Aetna Reports Second-Quarter 2013 Results
Aetna Reports Second-Quarter 2013 Results
Second-quarter 2013 operating earnings per share(1)were $1.52
Net income(2)per share was $1.49
Completed the acquisition of Coventry Health Care, Inc. on May 7, 2013
Achieved operating revenue(3)of $11.6 billion in the second quarter of 2013 and medical membership of 22.0 million members at June 30, 2013
Aetna now projects full-year 2013 operating earnings per share of $5.80 to $5.90(4)
HARTFORD, Conn.--(BUSINESS WIRE)-- Aetna (NYSE: AET) announced second-quarter 2013 operating earnings (1) of $549.0 million, or $1.52 per share, a per share increase of 16 percent over the second quarter of 2012. Net income (2) for the second quarter of 2013 was $536.0 million, or $1.49 per share, and includes a $.16 per share gain on the reduction of the reserve for anticipated future losses on discontinued products and a $.09 per share benefit related to the settlement of a reinsurance recoverable. The positive impact on net income of these items was offset by $.23 per share of transaction and integration-related costs and $.05 per share of net realized capital losses.
Second-Quarter Financial Results at a Glance | ||||||||||||
(Millions, except per share results) | 2013 | 2012 | Change | |||||||||
Operating revenue (3) | $ | 11,559.4 | $ | 8,827.3 | 31 | % | ||||||
Total revenue | 11,537.4 | 8,835.9 | 31 | % | ||||||||
Operating earnings (1) | 549.0 | 452.0 | 21 | % | ||||||||
Net income (2) | 536.0 | 457.6 | 17 | % | ||||||||
Per share results: | ||||||||||||
Operating earnings (1) | $ | 1.52 | $ | 1.31 | 16 | % | ||||||
Net income (2) | 1.49 | 1.32 | 13 | % | ||||||||
Weighted average common shares - diluted | 360.1 | 346.2 | ||||||||||
"The second quarter marked a significant milestone for Aetna with the completion of our Coventry Health Care acquisition," said Mark T. Bertolini, Aetna chairman, CEO and president. "Aetna's strong quarterly results demonstrate the power of our diversified portfolio, and enable us to raise our operating earnings guidance again to $5.80 to $5.90 per share. At its midpoint, our revised guidance would represent growth of 14 percent in operating earnings per share in 2013, and 17 percent compound annual growth since 2010.
"We continued to make progress to transform the health care system on multiple fronts during the quarter, including launching an interactive consumer health and wellness campaign; signing seven more accountable care collaborations; and earning recognition by an independent research organization as having the most 'transformational' accountable care relationships in the industry," said Bertolini.
"We are pleased by our second-quarter operating performance," said Shawn M. Guertin, Aetna senior vice president and CFO. "Strong performance in our commercial insured and Medicaid businesses allowed us to post strong operating revenues and earnings while absorbing the impacts of sequestration and isolated pressure in our Medicare business.
"Aetna is executing on our growth strategy. Both our core and Healthagen businesses are performing well, and we are well-positioned for a successful Coventry integration. Our capital generation remains strong, and we will continue to deploy capital aggressively to create value for our shareholders," said Guertin.
Total company results
Operating earnings(1) were $549.0 million for the second quarter of 2013 compared with $452.0 million for the second quarter of 2012. Operating earnings increased 21 percent in the second quarter of 2013 primarily due to the acquisition of Coventry in May 2013 as well as higher underwriting margins in our underlying Commercial Health Care business.
Operating revenues(3) for the second quarter of 2013 were $11.56 billion compared with $8.83 billion for the second quarter of 2012. The 31 percent increase is primarily the result of higher Health Care premiums in each of our Commercial, Medicare and Medicaid businesses from the acquisition of Coventry as well as growth in our underlying Medicare membership. Total Revenue was $11.54 billion and $8.84 billion for the second quarters of 2013 and 2012, respectively.
Operating Expenses(1) were $2.04 billion for the second quarter of 2013. The operating expense ratio (5) was 17.7 percent and 18.7 percent for the second quarters of 2013 and 2012, respectively. The improvement in the operating expense ratio is primarily driven by operating revenue growth and continued execution of our expense initiatives as well as the inclusion of Coventry and the related cost synergies. The total company expense ratio was 18.2 percent and 18.6 percent for the second quarters of 2013 and 2012, respectively.
Pre-tax Operating Margin(6) was 8.4 percent for the second quarter of 2013 compared with 8.9 percent for the second quarter of 2012. For the second quarter of 2013, the after-tax net income margin was 4.6 percent compared to 5.2 percent for 2012.
Outstanding Shares were 372.1 million as of June 30, 2013. Share repurchases in the second quarter of 2013 totaled 7.2 million shares at a cost of $440.6 million. Shares issued during the second quarter of 2013 totaled 53.5 million, including 52.2 million shares issued in exchange for all the outstanding shares of Coventry common stock.
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 $559.2 million for the second quarter of 2013 compared with $443.5 million for the second quarter of 2012. Operating earnings increased 26 percent in the second quarter of 2013 primarily due to the acquisition of Coventry as well as higher underwriting margins in our underlying Commercial business.
Net income (2) was $466.3 million for the second quarter of 2013 compared with $447.3 million for the second quarter of 2012.
Operating revenues (3) of $10.87 billion for the second quarter of 2013 compared with $8.18 billion for the second quarter of 2012. The 33 percent increase is due primarily to the inclusion of Coventry revenue following the acquisition as well as higher premiums in our underlying Medicare business. Total revenue for the second quarter of 2013 was $10.85 billion compared with $8.19 billion for the second quarter of 2012.
Sequentially, second-quarter 2013 medical membership increased by 3.7 million driven by the addition of Coventry membership.
Medical benefit ratios (MBRs) for the three and six months ended June 30, 2013, and 2012 were as follows:
Three Months Ended | Six Months Ended | ||||||||||||||||
June 30, | June 30, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||
Commercial | 79.1% | 81.7% | 79.0% | 80.8% | |||||||||||||
Medicare | 89.1% | 82.9% | 88.5% | 83.7% | |||||||||||||
Medicaid | 85.9% | 90.1% | 87.1% | 90.8% | |||||||||||||
Total | 82.5% | 82.4% | 82.3% | 82.0% | |||||||||||||
The improvement in our second quarter Commercial MBR is primarily due to lower than projected medical cost trends which resulted in favorable development of prior-period health care cost estimates, primarily attributable to 2013 performance. The increase in our second-quarter Medicare MBR is primarily due to reflecting favorable 2012 experience in customer premiums on renewal as well as the impacts of sequestration and isolated pressure in our Medicare business.
Prior-years' health care costs payable estimates developed favorably by $369.6 million and $163.5 million during the first half of 2013 and 2012, respectively. This development does not directly correspond to an increase in our operating results for the six months ended June 30, 2013. The development is reported on a basis consistent with the prior years' development reported in the health care costs payable tables in our annual audited financial statements.
Group Insurance business results
Group Insurance, which includes group life, disability and long-term care products, reported:
Operating earnings (1) of $29.9 million for the second quarter of 2013 compared with $46.0 million for the second quarter of 2012 primarily reflecting lower underwriting margins in our life products.
Net income (2) of $60.3 million for the second quarter of 2013 compared with $44.7 million for the second quarter of 2012. Net income for 2013 includes a $32.1 million after-tax benefit related to the settlement of a reinsurance recoverable.
Operating revenues (3) of $582.4 million for the second quarter of 2013, a 11 percent increase over $525.9 million for the second quarter of 2012. Total Revenue was $587.1 million in the second quarter of 2013 and $523.9 million in the second quarter of 2012.
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 (1) of $3.8 million for the second quarter of 2013 compared with $3.9 million for the second quarter of 2012.
Net income (2) of $57.5 million for the second quarter of 2013 compared with $7.0 million for the second quarter of 2012. Net income for the second quarter of 2013 includes a $55.9 million after-tax benefit related to the reduction of reserves for anticipated future losses on discontinued products primarily due to favorable investment performance as well as favorable retirement experience compared to assumptions we previously made in estimating the reserve.
Aetna's conference call to discuss second-quarter 2013 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 1-888-389-5993 or +1-719-325-2478 for international callers. The company suggests participants dial in approximately 10 minutes before the call. The access code is 5188586. 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 5188586. Telephone replays will be available until 11 p.m. ET on August 13, 2013.
About Aetna
Aetna is one of the nation's leading diversified health care benefits companies, serving an estimated 44 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, workers' compensation administrative services and health information technology products and services. Aetna's 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 Six Months | |||||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||||
(Millions) | 2013 | 2012 | 2013 | 2012 | ||||||||||||||
Revenue: | ||||||||||||||||||
Health care premiums | $ | 9,701.3 | $ | 7,167.9 | $ | 17,487.1 | $ | 14,355.3 | ||||||||||
Other premiums | 514.3 | 468.7 | 1,035.6 | 945.1 | ||||||||||||||
Fees and other revenue | 1,126.6 | 967.1 | 2,093.0 | 1,926.8 | ||||||||||||||
Net investment income | 225.0 | 223.6 | 460.1 | 465.4 | ||||||||||||||
Net realized capital (losses) gains | (29.8 | ) | 8.6 | .5 | 60.3 | |||||||||||||
Total revenue | 11,537.4 | 8,835.9 | 21,076.3 | 17,752.9 | ||||||||||||||
Benefits and expenses: | ||||||||||||||||||
Health care costs | 8,006.9 | 5,908.3 | 14,386.4 | 11,765.8 | ||||||||||||||
Current and future benefits | 539.1 | 483.7 | 1,098.4 | 995.2 | ||||||||||||||
Operating expenses: | ||||||||||||||||||
Selling expenses | 332.2 | 271.4 | 629.4 | 547.7 | ||||||||||||||
General and administrative expenses | 1,762.2 | 1,375.0 | 3,204.2 | 2,764.7 | ||||||||||||||
Total operating expenses | 2,094.4 | 1,646.4 | 3,833.6 | 3,312.4 | ||||||||||||||
Interest expense | 83.5 | 64.4 | 161.3 | 123.7 | ||||||||||||||
Amortization of other acquired intangible assets | 51.8 | 37.0 | 84.2 | 74.8 | ||||||||||||||
Reduction of reserve for anticipated future losses on | ||||||||||||||||||
discontinued products | (86.0 | ) | - | (86.0 | ) | - | ||||||||||||
Total benefits and expenses | 10,689.7 | 8,139.8 | 19,477.9 | 16,271.9 | ||||||||||||||
Income before income taxes | 847.7 | 696.1 | 1,598.4 | 1,481.0 | ||||||||||||||
Income taxes | 314.5 | 238.1 | 574.3 | 511.4 | ||||||||||||||
Net income including non-controlling interests | 533.2 | 458.0 | 1,024.1 | 969.6 | ||||||||||||||
Less: Net (loss) income attributable to non-controlling interests | (2.8 | ) | .4 | (2.0 | ) | 1.0 | ||||||||||||
Net income attributable to Aetna | $ | 536.0 | $ | 457.6 | $ | 1,026.1 | $ | 968.6 | ||||||||||
Summary of Results | ||||||||||||||||||||||
For the Three Months | For the Six Months | |||||||||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||||||||
(Millions) | 2013 | 2012 | 2013 | 2012 | ||||||||||||||||||
Operating earnings | $ | 549.0 | $ | 452.0 | $ | 1,044.4 | $ | 929.4 | ||||||||||||||
Transaction and integration-related costs, net of tax | (81.4 | ) | - | (106.0 | ) | - | ||||||||||||||||
Reduction of reserve for anticipated future losses on | ||||||||||||||||||||||
discontinued products, net of tax | 55.9 | - | 55.9 | - | ||||||||||||||||||
Reversal of allowance and gain on sale of reinsurance | ||||||||||||||||||||||
recoverable, net of tax | 32.1 | - | 32.1 | - | ||||||||||||||||||
Net realized capital (losses) gains, net of tax | (19.6 | ) | 5.6 | (.3 | ) | 39.2 | ||||||||||||||||
Net income (2) (GAAP measure) | $ | 536.0 | $ | 457.6 | $ | 1,026.1 | $ | 968.6 | ||||||||||||||
Weighted average common shares - basic | 356.2 | 341.7 | 342.1 | |||||||||||||||||||
