Aetna Q3 2010 Earnings Call Transcript

Aetna (AET)

Q3 2010 Earnings Call

November 03, 2010 8:30 am ET

Executives

Mark Bertolini - Chief Executive Officer and President

Ronald Williams - Chairman, Chairman of Executive Committee and Member of Investment & Finance Committee

Joseph Zubretsky - Chief Financial Officer and Executive Vice President

Thomas Cowhey -

Analysts

Ana Gupte - Bernstein Research

Joshua Raskin - Barclays Capital

Peter Costa - Wells Fargo Securities, LLC

Justin Lake - UBS Investment Bank

Charles Boorady - Crédit Suisse AG

Scott Fidel - Deutsche Bank AG

Matthew Borsch - Goldman Sachs Group Inc.

John Rex - JP Morgan Chase & Co

Kevin Fischbeck - BofA Merrill Lynch

Christine Arnold - Cowen and Company, LLC

Presentation

Operator

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Good morning. My name is William, and I'll be the conference facilitator today. At this time, I would like to welcome everyone to the Aetna Third Quarter 2010 Earnings Conference Call. [operator Instructions] I would now like to turn the conference over to Mr. Tom Cowhey, Vice President of Investor Relations. Mr. Cowhey, please go ahead.

Thomas Cowhey

Good morning, and thank you for joining Aetna's Third Quarter 2010 Earnings Call and Webcast. This is Tom Cowhey, Head of Investor Relations for Aetna. And with me this morning are Aetna's Chairman and CEO, Ron Williams; President, Mark Bertolini; and Executive Vice President and Chief Financial Officer Joe Zubretsky. Following their prepared remarks, we will respond to your questions.

During this call, we will make forward-looking statements. Risk factors that may impact those statements and could cause actual future results to differ materially from currently projected results are described in Aetna's 2009 Form 10-K, our first and second quarter 2010 Form 10-Qs and our third quarter 2010 Form 10-Q, when filed with the SEC. Pursuant to SEC Regulation G, we have provided reconciliations of metrics related to the company's performance that are non-GAAP measures in our third quarter 2010 financial supplement and our 2010 guidance summary. These reconciliations are available on the Investor Information portion of aetna.com.

Also, as you know, Regulation FD limits our ability to respond to certain inquiries from investors and analysts in non-public forums, so we invite you to ask all questions of a material nature on this call. One additional item of note, we would like to take this opportunity to invite you to our 2011 Investor Conference, which will be held at Aetna's headquarters in Hartford on March 4.

With that, I will turn the call over to Ron Williams. Ron?

Ronald Williams

Good morning. Thank you, Tom, and thank you all for joining us today. This morning, we reported third quarter operating earnings per share of $1. Excluding favorable prior period development, third quarter operating earnings per share were $0.84, higher than the consensus estimate of $0.67 as the result of sound operating fundamentals. These results are a continuation of our strong performance in the first and second quarters, bringing our year-to-date operating earnings per share to $3.03. Our third quarter commercial medical benefit ratio was 80.5% or 82.2% excluding favorable prior period development.

Our performance this quarter, as in the first two quarters, reflects the favorable impact of the management actions we took to improve the underwriting margin profile of our business, as well as favorable utilization trends. We continue to deliver strong operating results. We are strategically positioning the company for future success with the goal of shaping more effective health care systems.

Over the past several years, we have been emphasizing three core elements of our strategy to shape more effective health care systems. First, obtaining deep insight into the evolving needs of our customers to identify areas for future profitable growth. Second, providing information and decision support to help our customers make better informed health decisions. And third, aspiring to achieve operational excellence in everything we do.

Let me highlight some of the strategic successes we have had in these areas during the third quarter. First, with respect to deep customer insight, we continue to diversify our revenue streams by leveraging our medical management capability. This quarter, we were awarded a new Medicaid contract in Illinois commencing in the first half of 2011. This forward contract covers the aged, blind and disabled population in six counties. We are proud to have been chosen to serve this complex medically challenged population. With respect to information and decision support, our transparency, integration and engagement initiatives are designed to improve quality and lower total cost for our customers. By leveraging the power of technology to provide personalized evidence-based information, our goal is to create an information-driven marketplace.

In the quarter, Aetna's ActiveHealth was selected by the state of North Carolina to provide disease management, case management and wellness services to its 562,000 members, effective January 1, 2011. Notably, this contract involves ActiveHealth in helping foster a patient-centered medical home model for providers throughout the state. North Carolina is the first state where a state health plan is instituting a broad-based strategy to move members for a community-based patient-centered medical home model of care, and we are proud to be part of that effort.

Our strong third quarter performance provides us with an updated 2010 full year outlook. We now project a commercial medical benefit ratio of 81% to 81.3% and operating earnings per share of approximately $3.60. This revised outlook incorporates the prior period development reported in the third quarter, improved commercial underwriting margins and a revised view of SG&A spending. Joe will provide additional details on our 2010 outlook in a moment with some commentary on 2011. Mark will then provide an update regarding the key operational drivers of our 2010 performance.

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