Aetna's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Aetna (AET)

Q4 2011 Earnings Call

February 01, 2012 8:30 am ET

Executives

Thomas F. Cowhey - Vice President of Investor Relations

Mark T. Bertolini - Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Member of Investment & Finance Committee

Joseph Zubretsky - Chief Financial Officer and Senior Executive Vice President

Analysts

Joshua R. Raskin - Barclays Capital, Research Division

John F. Rex - JP Morgan Chase & Co, Research Division

Ana Gupte - Sanford C. Bernstein & Co., LLC., Research Division

Justin Lake - UBS Investment Bank, Research Division

Matthew Borsch - Goldman Sachs Group Inc., Research Division

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

Charles Andrew Boorady - Crédit Suisse AG, Research Division

Christine Arnold - Cowen and Company, LLC, Research Division

Scott J. Fidel - Deutsche Bank AG, Research Division

Doug Simpson - Morgan Stanley, Research Division

Peter H. Costa - Wells Fargo Securities, LLC, Research Division

Carl R. McDonald - Citigroup Inc, Research Division

Presentation

Operator

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Good morning. My name is KC, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Aetna Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Tom Cowhey, Vice President of Investor Relations. Mr. Cowhey, please go ahead.

Thomas F. Cowhey

Good morning, and thank you for joining Aetna's Fourth Quarter 2011 Earnings Call and Webcast. This is Tom Cowhey, Vice President of Investor Relations for Aetna. And with me this morning are Aetna's Chairman, Chief Executive Officer and President, Mark Bertolini; and Senior 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 this morning's press release and the reports we file with the SEC, including our 2010 10-K, our 2011 Form 10-Qs and our 2011 Form 10-K when filed.

We have provided reconciliations of metrics related to the company's performance that are non-GAAP measures in our fourth quarter 2011 financial supplement and our 2012 guidance summary. These reconciliations are available on the Investor Information section of aetna.com.

Also, as you know, our ability to respond to certain inquiries from investors and analysts in non-public forums is limited, so we invite you to ask all questions of a material nature on this call. With that, I will turn the call over to Mark Bertolini. Mark?

Mark T. Bertolini

Good morning. Thank you, Tom, and thank you, all, for joining us today. This morning, we reported fourth quarter operating earnings per share of $0.97, a 54% increase over 2010. This excellent operating performance caps off a strong year for the company, our customers and our shareholders. For the full year 2011, Aetna reported operating earnings of $5.17 per share, a 40% increase over 2010.

In a few moments, Joe will review our detailed results and guidance, but first, I am going to discuss our 2011 highlights and our 2012 outlook. Aetna's fourth quarter and full year financial results are evidence of the rigor and discipline, with which we executed our plan. Underlying these results, we ended the year with 18.46 million medical members, reflecting strong year-end growth from our Commercial ASC business, led by our national accounts franchise and continued growth in Large Group Commercial Insured accounts.

Favorable Commercial underwriting margin was the result of low medical utilization but also Aetna's continued pricing discipline, medical cost management and unit cost control, resulting in a full year 2011 commercial medical benefit ratio of 77.9%. Despite the pressure on reimbursement rates, our Medicare business posted another strong quarter and full year, demonstrating our ability to manage high-acuity populations into design, benefit and premium structures that win in the marketplace.

We generated strong earnings in 2011, even as we continued to invest heavily in reform implementation, the move to a single claims-administration platform, compliance activities such as ICD-10 and our growing Accountable Care Solutions business. Our excess cash generation was also excellent in 2011 enabling us to complete 4 significant acquisitions, repurchase 45 million shares and institute a meaningful shareholder dividend.

We also continue to make major strides in executing in our long-term strategy of making healthcare more accessible and affordable. For example, our Accountable Care Solutions business signed 9 contracts and 6 letters of intent, and we have a robust and growing pipeline of additional opportunities. Our Accountable Care Solutions strategy, which seeks to enhance the core business by growing membership and obtaining the best unit cost in the marketplace, is beginning to show results. Our current contract implementations include opportunities to establish deep relationships, deploy Aetna technologies and create new health insurance products.

In January, in concert with Banner Health, we began enrolling members in a new Commercial Health Care product that provides members access to highly coordinated care from physicians and facilities in the Banner Health network. This Small Group product is focused on wellness and improving patient care through better coordination and information at a highly competitive price point.

Also in January, Aetna expanded its relationship with Carilion Clinic, launching new Commercial Insured and Medicaid products and beginning to assist in the administration of Carilion's Medicare program. The Carilion relationship now encompasses Commercial ASC, Commercial Insured, Medicaid and Medicare businesses and is representative of the promise we see in our Accountable Care Solutions relationships. Medicity, our health information exchange acquisition and a key element of our ACS strategy, generated approximately $115 million in new contract value in 2011. It continues to increase its contract revenue backlog, which is currently in excess of $200 million.

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