Aetna Reports Fourth-Quarter and Full-Year 2012 Results

Aetna Reports Fourth-Quarter and Full-Year 2012 Results

  • Fourth-quarter 2012 operating earnings per share (1) were $.94
  • Full-year 2012 operating earnings per share (1) were $5.13
  • Net income per share was $.56 for the fourth quarter 2012 and $4.81 for the full year
  • Total medical benefit ratio was 84.1 percent in the fourth quarter 2012 and 82.2 percent for the full year
  • Revenue (2) increased 5 percent for the fourth quarter of 2012 and 6 percent for full-year 2012 over the corresponding periods of 2011
  • Medical membership increased in the fourth quarter of 2012 and totaled 18.2 million members at December 31, 2012
  • Aetna reaffirms full-year 2013 projected operating earnings per share of at least $5.40 (3)

HARTFORD, Conn.--(BUSINESS WIRE)-- Aetna (NYSE: AET) today announced fourth-quarter 2012 operating earnings (1) of $317.0 million, or $.94 per share. Full-year 2012 operating earnings (1) were $1.77 billion, or $5.13 per share. Net income for the fourth quarter of 2012 was $190.1 million, or $.56 per share, and includes $.44 per share of charges for other items, primarily a litigation-related settlement, offset by $.06 per share of net realized capital gains. Full-year net income was $1.66 billion, or $4.81 per share.

Fourth-Quarter Financial Results at a Glance
           
(Millions, except per share results)       2012       2011     Change
Revenue (2) $ 8,955.0 $ 8,544.1 5 %
Operating earnings (1) 317.0 354.3 (11 )%
Net income 190.1 372.6 (49 )%
 
Per share results:
Operating earnings (1) $ .94 $ .97 (3 )%
Net income .56 1.02 (45 )%
 
Weighted average common shares - diluted       338.5       365.8      
 
 
Full-Year Financial Results at a Glance
 
(Millions, except per share results)       2012       2011     Change
Revenue (2) $ 35,544.8 $ 33,611.9 6 %
Operating earnings (1) 1,769.6 1,965.7 (10 )%
Net income 1,657.9 1,985.7 (17 )%
 
Per share results:
Operating earnings (1) $ 5.13 $ 5.17 (1 )%
Net income 4.81 5.22 (8 )%
 
Weighted average common shares - diluted       345.0       380.2      
 

"Aetna's solid fourth-quarter performance caps off an important year for the company. In 2012 we demonstrated the power of our diversified portfolio, advanced our mission to transform the health care marketplace and agreed to acquire Coventry Health Care, which will greatly enhance our long-term strategy," said Mark T. Bertolini, Aetna chairman, CEO and president. "We are positioned well for 2013, with new commercial contract wins and a successful Medicare selling season across our entire portfolio of Medicare products.


"Our Accountable Care Solutions business is making great progress on our strategy to transform the health care system, with five new accountable care agreements in the fourth quarter alone. Our relationships with leading health care providers now share a common set of goals -- to improve both the quality of care and patient experience, and to reduce costs. This new health care model drives additional membership growth, and will help to improve the quality and affordability of health care as we insure more Americans," said Bertolini.

"Aetna's 2012 results demonstrate our focus on operational and financial execution across all aspects of our business," said Joseph M. Zubretsky, Aetna senior executive vice president and CFO. "We ended the year with strong growth in membership to more than 18.2 million medical members, increased revenues by approximately 6 percent over 2011 and reduced our business segment operating expense ratio. We continued to focus on capital management, raising our quarterly dividend by more than 14 percent and repurchasing $1.4 billion of Aetna's shares.

"We believe our core business, supplemented by emerging businesses growth and effective capital deployment, will enable us to generate low double-digit operating earnings per share growth on average over time. Our expected completion of the Coventry Health Care acquisition this year will build upon our success and enhance our capabilities," said Zubretsky.

Total company results

  • Revenues (2) for the fourth quarter of 2012 were $8.96 billion compared with $8.54 billion for the fourth quarter of 2011. For full-year 2012, revenues (2) were $35.54 billion compared with $33.61 billion for 2011. The increase in each period is primarily the result of higher Health Care premiums in each of our Commercial, Medicare and Medicaid businesses. Total Revenue was $9.93 billion and $8.57 billion for the fourth quarters of 2012 and 2011, respectively, and $36.60 billion and $33.78 billion for the full years 2012 and 2011, respectively. Total Revenue for the fourth quarter and full year 2012 includes $941.4 million of one-time Large Case Pensions premium.
  • Operating Expenses (1) were $1.76 billion for the fourth quarter of 2012. The business segment operating expense ratio (4) was 19.7 percent and 21.4 percent for the fourth quarters of 2012 and 2011, respectively. For full-year 2012, the business segment operating expense ratio (4) decreased to 18.9 percent from 19.8 percent in 2011. The decrease in the business segment operating expense ratio in each period is primarily from improved operating leverage and continued execution of our expense initiatives. Total operating expense ratio was 19.4 percent and 21.4 percent for the fourth quarters of 2012 and 2011, respectively, and 18.8 percent and 20.1 percent for the full years 2012 and 2011, respectively. The decrease in the total operating expense ratio in both 2012 periods is primarily due to the one-time Large Case Pensions premium.
  • Pre-tax Operating Margin (5) was 6.5 percent for the fourth quarter of 2012 compared with 7.9 percent for the fourth quarter of 2011. For full-year 2012, the pre-tax operating margin (5) was 8.7 percent compared to 10.2 percent for 2011. For the fourth quarter of 2012, the after-tax net income margin was 1.9 percent compared to 4.3 percent for 2011. The after-tax net income margin for full-year 2012 was 4.5 percent compared to 5.9 percent for 2011.
  • Share Repurchases totaled 11.0 million shares at a cost of $493.0 million in the fourth quarter of 2012, bringing full-year total repurchases to 32.3 million shares, at a cost of $1.4 billion.

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 (1) of $307.9 million for the fourth quarter of 2012 compared with $361.8 million for the fourth quarter of 2011. Favorable before-tax development of prior-period health care cost estimates in the fourth quarters of 2012 and 2011 was approximately $81 million ($52 million after-tax) and $98 million ($63 million after-tax), respectively, primarily from incurred health care costs from the third quarter of 2012 and third quarter of 2011, respectively. Operating earnings decreased in the fourth quarter of 2012 primarily due to lower underwriting margins in our Commercial business.
  • Net income was $217.0 million for the fourth quarter of 2012 compared with $374.7 million for the fourth quarter of 2011.
  • Revenues (2) of $8.29 billion for the fourth quarter of 2012 compared with $7.95 billion for the fourth quarter of 2011. The increase is due primarily to higher Commercial premium primarily from higher premium rates, higher Medicare premium from Medicare Advantage membership growth and higher Medicaid premium primarily from in-state expansions, partially offset by lower Commercial Insured membership in 2012. Total Revenue for the fourth quarter of 2012, which includes net realized capital gains, was $8.31 billion compared with $7.97 billion for the fourth quarter of 2011.
  • Sequentially, fourth-quarter 2012 medical membership increased by 64,000 to 18.242 million, led by growth in Commercial ASC and Medicare Supplement members; dental membership increased by 7,000 to 13.615 million and pharmacy benefit management services membership decreased by 24,000 to 8.791 million.
  • Medical benefit ratios (MBRs) for the fourth quarters of 2012 and 2011 were as follows:
                                          2012           2011  
Commercial                                         83.4 %         79.0 %
Medicare 85.6 % 84.8 %
Medicaid                                         87.3 %         88.9 %
Total (a)                                         84.1 %         80.7 %

(a) Total MBR includes favorable before-tax prior-period reserve development of $81 million and $98 million for the fourth quarters of 2012 and 2011, respectively, which occurred in each of our businesses with the majority related to the Commercial business in each period.

Full-year 2012 operating earnings for Health Care were $1.75 billion, compared with $1.96 billion in 2011. The decrease in operating earnings was largely the result of lower underwriting margins in our Commercial business, which were partially offset by the favorable impact of higher underwriting margins in our Medicare business, in part the result of our 2011 acquisition of Genworth's Medicare Supplement business. Our underwriting margin in 2011 included approximately $207 million before-tax of favorable prior-years reserve development. There was no significant prior-years reserve development in 2012. Full-year 2012 net income was $1.69 billion, compared to $1.95 billion in 2011.

Group Insurance business results

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

  • Operating earnings (1) of $45.3 million for the fourth quarter of 2012 compared with $27.8 million for the fourth quarter of 2011, reflecting higher revenues (2) and improved operating expense leverage.
  • Net income of $49.6 million for the fourth quarter of 2012 compared with $36.3 million for the fourth quarter of 2011.
  • Revenues (2) of $534.7 million for the fourth quarter of 2012 compared with $488.3 million for the fourth quarter of 2011. Total Revenue, which includes net realized capital gains, was $541.3 million in the fourth quarter of 2012 and $501.5 million in the fourth quarter of 2011.

Full-year 2012 operating earnings (1) for Group Insurance were $161.5 million, compared with $153.0 million in 2011. Full-year 2012 net income was $176.3 million, compared to $181.8 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 $4.4 million for the fourth quarter of 2012 compared with $4.3 million for the fourth quarter of 2011.
  • Net income of $5.1 million for the fourth quarter of 2012 compared with $1.2 million for the fourth quarter of 2011.
  • Revenues (2) of $131.0 million for the fourth quarter of 2012 compared with $104.4 million for the fourth quarter of 2011. Total Revenue, which includes net realized capital gains, was $1.1 billion in the fourth quarter of 2012 compared with $99.5 million in the fourth quarter of 2011. Fourth-quarter 2012 Total Revenue also includes $941.4 million of one-time group annuity conversion premium related to the conversion of an existing Large Case Pensions group annuity contract from a participating to a non-participating contract. That revenue is offset by an equivalent one-time benefit expense associated with that contract conversion.

Full-year 2012 operating earnings (1) for Large Case Pensions were $17.8 million, compared with $20.7 million for 2011. The decrease is consistent with the run-off nature of this segment. Full-year net income was $17.4 million, compared to $21.8 million for 2011. Full year 2012 revenues (2) were $503.6 million compared with $498.6 million for 2011. Full-year 2012 Total Revenue, which includes group annuity contract conversion premium on an existing contract and net realized capital losses, was $1.4 billion compared to $500.2 million for 2011.

Aetna's conference call to discuss fourth-quarter 2012 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 link on the Internet at www.aetna.com. 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 1-888-516-2447 or +1-719-325-2140 for international callers. The company suggests participants dial in approximately 10 minutes before the call. The access code is 6653248. 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 1-888-203-1112, or +1-719-457-0820 for international callers. The replay access code is 6653248. Telephone replays will be available until 11 p.m. ET on February 7, 2013.

About Aetna

Aetna is one of the nation's leading diversified health care benefits companies, serving approximately 37.3 million people with information and resources to help them make better informed decisions about their health care. Aetna offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, and medical management capabilities, Medicaid health care management services and health information technology services. Our customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers, governmental units, government-sponsored plans, labor groups and expatriates. For more information, see www.aetna.com.

Consolidated Statements of Income
           
 
For the Three Months For the Year Ended
Ended December 31, Ended December 31,
(Millions)       2012   2011   2012   2011
Revenue:
Health care premiums $ 7,269.9 $ 6,928.5 $ 28,872.0 $ 27,189.2
Other premiums 474.8 438.9 1,902.0 1,775.8
Group annuity contract conversion premium 941.4 - 941.4 -
Fees and other revenue 971.8 973.4 3,853.5 3,716.1
Net investment income 239.5 203.3 918.3 930.8
Net realized capital gains         31.1       28.2       108.7       167.9
Total revenue         9,928.5       8,572.3       36,595.9       33,779.8
 
Benefits and expenses:
Health care costs 6,115.4 5,593.2 23,728.9 21,653.5
Current and future benefits 497.0 442.6 2,008.1 1,876.5
Benefit expense on group annuity contract conversion 941.4 - 941.4 -
Operating expenses:
Selling expenses 285.0 277.8 1,105.5 1,104.8
General and administrative expenses         1,639.4       1,555.1       5,770.9       5,699.6
Total operating expenses 1,924.4 1,832.9 6,876.4 6,804.4
Interest expense 76.6 59.6 268.8 246.9
Amortization of other acquired intangible assets 33.1 37.1 142.0 120.7
Loss on early extinguishment of long-term debt         49.5       -       84.9       -
Total benefits and expenses         9,637.4       7,965.4       34,050.5       30,702.0
 
Income before income taxes 291.1 606.9 2,545.4 3,077.8
Income taxes         101.0       234.3       887.5       1,092.1
Net income       $ 190.1     $ 372.6     $ 1,657.9     $ 1,985.7
 
 
Summary of Results
           
 
For the Three Months For the Year Ended
Ended December 31, Ended December 31,
(Millions)     2012   2011     2012   2011
Operating earnings $ 317.0 $ 354.3 $ 1,769.6 $ 1,965.7
Litigation-related settlement, net of tax (78.0 ) - (78.0 ) -
Transaction and integration-related costs, net of tax (12.9 )

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