Universal American Corp. (UAM)

Q2 2010 Earnings Call

July 30, 2010 9:00 a.m. ET


Richard Barasch – Chairman and CEO

Martina Alisuag – Director, IR

Bob Waegelein – EVP and CFO


Sarah James – Wedbush

Daryn Miller – Goldman Sachs

Joe (Coons?) – Barclays Capital

Carl McDonald – Citigroup

Tom Carroll – Stifel Nicolaus



Good day everyone, and welcome to the Universal American Corporation second quarter 2010 conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are currently in a listen-only mode. I would now like to turn today’s conference over to Mr. Richard Barasch. Please go ahead, sir.

Richard Barasch

Thank you and good morning everyone. Thanks for joining us on our second quarter 2010 conference call. I'm here with Bob Waegelein, our CFO and Martina Alisuag, our Director of Investor Relations. I'd like to ask Martina to read our Safe Harbor language.

Martina Alisuag

Before we begin, I would like to remind you that we have posted a presentation for this call on the investor section of our website, www.universalamerican.com. I would like to remind you that some of the information discussed during this conference call will constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements may include statements regarding the likelihood or effect of any legislative or regulatory changes; our expectations of the performance of our Medicare Advantage, Part D, Med Sup, and other lines of business; the estimation of loss ratios and lapsations; the adequacy of reserves; our ability to institute future rate increases; expectations regarding our Part D and Medicare Advantage programs, including our estimates of membership, costs, revenue, future operating results, prior period adjustments, the success of our filings for new products, estimates of future membership, and the risks inherent in these businesses; the identification of acquisition candidates; the completion, integration, or accretion of any acquisition transactions; and the viability of any acquisition proposal.

Although we believe that the expectations reflected in these statements are based upon reasonable assumptions and estimates, we cannot give assurance that we will achieve the expected results. Forward-looking statements are subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from those projected. We recommend that you review the most recent risk factors that are set forth in our SEC filings. During this call we will also refer to certain non-GAAP financial measures. We recommend that you review our reconciliation tables listed in the press release.

Richard Barasch

Thank you Martina. This morning Bob and I are going to spend some time describing the highlights of the first half of the year, including the second quarter, and then move on to a discussion about how Universal American is positioned for the new environment. Next, we will discuss the special dividend, and finally, we’ll talk about our prospects for the balance of 2010. I know the press release contains a lot of information related to prior-period developments, and Bob will be available to answer any specific questions.

The short story is that 2010, mostly driven by increased Medicare Advantage membership, is developing a little better than we had projected, enhanced by around $0.11 of positive prior period items from last year that have emerged through the second quarter. Therefore, as you saw from the press release, we’ve increased our guidance by $0.15 and now project to a range of $1.85 to $1.95 per share.

I can’t tell you how happy I am not to have to discuss the pros and cons of healthcare reform as much anymore. While there are several areas of the reform legislation that remain to be finalized through rule making, we now have the basic rules of the road for our business and can get on with the task of managing our business through the coming changes.

Starting with slide 3 on the deck posted on our website, I’d like to reiterate that we still see tremendous potential in the senior market. This country faces an enormous task to pay for the increasing cost of healthcare to the rapidly growing senior population, and despite the negative rhetoric, and increased regulatory scrutiny, we still see a huge role for private insurers like Universal American to be a constructive part of the solution.

To be successful in the long run, our product must offer a compelling value proposition to our members and to the government as well. We must be able to deliver to our Medicare Advantage members a better healthcare solution than stand-alone Medicare and a less costly alternative to Medicare plus Medicare Supplement.

This can be achieved by wringing out the waste in the fee for service system with a combination of technology and common sense cost controls, and appropriately compensating our providers, keeping our members health, and delivering better and more cost-effective outcomes. We must also focus on compliance and quality to the benefit of our members and to conform to a more active regulatory environment.

We’re doing this successfully in our HMOs through our Healthy Collaboration model, in which we work closely with physicians and members to promote better health outcomes to control medical costs, and we’re confident we can deliver similar value in our new networks and to our rural members as well, even in a lower reimbursement environment. You can see from the chart on slide 4 we believe that we have the size and scale in Medicare to manage through the coming changes.

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