2016 and 2015, respectively. This development is reported on a basis consistent with the prior years' development reported in the health care costs payable table in Aetna's annual audited financial statements and does not directly correspond to an increase in 2016 operating results.

Group Insurance segment results

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

  • Operating earnings were $21.3 million for the first quarter of 2016 compared with $43.9 million for the first quarter of 2015. Operating earnings decreased primarily due to lower underwriting margins in Aetna's disability products.
  • Net income was $23.4 million for the first quarter of 2016 compared with $45.8 million for the first quarter of 2015.
  • Operating revenues were $608.8 million for the first quarter of 2016 compared with $617.0 million for the first quarter of 2015. Total revenues were $612.0 million and $619.9 million for the first quarters of 2016 and 2015, respectively.

Large Case Pensions segment results

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

  • Operating loss was $.3 million for the first quarter of 2016 compared with operating earnings of $2.1 million for the first quarter of 2015, primarily reflecting lower net investment income.
  • Net income was $1.3 million for the first quarter of 2016 compared with $2.5 million for the first quarter of 2015.
  • Operating revenues were $64.7 million for the first quarter of 2016 compared with $85.7 million for the first quarter of 2015, primarily reflecting lower net investment income. Total revenues were $67.1 million and $86.3 million for the first quarters of 2016 and 2015, respectively.

Aetna's conference call to discuss first-quarter 2016 results 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 website at www.aetna.com/investor. Financial, statistical and other information, including GAAP reconciliations, related to the conference call also will be available on Aetna's Investor Information website.

The conference call also can be accessed by dialing 1-877-709-8150, or +1-201-689-8354 for international callers. The company suggests participants dial in approximately 10 minutes before the call. No access code is required. 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 1-877-660-6853, or +1-201-612-7415 for international callers. The replay conference ID is 13633794. Telephone replays will be available until 11 p.m. ET on May 12, 2016.

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VIDEO: Aetna Reports Fourth-Quarter And Full-Year 2015 Results

Aetna have announced fourth-quarter 2015 operating earnings of $482.1 million, or $1.37 per share, a per-share increase of 12 percent over the fourth quarter of 2014. Full-year 2015 operating earnings were $2.7 billion, or $7.71 per share, a per-share increase of 15 percent over full-year 2014. Net income for the fourth quarter of 2015 was $320.8 million, or $0.91 per share. Full-year 2015 net income was $2.4 billion, or $6.78 per share. Net income for the fourth quarter and full year of 2015 includes $0.46 per share and $0.93 per share of net charges, respectively.

“Aetna achieved record annual operating revenue and operating earnings in 2015, and delivered full-year operating EPS that was above our most recent projection,” said Mark T. Bertolini, Aetna chairman and CEO. “Aetna’s strong 2015 results speak to our continued focus on disciplined pricing and execution of our growth strategy. Based on this performance, we are projecting 2016 operating earnings per share of at least $7.75.

“We continue to work diligently with the Department of Justice and state regulators toward final approval of our proposed acquisition of Humana, and we continue to advance our integration readiness plans. We have obtained seven of the necessary state approvals, and we believe we remain on track to close the transaction in the second half of 2016,” said Bertolini.

“We are quite pleased with the strength of our fourth quarter and full year results,” said Shawn M. Guertin, Aetna executive vice president and CFO. “Aetna’s operating results continue to be supported by strong cash flow and operating margins.

“Our Government business saw strong growth in membership and premiums, as well as improved underwriting margins. These reflect our ongoing execution of strategies to improve our margin profile in Medicare, as well as strong performance in our Medicaid business,” said Guertin.

Health Care segment 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 were $492.8 million for the fourth quarter of 2015 compared with $447.6 million for the fourth quarter of 2014. Operating earnings increased primarily as a result of higher underwriting margins in Aetna's Government business and higher fees and other revenue, partially offset by an increase in general and administrative expenses as described in Operating expenses above.
  • Net income was $360.9 million for the fourth quarter of 2015 compared with $373.9 million for the fourth quarter of 2014.
  • Operating revenues were $14.4 billion for the fourth quarter of 2015 compared with $14.1 billion for the fourth quarter of 2014. The increase is due primarily to membership growth in Aetna's Government business as well as higher premium yields in Aetna's Commercial business, partially offset by membership losses in Aetna's group Commercial Insured products. Total revenues were $14.4 billion and $14.1 billion for the fourth quarters of 2015 and 2014, respectively.
  • Sequentially, fourth-quarter 2015 medical membership remained flat at 23.5 million at December 31, 2015.
  • Aetna's fourth-quarter 2015 Commercial MBR improved over the fourth quarter of 2014 primarily as a result of increased favorable development of prior-period health care cost estimates primarily related to Aetna's Individual Commercial business.
  • Aetna's fourth-quarter 2015 Government MBR improved over the fourth quarter of 2014 primarily as a result of actions impacting revenue and medical costs designed to solve for the gap between Medicare premiums and medical costs and other expenses.
  • In the fourth quarter of 2015, Aetna experienced favorable development of prior-period health care cost estimates in its Commercial, Medicaid and Medicare products, primarily attributable to third-quarter 2015 performance.
  • Prior-years' health care costs payable estimates developed favorably by $840.6 million and $580.8 million during 2015 and 2014, respectively. This development is reported on a basis consistent with the prior years' development reported in the health care costs payable table in Aetna's annual audited financial statements and does not directly correspond to an increase in 2015 operating results.

Full-year 2015 operating earnings for Health Care were $2.7 billion, compared with $2.4 billion in 2014. Operating earnings increased primarily as a result of higher underwriting margins in Aetna's Government business, partially offset by an increase in general and administrative expenses. Full-year 2015 net income for Health Care was $2.4 billion compared with $2.2 billion in 2014.

Group Insurance segment results

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

  • Operating earnings were $21.7 million for the fourth quarter of 2015 compared with $21.3 million for the fourth quarter of 2014.
  • Net income was $17.8 million for the fourth quarter of 2015 compared with $23.2 million for the fourth quarter of 2014, primarily reflecting net realized capital losses during the fourth quarter of 2015.
  • Operating revenues were $618.3 million for the fourth quarter of 2015 compared with $615.6 million for the fourth quarter of 2014. Total revenues were $612.5 million and $618.5 million for the fourth quarters of 2015 and 2014, respectively.

Full-year 2015 operating earnings for Group Insurance were $136.0 million, compared with $171.0 million in 2014. Operating earnings for 2015 decreased compared with 2014, primarily due to lower underwriting margins in Aetna's Long-Term Care and Life products as well as lower net investment income, partially offset by higher underwriting margins in Aetna's Disability products. Full-year 2015 net income for Group Insurance was $135.5 million, compared with $179.6 million in 2014.

 

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Commissioner Stewart Fines Highmark BCBSD And Aetna $483,000

Insurance Commissioner Karen Weldin Stewart announced she has fined Highmark Blue Cross Blue Shield Delaware $383,000 for numerous violations, including failure to pay policyholder claims in a timely fashion.

Commissioner Stewart has also fined Aetna, Inc. $100,000 for failing to pay policyholder claims in a timely fashion and for charging excessive copays, among other violations.

The fines resulted from routine market conduct examinations of each insurer performed by Insurance Department examiners.

A copy of the Stipulation and Consent Order and the Market Conduct Exam Report for each matter may be found at: http://delawareinsurance.gov/

 

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Aetna To Acquire Humana For $37 Billion

Aetna (NYSE: AET) and Humana Inc. (NYSE: HUM) have announced that they have entered into a definitive agreement under which Aetna will acquire all outstanding shares of Humana for a combination of cash and stock valued at $37 billion or approximately $230 per Humana share based on the closing price of Aetna common shares on July 2, 2015.

The complementary combination brings together Humana’s growing Medicare Advantage business with Aetna’s diversified portfolio and commercial capabilities to create a company serving the most seniors in the Medicare Advantage program and the second-largest managed care company in the United States. The combined entity will help drive better value and higher-quality health care by reducing administrative costs, leveraging best-in-breed practices from the two companies — including Humana’s chronic-care capabilities that measurably improve health outcomes for larger populations — and enabling the company to better compete with more cost effective products.

Under the terms of the agreement, which has been unanimously approved by the board of directors of each company, Humana stockholders will receive $125.00 in cash and 0.8375 Aetna common shares for each Humana share. As a result of the transaction, Aetna’s shareholders would own approximately 74 percent of the combined company and Humana’s shareholders would own approximately 26 percent. Aetna expects to finance the cash portion of the transaction with a combination of cash on hand and by issuing approximately $16 billion of new term loans, debt and commercial paper. Upon closing, which is expected to be in the second half of 2016, the company’s debt-capital ratio is projected to be approximately 46 percent, and management has committed to reducing that ratio below 40 percent over the 24 months following the closing. The transaction is projected to be neutral to Aetna’s 2016 Operating EPS and produce mid-single digit percentage Operating EPS accretion in 2017 and low double-digit percentage Operating EPS accretion in 2018.

The combined company will be well positioned to offer a broad choice of affordable, consumer-centric health care products, helping to constrain cost growth, improve health outcomes, and promote wellness. The combination will provide Aetna with an enhanced ability to work with providers and create value-based payment agreements that result in better care to consumers, and spread cutting-edge clinical practices and quality care.

The combined company would have projected 2015 operating revenue of approximately $115 billion, with approximately 56 percent from government sponsored programs (including Medicare and Medicaid). The combined company will have over 33 million medical members, based on memberships as of March 31, 2015. The combined membership includes Humana’s 3 million TRICARE members, under a program of health care coverage for military families and retirees administered by the U.S. Department of Defense.

After closing Aetna will make Louisville the headquarters for its Medicare, Medicaid and TRICARE businesses, and will maintain a significant corporate presence in Louisville. Founded in Louisville more than 50 years ago, Humana has a long history of contributing to the Louisville community.

“The acquisition of Humana aligns two great companies and will significantly advance our strategy of more effectively serving members in a rapidly changing health care industry,” said Mark T. Bertolini, Aetna chairman and CEO. “This combination will allow us to continue to invest in excellent service for our members and strengthen our partnerships with providers to deliver high quality care at an affordable price. We have great respect for Humana, their talented team, their culture and their strong medical management capabilities. We look forward to working with them following the closing, as we enhance our combined portfolio of innovative health care offerings to provide significant benefits to consumers, employers and providers, and to continue delivering value for our shareholders.”

“Aetna and Humana share a strong commitment to improving the health and well-being of consumers, whatever their needs and wherever they are on their lifelong health journey,” said Bruce D. Broussard, president and CEO of Humana. “Through the use of technology and integrated services to simplify the consumer experience, the combined entity will be even more effective in meeting the health needs of many more people — especially people with chronic conditions, who will benefit from Humana’s home health, pharmacy management, and data analytics programs. The transaction is a testament to the accomplishments of Humana associates and an outstanding outcome for our shareholders, who will receive an immediate premium and the opportunity to participate in the growth potential of the combined organization.”

Shawn M. Guertin, Aetna’s executive vice president and CFO, added, “The complementary nature of our two companies provides us with a significant synergy opportunity, furthering Aetna’s efforts to increase its operating efficiency. We expect synergies from the transaction to be $1.25 billion annually in 2018. These cost efficiencies will support our efforts to drive costs out of the system and offer more affordable products.”

The combination of Aetna and Humana:

  • Builds on each company’s respective efforts to provide innovative, technology-driven products, services and solutions to build healthier populations, promote higher quality health care at lower cost, and offer greater transparency and convenience for consumers.
  • Increases Aetna’s Medicare Advantage membership to 4.4 million and improves Aetna’s ability to serve members and their providers with cutting-edge technology and best practices.
  • Brings together two companies with leading percentages of membership in Medicare plans rated four Stars or higher.
  • Creates a leading health care services and pharmacy benefit franchise, serving members who use over 600 million prescriptions annually.
  • Strengthens care management capabilities by taking the best-of-breed provider solutions, including robust offerings of patient-centered provider services, clinical intelligence, value-based reimbursement models, data integration and analytics solutions from both companies.
  • Brings together two companies with longstanding commitments to promoting wellness, health, and access to high-quality health care for everyone, while supporting the communities in which they serve.

Transaction Details

Following the close of the transaction, Mark Bertolini will serve as Chairman and CEO of the combined company. At the time of the closing, the Aetna Board of Directors will be comprised of twelve current Aetna directors and four Humana directors, for a total of sixteen directors.

The transaction is subject to customary closing conditions, including the approval by Humana stockholders of the merger agreement, the approval by Aetna shareholders of the issuance of shares in the transaction, as well as the expiration of the federal Hart-Scott-Rodino antitrust waiting period and approvals of state departments of insurance and other regulators.

Aetna has received commitments from both Citi and UBS Investment Bank in connection with the financing of the transaction.

Citi and Lazard are acting as financial advisors to Aetna. Davis Polk & Wardwell LLP is acting as legal advisor to Aetna. Goldman Sachs is acting as financial advisor to Humana and Fried, Frank, Harris, Shriver & Jacobson LLP is acting as its legal advisor.

Share Repurchase Program

Prior to closing, Aetna’s ability to repurchase its own shares will be limited. To meet its deleveraging plans, Aetna expects to suspend its share repurchase program for the combined company for approximately 6 months following the closing of the transaction. In addition, Humana will be suspending its share repurchase program.

The proposed transaction does not impact Aetna’s ability and intent to continue quarterly dividend payments, including the $0.25 dividend declared on May 15, 2015, payable on July 31, 2015 to shareholders of record at the close of business on July 16, 2015. Under the merger agreement Aetna has agreed that its quarterly dividend will not exceed $0.25 per share prior to closing. Declaration and payment of future dividends is at the discretion of Aetna’s board of directors and may be adjusted as business needs or market conditions change.

The proposed transaction also does not impact Humana’s ability and intent to continue quarterly dividend payments prior to the closing of the transaction, including the cash dividend of $0.29 per share payable on July 31, 2015 to stockholders of record on June 30, 2015. Under the merger agreement Humana has agreed that its quarterly dividend will not exceed $0.29 per share prior to closing. Declaration and payment of future dividends is at the discretion of Humana’s board of directors and may be adjusted as business needs or market conditions change.

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Aetna and CHI Health Create Nebraska’s First Product-Based Accountable Care Organization

Aetna (NYSE: AET) and CHI Health have announced Nebraska’s first commercial, product-based accountable care organization (ACO) that will offer Omaha employers a health care model designed to improve quality, outcomes, efficiency and the patient experience. The health care savings will be specific to each employer, with the potential to save up to 15 percent over comparable Aetna full network products.

The new commercial health care product, known as Aetna Whole HealthSM – CHI Health Accountable Care Network, will provide Aetna members with highly coordinated care through UniNet, CHI Health’s clinically integrated network. The overall network contains approximately 500 primary care physicians, 2,000 specialists and 13 hospitals in the Aetna Whole Health - CHI Health Network. The new ACO further builds on Aetna and CHI’s growing relationship.

The value-based, patient-centric model of health care focuses on keeping people healthy rather than just treating them when they are sick.

Aetna is working with health care organizations nationwide to develop products and services that support value-driven, patient-centered care for health care consumers. Nationally today, about 3.2 million Aetna members receive care from doctors committed to the value-based approach, with 30 percent of Aetna claims payments going to doctors and providers who practice value-based care. Aetna has committed to increasing that number to 50 percent by 2018 and 75 percent by 2020.

In Nebraska, Aetna has 16 percent of its members served through value-based collaborative arrangements with the intent to reach over 25 percent of its members in 2015. Aetna has more value-based networks in Nebraska than any other carrier.

“CHI Health and Aetna are helping to shift the health care system from one that focused on quantity of services to one that focuses on quality of care,” said Dale Mackel, president of Aetna’s Nebraska and Iowa operations. “The outcome is a healthier community, more affordable costs and fewer people in hospitals.”

Aetna Whole HealthSM – CHI Health Accountable Care Network plans are designed to give Nebraska businesses in Burt, Cass, Dodge, Douglas, Otoe, Sarpy, Saunders and Washington counties better health care options for their employees. The network is planned to expand to other Iowa and Nebraska counties in the near future.

The plans feature a new model of health care delivery designed to offer:

  • More coordinated, team-based care among doctors and other care providers;
  • Enhanced patient experience through best-in-class care management programs and technology that delivers information to all providers;
  • Lower overall out-of-pocket costs for members who see providers that are part of the Aetna Whole HealthSM – CHI Health Accountable Care Network; and
  • Better health care outcomes.

Aetna Whole HealthSM – CHI Health Accountable Care Network will be available in the Omaha metropolitan area to self-insured businesses beginning June 1 for an effective date of July 1. Fully insured plans in Iowa and Nebraska and self-insured plans in Iowa will be offered in 2016.

“CHI Health has made a Three-Part Commitment to Nebraska to promote cost transparency, accountability and make great health care more affordable,” said Cliff Robertson, MD, CEO of CHI Health. “This relationship with Aetna makes the affordability component of our commitment real by rewarding providers for delivering excellent primary care, preventive screenings and better care for chronic conditions.”

New payment agreement to reward improvements in quality and cost of care

The agreement rewards Aetna Whole HealthSM – CHI Health Accountable Care Network physicians for meeting quality and efficiency measures, including:

  • The percentage of members who get recommended preventive care and screenings;
  • Better management of patients with chronic conditions such as diabetes and heart failure; and
  • Decreasing avoidable emergency room visits and hospital readmissions through the proactive management by care teams.

Aetna is working with health care organizations across the country to develop products and services that support value-driven, patient-centered care. Aetna’s solutions help all types of patients, regardless of payer. Information about Accountable Care Solutions from Aetna is available at www.aetnaacs.com.

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Aetna Announces Transaction With Vitality Re VI

Aetna (NYSE: AET) have announced that it has entered into a three-year reinsurance arrangement with Vitality Re VI Limited as part of its long-term capital management strategy.

The arrangement allows Aetna to reduce its required capital and provides $200 million of collateralized excess of loss reinsurance coverage on a portion of Aetna’s group commercial health insurance business.1 Vitality Re VI is a newly formed insurance company which issued health insurance-linked notes in a private offering in connection with this transaction. Aetna’s reinsurance arrangements with Vitality Re III Limited expired on Wednesday, January 7, 2015.

“Today’s transaction, which essentially replaces the Vitality Re III arrangement, marks the successful completion of our sixth such reinsurance arrangement,” said Aetna’s Treasurer David Buda. “This reinsurance arrangement improves our capital efficiency and reduces our weighted average cost of capital.”

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Aetna Taps Amber Musson-Thorp to Lead Individual and Small Group IPMI Sales

Aetna (NYSE: AET) a leading global diversified health care solutions company, has named Amber Musson-Thorp to spearhead the company’s growth plans in the United Kingdom and Europe in the individual and small-group international private medical insurance market.

Musson-Thorp, who will take up the newly created position of Head of Individual & SME Europe, will lead Aetna’s relationships with brokers and advisers who primarily serve the international private medical insurance needs of individuals and small groups. She will be based in Aetna’s offices in Croydon.

“Aetna has strong product offerings for individuals and small-groups that can help brokers and advisers provide attractive solutions to their clients,” said David Healy, Aetna International’s general manager, Europe. “Amber’s broad industry experience and proven track record will help us expand our reach to more customers in need of high-quality global health coverage.”

Musson-Thorp’s 12-years of industry experience have been achieved with both intermediaries and insurers. She joins Aetna from AVIVA, where she managed the sales and sales operations teams.

Musson-Thorp said, “I’m delighted to join Aetna at what is such an exciting phase for the company and am looking forward to helping the team shape and develop the existing individual and small group broker operations.”

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One Hundred Years And Aetna Partner To Launch “Health Plan 001”

One Hundred Years, a new global private client health management service launched in the United Kingdom by leading international health care professionals, has collaborated with Aetna (NYSE: AET), a leading global diversified health care solutions company, to offer the first health programme that combines One Hundred Years’ Private Health Advisory service with industry-leading global insurance cover.

Launched in the UK earlier this year, One Hundred Years provides clients with a full range of personalised health management services. A dedicated personal health advisory team helps on-the-go executives and high achievers reach their health and lifestyle goals by developing their health strategies and managing their health care needs. Clients’ individual health care programmes are developed with support from One Hundred Years’ Global Faculty and National Medical Advisory Board, a network of more than 20 leading international experts in medicine and science. Available 24/7, the health advisory teams provide clients with advice and guidance on the latest medical research treatment options and facilitate access to the world’s top hospitals and specialists. Additionally, the health advisory teams are on hand to manage everyday health care needs, such as scheduling appointments, maintaining medical records, filing forms and coordinating payment of medical bills.

One Hundred Years’ flagship programme, “Health Plan 001,” offers its own comprehensive, high-touch client services along with Aetna’s international health care benefits. Clients will have priority access to top specialists and medical centres of excellence, and also benefit from Aetna’s worldwide direct-settlement network of more than 100,000 clinics, hospitals and other health care providers. Aetna, a Fortune 100 company, serves more than 500,000 people with its international cover and has offices in capital cities across Europe, Asia and the Middle East, in addition to those in the United States.

Virgil Bretz, co-founder and CEO of One Hundred Years, said, “Our health management model is akin to the best examples in wealth management. By collaborating with Aetna, an industry leader in both U.S. and international health care benefits, we are underlining our global commitment to serve our clients wherever they happen to be in the world. Aetna’s reputation for excellence and customer focus enhances our mission to protect and optimise the health of our clients.”

David Healy, Aetna International’s general manager, Europe, said, “One Hundred Years has established a personalised service model to manage its members’ health and well-being that aligns closely with Aetna’s focus on empowering people to live healthier lives. We are pleased to support their clients by insuring the access they have to world-leading advice and treatment.”

“Health Plan 001” is available through major brokers and employee benefit firms. More information is available at www.100years.com

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