(Source: Business Wire)
CIGNA Corporation (NYSE:CI) today reported shareholders' net income1 of $435 million, or $1.58 per share2, for the second quarter of 2009 compared with shareholders' net income1 of $272 million, or $0.96 per share2, for the same period last year. Shareholders' net income1 for the second quarter 2009 included income from the Guaranteed Minimum Income Benefits (GMIB) business3 of $110 million after-tax, or $0.40 per share2 primarily related to favorable interest rate movements. Second quarter 2009 results also include two special items4; a benefit of $30 million after-tax, or $0.11 per share2, related to the decision to freeze the CIGNA Pension Plan and CIGNA Supplemental Pension Plan and an additional after-tax charge of $9 million, or $0.04 per share2, which represents incremental actions related to CIGNA's previously announced cost reduction plan.
CIGNA's adjusted income from operations5 for the second quarter of 2009 was $313 million, or $1.14 per share2, compared to adjusted income from operations5 of $303 million, or $1.07 per share2, for the same period last year.
"Our second quarter 2009 results reflect solid earnings contributions from each of our ongoing operations in these challenging economic conditions and demonstrates the benefit of our diversified portfolio of businesses," said H. Edward Hanway, Chairman and Chief Executive Officer of CIGNA Corporation. "We remain committed to growing earnings in 2009, thereby creating value for our shareholders, as we continue to pursue our mission to improve the health, well-being, and sense of security of the people we serve."
CONSOLIDATED HIGHLIGHTS
The following is a reconciliation of adjusted income from operations5 to shareholders' net income1 (after-tax; dollars in millions, except per share amounts):
Three months ended Six months ended June 30, June 30, Mar 31, June 30, 2009 2008 2009 2009 Adjusted income from operations(5) $ 313 $ 303 $ 188 $ 501 Net realized investment losses, net of taxes (9) (12) (24) (33) GMIB results(3), net of taxes 110 34 23 133 Special items(4), net of taxes 21 (52) 20 41 Shareholders' income(1) from continuing operations $ 435 $ 273 $ 207 $ 642 Shareholders' income (losses)(1) from discontinued operations(6) - (1) 1 1 Shareholders' net income(1) $ 435 $ 272 $ 208 $ 643 Adjusted income from operations(5), per share(2) $ 1.14 $ 1.07 $ 0.69 $ 1.83 Shareholders' income(1) from continuing operations, per share(2) $ 1.58 $ 0.97 $ 0.76 $ 2.34 Shareholders' net income(1), per share(2) $ 1.58 $ 0.96 $ 0.76 $ 2.34 -------------------------------------------------------------------------------
Consolidated revenues were $4.5 billion for the second quarter of 2009 and $4.9 billion for the second quarter of 2008.
Health care medical claims payable7 were approximately $750 million at June 30, 2009 and $713 million at December 31, 2008.
Cash and short term investments at the parent company were approximately $180 million at June 30, 2009 and $90 million at December 31, 2008.
HIGHLIGHTS OF SEGMENT RESULTS
"Adjusted segment earnings (loss)" are adjusted income (loss) from operations5, as applicable, for each segment (see Exhibit 2).
Health Care
This segment includes medical and specialty health care products and services provided on guaranteed cost, retrospectively experience-rated and service-only funding bases. Specialty health care includes behavioral, dental, disease management, stop-loss, and pharmacy-related products and services.
Financial Results (dollars in millions, medical membership in thousands): Second Qtr. Second Qtr. First Qtr. Six months ended 2009 2008 2009 June 30, 2009 Adjusted Segment Earnings, After-Tax $ 177 $ 181 $ 154 $ 331 Premiums and Fees $ 2,855 $ 3,065 $ 2,911 $ 5,766 Segment Margin, After-Tax(8) 5.4% 5.2% 4.6% 5.0% Aggregate Medical Membership 11,189 12,067 11,369 -------------------------------------------------------------------------------
Second quarter 2009 adjusted segment earnings reflect favorable operating expenses and continued strong contributions from the specialty businesses, tempered by pressure on the guaranteed cost loss ratio and lower medical membership.
Premiums and fees in the second quarter 2009 decreased approximately 7% relative to second quarter 2008 primarily due to a decline in medical membership, partially offset by rate increases.
Disability and Life
This segment includes CIGNA's group disability, life, and accident insurance operations that are managed separately from the health care business.
Financial Results (dollars in millions): Second Qtr. Second Qtr. First Qtr. Six months ended 2009 2008 2009 June 30, 2009 Adjusted Segment Earnings, After-Tax $ 90 $ 73 $ 58 $ 148 Premiums and Fees $ 661 $ 638 $ 672 $ 1,333 Segment Margin, After-Tax(8) 12.0% 10.0% 7.7% 9.8% -------------------------------------------------------------------------------
Second quarter 2009 adjusted segment earnings reflect competitively attractive margins. Additionally, earnings reflect strong results from our disability management programs, which also contributed to a net benefit of $20 million after-tax related to a reserve study.
International
This segment includes CIGNA's life, accident and supplemental health insurance and expatriate benefits businesses operating in select international markets.
Financial Results (dollars in millions): Second Qtr. Second Qtr. First Qtr. Six months ended 2009 2008 2009 June 30, 2009 Adjusted Segment Earnings, After-Tax $ 63 $ 48 $ 41 $ 104 Premiums and Fees $ 462 $ 479 $ 434 $ 896 Segment Margin, After-Tax(8) 13.0% 9.6% 9.0% 11.1% -------------------------------------------------------------------------------
Adjusted segment earnings in the quarter reflect solid margins in the life, accident, and supplemental health insurance and expatriate benefits businesses. Second quarter results include a favorable adjustment of $14 million related to the implementation of a tax strategy which will also reduce our effective tax rate for future periods. Second quarter 2009 results also include a net unfavorable after-tax impact from currency movements of $7 million compared to the same period last year, primarily due to currency movements in South Korea, CIGNA's largest non-U.S. market.
Other Segments
Adjusted segment earnings (losses) for CIGNA's remaining operations are presented below (after-tax, dollars in millions):
Second Qtr. Second Qtr. First Qtr. Six months ended 2009 2008 2009 June 30, 2009 Run-off Reinsurance $ 2 $ 8 $ (49) $ (47) Other Operations $ 21 $ 22 $ 18 $ 39 Corporate $ (40) $ (29) $ (34) ($74) -------------------------------------------------------------------------------
Run-off Reinsurance results for the second quarter 2009 includes the favorable impact of settlement activity partially offset by approximately $1 million after-tax loss related to the VADBe business.
OUTLOOK
CIGNA currently estimates full year 2009 consolidated adjusted income from operations5,9 to be in the range of $1.04 billion to $1.10 billion, or $3.80 to $4.00 per share2. This outlook includes an assumption that VADBe results will be approximately break-even for the remaining six months of 2009, reflective of management's view that the long-term reserve assumptions are appropriate and that capital markets remain stable over the balance of the year.
CIGNA currently estimates full year 2009 adjusted income from operations5,9 for the Health Care segment to be in the range of $700 million to $760 million.
CIGNA's earnings and earnings per share2 outlooks exclude the impact of any future stock repurchase10.
Full year 2009 medical membership is expected to decline by approximately 5% to 5.5%.
Management will provide additional information about the 2009 earnings outlook on CIGNA's second quarter 2009 earnings call.
The foregoing statements represent management's current estimate of CIGNA's 2009 consolidated and Health Care segment adjusted income from operations5,9 as of the date of this release. Actual results may differ materially depending on a number of factors, and investors are urged to read the Cautionary Statement included in this release for a description of those factors. Management does not assume any obligation to update these estimates.
This quarterly earnings release and the Quarterly Statistical Supplement inclusive of the Investment Supplement are available on CIGNA's website in the Investor Relations, Most Recent Disclosures section (http://www.cigna.com/about_us/investor_relations/recent_disclosures.html). A link to the conference call, on which management will review second quarter 2009 results and discuss full year 2009 outlook is available in the Investor Relations, Event Calendar section of CIGNA's website (http://www.cigna.com/about_us/investor_relations/events.html).
Notes:
1. Effective January 1, 2009, CIGNA adopted Statement of Financial Accounting Standards (SFAS) No. 160, which requires income attributable to noncontrolling interests to be included in income from continuing operations, income from discontinued operations, and net income, but then be subtracted out to determine shareholders' income from continuing operations, shareholders' income from discontinued operations, and shareholders' net income.
2. Earnings per share (EPS) are on a diluted basis. Effective January 1, 2009 CIGNA adopted the Financial Accounting Standards Board Staff Position (FSP) related to Emerging Issues Task Force 03-06-1. This FSP requires unvested restricted stock awards that contain rights to non-forfeitable dividends to be included in both basic and diluted earnings per share calculations. Prior period earnings per share data have been restated to reflect the adoption of this FSP.
3. The application of SFAS No. 157, which impacts reinsurance contracts covering GMIB, does not represent management's expectation of the ultimate payout. Changes in underlying contract holder account values, interest rates, stock market volatility, and other factors may result in changes to the amount that will be required to ultimately settle the Company's obligations and/or to the fair value assumptions, which could result in a material adverse or favorable impact on the Run-off Reinsurance segment and CIGNA's results of operations.
4. Special items included in shareholders' net income and segment earnings (loss), but excluded from adjusted income (loss) from operations, adjusted segment earnings, and the calculation of segment margins are:
Second Quarter 2009
After-tax benefit of $30 million related to the decision to freeze the CIGNA Pension Plan and CIGNA Supplemental Pension Plan, effective July 1, 2009.
After-tax charge of $9 million related to CIGNA's cost reduction plan.
Second Quarter 2008
After-tax charge of $52 million related to a litigation matter.
First Quarter 2009
After-tax benefit of $20 million related to completion of an IRS examination.
5. CIGNA measures the financial results of its segments using Segment Earnings (Loss), which is defined as shareholders' income (loss) from continuing operations before net realized investment results. Adjusted income (loss) from operations is defined as segment earnings excluding special items (which are identified and quantified in Note 4) and excludes results of CIGNA's GMIB business. Adjusted income (loss) from operations is a measure of profitability used by CIGNA's management because it presents the underlying results of operations of CIGNA's businesses and permits analysis of trends in underlying revenue, expenses and shareholders' net income. This measure is not determined in accordance with generally accepted accounting principles (GAAP) and should not be viewed as a substitute for the most directly comparable GAAP measures, which are segment earnings (loss), shareholders' income from continuing operations, and shareholders' net income. See Exhibit 2 for a reconciliation of adjusted income (loss) from operations to segment earnings (loss), shareholders' income from continuing operations, and consolidated shareholders' net income.
6. The discontinued operations included in shareholders' net income are:
Second Quarter 2008
Primarily due to after-tax charge of $1 million related to the sale of life operations in Brazil.
First Quarter 2009 and six months ended June 30, 2009
Primarily due to after-tax benefit of $1 million related to past divestitures.
7. Health care medical claims payable are presented net of reinsurance and other recoverables. The gross health care medical claims payable balance was $947 million as of June 30, 2009 and $924 million as of December 31, 2008.
8. Segment margins in this press release are calculated by dividing adjusted segment earnings by segment revenues. Segment earnings including special items for Health Care were 5.9% for the three months ended June 30, 2009, 4.7% for the three months ended March 31, 2009, and 5.3% for the six months ended June 30, 2009. Segment earnings including special items for Disability and Life were 12.4% for the three months ended June 30, 2009, 8.3% for the three months ended March 31, 2009, and 10.3% for the six months ended June 30, 2009. Segment earnings including special items for International were 13.2% for the three months ended June 30, 2009, 9.2% for the three months ended March 31, 2009, and 11.3% for the six months ended June 30, 2009.
9. Information is not available for management (1) to reasonably estimate future net realized investment gains (losses) or (2) to reasonably estimate future GMIB business results due in part to interest rate and stock market volatility and other internal and external factors; therefore it is not possible to provide a forward-looking reconciliation of adjusted income from operations to shareholders' income from continuing operations. Special items for the remainder of 2009 may include potential charges associated with the previously announced cost reduction plan as well as litigation related items. Information is not available for management to identify, other than this item, or reasonably estimate additional 2009 special items.
10. Repurchases may from time to time be made pursuant to written trading plans under Rule 10b5-1, which permit shares to be repurchased when CIGNA might otherwise be precluded from doing so under insider trading laws or because of self-employed trading blackout periods.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company and its representatives may from time to time make written and oral forward-looking statements, including statements contained in press releases, in the Company's filings with the Securities and Exchange Commission, in its reports to shareholders and in meetings with analysts and investors. Forward-looking statements may contain information about financial prospects, economic conditions, trends and other uncertainties. These forward-looking statements are based on management's beliefs and assumptions and on information available to management at the time the statements are or were made.
