(Source: Business Wire)
Aetna (NYSE: AET) today announced third-quarter 2009 operating earnings
of $308.2 million, or $.69 per share, a 38 percent decrease from the
prior-year quarter. Operating earnings (1) exclude net
realized capital gains (losses) and other items. The decrease in
operating earnings per share from the prior-year quarter reflects a
lower Commercial underwriting margin and a previously announced increase
in pension expense partially offset by the impact of a lower number of
shares outstanding year-over-year. The lower Commercial underwriting
margin was due to a significant increase in Commercial medical costs
which was partially offset by an increase in health care premiums. Net
income was $326.2 million, or $.73 per share, a 26 percent increase from
the prior-year quarter, which included net realized capital losses of
$.48 per share due to the then-deteriorating global economic conditions.
Quarterly Financial Results at a Glance
Three Months Ended September 30,
(Millions, except per share results) 2009 2008 Change
Revenue, excluding net realized capital gains (losses) $ 8,704.4 $ 7,981.4 9 %
Net realized capital gains (losses), net of tax 18.0 (232.0 ) 108 %
Operating earnings 308.2 536.7 (43 )%
Net income 326.2 277.3 18 %
Per share results:
Operating earnings .69 1.12 (38 )%
Net income .73 .58 26 %
Weighted average common shares - diluted 444.6 480.3
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"Our third-quarter financial resultsreflect a Total Medical Benefit
Ratio that isin line with expectations despite a CommercialMedical
Benefit Ratio that was higher than projected," said Ronald A. Williams,
chairman and CEO. "The higher-than-expected Commercial MBR wasdue
primarily to greater-than-anticipated costs from the H1N1 flu and COBRA
penetration rates.
"We expectin 2010 thatongoing uncertainty about the U.S. economy with
respect to employment and growth will continue to impact provider and
member behavior as well as customer preferences. Despite this
uncertainty, we continue to have a great deal of confidence in our
long-term future, given our well-positioned, diverse portfolio of
businesses, our customer-focused strategy and our underlying financial
strength."
Williams continued: "Looking ahead, as the health care reform debate
intensifies, we will continue to be an active, constructive voice for a
bipartisan solution that gets and keeps everyone covered, builds on the
strengths of the employer-based system, and addresses the underlying
cost and affordability of health care. Webelieve that the right reforms
can yield positive, market based change that improves the health care
system for more Americans."
Joseph M. Zubretsky, executive vice president and CFO, said, "The
increase in net income in the third quarter was primarily a result of
improved valuations in our investment portfolio. Going forward, we
expect that our ongoing medical costmanagement and pricing action
planswill have a noticeable effect beginning in the first quarter of
2010, with additional financial impact realized during the remaining
three quarters of the year. As we work through the challenges facing us,
our financial position, capital structure and liquidity remain strong
and we are committed to making sure our operating expense structure is
appropriately aligned with the size, profile and needs of our customers."
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 of $345.7 million for the third quarter of 2009,
compared with $496.8 million for the third quarter of 2008. The
decrease in operating earnings reflects a 16 percent increase in
medical costs partially offset by a 10 percent increase in premiums.
Revenues excluding net realized capital gains (losses) for the third
quarter of 2009 increased by 9 percent to $8.0 billion from $7.3
billion for the third quarter of 2008. Premium revenues grew by 10
percent, primarily from membership growth and rate increases for
renewing membership. Fees and other revenue increased 5 percent in
2009 primarily driven by membership growth. Including net realized
capital gains (losses), total revenue increased by 13 percent in 2009.
Medical benefit ratios ("MBRs") for third-quarter 2009 and 2008 were
as follows:
2009 2008
Commercial 85.6 % 80.3 %
Medicare 85.4 % 83.0 %
Medicaid 86.6 % 81.1 %
Total 85.6 % 80.9 %
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-The year-over-year increase in the Commercial MBR reflects the impact
of continued higher claim intensity, higher costs from the H1N1 flu and
higher COBRA participation.
-The third quarter 2009 Commercial MBR exceeded the adjusted Commercial
MBR of 84.6 percent (3) reported in the second quarter of
2009. The sequentially higher medical costs were due primarily to a
provision for certain prior year provider medical costs, higher costs
from the H1N1 flu and higher COBRA participation.
-The total MBR for the third quarter of 2009 reflects approximately $30
million of favorable development of prior-period health care cost
estimates, including modest favorable development in each of Commercial,
Medicare and Medicaid products.
Sequentially, third-quarter medical membership decreased by 25,000 to
19.027 million; pharmacy membership decreased by 79,000 to 11.155
million; and dental membership decreased by 386,000 to 14.183 million.
Net income of $356.5 million for the third quarter of 2009, compared
with $357.9 million for the third quarter of 2008.
Group Insurance business results
Group Insurance, which includes group life, disability and long-term
care products, reported:
Operating earnings of $33.3 million for the third quarter of 2009,
compared with $46.4 million for the third quarter of 2008, primarily
due to lower life underwriting margins.
Net income of $46.2 million for the third quarter of 2009, compared
with a net loss of $57.5 million for the third quarter of 2008.
Revenues excluding net realized capital gains (losses) for the third
quarter of 2009 were $528.2 million, compared with $511.2 million for
the third quarter of 2008. Third-quarter total revenue, which includes
net realized capital gains (losses), was $541.1 million and $393.6
million in 2009 and 2008, respectively.
Large Case Pensions business results
Large Case Pensions, which manages a variety of discontinued and other
retirement and savings products, primarily qualified pension plans,
reported:
Operating earnings of $6.7 million for the third quarter of 2009,
compared with $8.8 million for the third quarter of 2008, reflecting
the run-off mode of this business.
Net income of $1.0 million for the third quarter of 2009, compared
with a net loss of $7.8 million for the third quarter of 2008.
Total company results
Revenues excluding net realized capital gains (losses)
increased 9 percent to $8.7 billion for the third quarter of 2009,
compared with $8.0 billion for the third quarter of 2008. The growth
in third-quarter revenue reflects a 9 percent increase in premium
revenue and a 5 percent increase in fees and other revenue. This
revenue growth reflects a higher level of membership and premium rate
increases.
Total Operating Expenses were $1.6 billion for the third
quarter of 2009, $140.8 million higher than the third quarter of 2008,
reflecting a previously disclosed increase in the financing component
of pension expense. The operating expense ratio (4) was
18.1 percent and 17.4 percent for the third quarter of 2009 and 2008,
respectively. Including net realized capital gains (losses) and an
other item, these percentages were 18.1 percent for the third quarter
of 2009 and 18.8 percent for the third quarter of 2008.
Corporate Financing Interest Expense was $39.4 million after
tax for the third quarter of 2009, compared with $39.3 million after
tax for the third quarter of 2008.
Net Income was $326.2 million for the third quarter of 2009,
compared with $277.3 million for the third quarter of 2008. Net income
includes $18.0 million of net realized capital gains in the third
quarter of 2009 and $232.0 million of net realized capital losses in
the third quarter of 2008, which included significant
other-than-temporary impairments of certain investments which
decreased due to the then-deteriorating global economic conditions.
Pre-tax Operating Margin (5) was 6.3 percent
for the third quarter of 2009, compared with 11.4 percent for the
third quarter of 2008. The decrease in year-over-year pretax operating
margin is due primarily to the decrease in operating earnings. For the
third quarter of 2009, the after tax net income margin was 3.7 percent
compared to 3.6 percent for 2008.
Share Repurchases totaled 3.9 million shares at a cost of $114
million in the third quarter of 2009.
Aetna's conference call to discuss third quarter 2009 results and
full-year 2009 guidance 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 web site.
The conference call also can be accessed by dialing 877-397-0292 or
719-325-4781 for international callers. The company suggests
participants dial in approximately 10 minutes before the call. The
access code is 4099734. 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 888-203-1112, or 719-457-0820 for international callers.
The replay access code is 4099734. Telephone replays will be available
from 11:00 a.m. ET on Oct. 29, 2009 until midnight ET on Nov. 12, 2009.
About Aetna
Aetna is one of the nation's leading diversified health care benefits
companies, serving approximately 36.3 million people with information
and resources to help them make better informed decisions about their
health care. Aetna offers a broad range of traditional and
consumer-directed health insurance products and related services,
including medical, pharmacy, dental, behavioral health, group life and
disability plans, and medical management capabilities and health care
management services for Medicaid plans. Our customers include employer
groups, individuals, college students, part-time and hourly workers,
health plans, 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 Nine Months
Ended September 30, Ended September 30,
(Millions) 2009 2008 2009 2008
Revenue:
Health care premiums $ 7,092.8 $ 6,450.8 $ 21,115.5 $ 18,993.2
Other premiums 471.4 466.7 1,432.4 1,415.2
Fees and other revenue 876.8 834.1 2,662.2 2,488.7
Net investment income 263.4 229.8 771.4 731.7
Net realized capital gains (losses) 18.0 (356.8 ) 26.4 (437.4 )
Total revenue 8,722.4 7,624.6 26,007.9 23,191.4
Benefits and expenses:
Health care costs 6,069.6 5,216.6 17,976.2 15,456.1
Current and future benefits 514.5 464.7 1,521.6 1,474.4
Operating expenses:
Selling expenses 312.2 282.2 938.5 861.6
General and administrative expenses ((6)) 1,263.3 1,152.5 3,653.3 3,372.0
Total operating expenses 1,575.5 1,434.7 4,591.8 4,233.6
Interest expense 60.6 60.5 182.8 171.5
Amortization of other acquired intangible assets 23.9 25.4 72.9 80.5
Reduction of reserve for anticipated future losses on discontinued products - - - (43.8 )
Total benefits and expenses 8,244.1 7,201.9 24,345.3 21,372.3
Income before income taxes 478.3 422.7 1,662.6 1,819.1
Income taxes 152.1 145.4 552.0 629.7
Net income $ 326.2 $ 277.3 $ 1,110.6 $ 1,189.4
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Summary of Results
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
(Millions) 2009 2008 Change 2009 2008 Change
Business segment operating earnings $ 385.7 $ 552.0 (30 )% $ 1,292.6 $ 1,512.2 (15 )%
Corporate Financing segment operating loss ((7)) (77.5 ) (15.3 ) (233.3 ) (39.6 )
Operating earnings 308.2 536.7 (43 )% 1,059.3 1,472.6 (28 )%
Allowance on reinsurance recoverable - (27.4 ) - (27.4 )
Reduction of reserve for anticipated future losses on discontinued products - - - 28.5
Litigation-related insurance proceeds - - 24.9 -
Net realized capital gains (losses) 18.0 (232.0 ) 26.4 (284.3 )
Net income (GAAP measure) $ 326.2 $ 277.3 18 % $ 1,110.6 $ 1,189.4 (7 )%
Weighted average common shares - basic 436.0 468.0 443.8 480.9
Weighted average common shares - diluted 444.6 480.3 452.2 495.0
Per Common Share
Business segment operating earnings $ .87 $ 1.15 (24 )% $ 2.86 $ 3.05 (6 )%
Corporate Financing segment operating loss ((7)) (.18 ) (.03 ) (.52 ) (.08 )
Operating earnings .69 1.12 (38 )% 2.34 2.97 (21 )%
Allowance on reinsurance recoverable - (.06 ) - (.06 )
Reduction of reserve for anticipated future losses on discontinued products - - - .06
Litigation-related insurance proceeds - - .06 -
Net realized capital gains (losses) .04 (.48 ) .06 (.57 )
Net income (GAAP measure) $ .73 $ .58 26 % $ 2.46 $ 2.40 3 %
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Segment Information (8)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
(Millions) 2009 2008 2009 2008
Health Care:
Revenue, excluding net realized capital gains (losses) $ 8,037.8 $ 7,346.2 $ 23,978.0 $ 21,669.4
Net realized capital gains (losses) 10.8 (213.7 ) 6.9 (245.4 )
Total revenue (GAAP measure) $ 8,048.6 $ 7,132.5 $ 23,984.9 $ 21,424.0
Operating earnings $ 345.7 $ 496.8 $ 1,151.1 $ 1,366.3
Litigation-related insurance proceeds - - 24.9 -
Net realized capital gains (losses) 10.8 (138.9 ) 6.9 (159.5 )
Net income (GAAP measure) $ 356.5 $ 357.9 $ 1,182.9 $ 1,206.8
Group Insurance:
Revenue, excluding net realized capital gains (losses) $ 528.2 $ 511.2 $ 1,591.1 $ 1,527.5
Net realized capital gains (losses) 12.9 (117.6 ) 26.4 (155.2 )
Total revenue (GAAP measure) $ 541.1 $ 393.6 $ 1,617.5 $ 1,372.3
Operating earnings $ 33.3 $ 46.4 $ 117.9 $ 119.1
Allowance on reinsurance recoverable - (27.4 ) - (27.4 )
Net realized capital gains (losses) 12.9 (76.5 ) 26.4 (100.9 )
Net income (loss) (GAAP measure) $ 46.2 $ (57.5 ) $ 144.3 $ (9.2 )
Large Case Pensions:
Revenue, excluding net realized capital losses $ 138.4 $ 124.0 $ 412.4 $ 431.9
Net realized capital losses (5.7 ) (25.5 ) (6.9 ) (36.8 )
Total revenue (GAAP measure) $ 132.7 $ 98.5 $ 405.5 $ 395.1
Operating earnings $ 6.7 $ 8.8 $ 23.6 $ 26.8
Reduction of reserve for anticipated future losses on discontinued products - - - 28.5
Net realized capital losses (5.7 ) (16.6 ) (6.9 ) (23.9 )
Net income (loss) (GAAP measure) $ 1.0 $ (7.8 ) $ 16.7 $ 31.4
Total Company:
Revenue, excluding net realized capital gains (losses) (A) $ 8,704.4 $ 7,981.4 $ 25,981.5 $ 23,628.8
Net realized capital gains (losses) 18.0 (356.8 ) 26.4 (437.4 )
Total revenue (B) (GAAP measure) $ 8,722.4 $ 7,624.6 $ 26,007.9 $ 23,191.4
Business segment operating expenses (C) $ 1,516.9 $ 1,429.4 $ 4,453.9 $ 4,301.9
Corporate Financing segment operating expenses( (7)) 58.6 (36.9 ) 176.1 (110.5 )
Operating expenses, including Corporate Financing segment (D) 1,575.5 1,392.5 4,630.0 4,191.4
Litigation-related insurance proceeds - - (38.2 ) -
Allowance on reinsurance recoverable - 42.2 - 42.2
Total operating expenses (E) (GAAP measure) $ 1,575.5 $ 1,434.7 $ 4,591.8 $ 4,233.6
Operating Expenses Ratios:
Operating expense ratio (D)/(A) 18.1 % 17.4 % 17.8 % 17.7 %
Business segment operating expense ratio (C)/(A) 17.4 % 17.9 % 17.1 % 18.2 %
Total operating expense ratio (E)/(B) (GAAP measure) 18.1 % 18.8 % 17.7 % 18.3 %
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Membership
September 30, June 30, December 31, September 30,
(Thousands) 2009 2009 2008 2008
Medical Membership:
Commercial 17,582 17,652 16,488 16,456
Medicare 428 423 366 365
Medicaid 1,017 977 847 847
Total Medical Membership 19,027 19,052 17,701 17,668
Consumer-Directed Health Plans (9) 1,862 1,827 1,431 1,412
Dental Membership:
Commercial 12,468 12,771 12,506 12,538
Medicare & Medicaid 676 653 603 628
Network Access ((10)) 1,039 1,145 1,015 951
Total Dental Membership 14,183 14,569 14,124 14,117
Pharmacy Membership:
Commercial 9,882 9,969 9,846 9,809
Medicare PDP (stand-alone) 338 328 375 372
Medicare Advantage PDP 233 227 195 193
Medicaid 29 27 25 23
Total Pharmacy Benefit Management Services 10,482 10,551 10,441 10,397
Mail Order ((11)) 673 683 657 657
Total Pharmacy Membership 11,155 11,234 11,098 11,054
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Operating Margins
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
(Millions) 2009 2008 2009 2008
Reconciliation to Income Before Income Taxes:
Operating earnings before income taxes, excluding interest expense and amortization of other acquired intangible assets (A) $ 544.8 $ 907.6 $ 1,853.7 $ 2,506.9
Interest expense (60.6 ) (60.5 ) (182.8 ) (171.5 )
Amortization of other acquired intangible assets (23.9 ) (25.4 ) (72.9 ) (80.5 )
Allowance on reinsurance recoverable - (42.2 ) - (42.2 )
Reduction of reserve for anticipated future losses on discontinued products - - - 43.8
Litigation-related insurance proceeds - - 38.2 -
Net realized capital gains (losses) 18.0 (356.8 ) 26.4 (437.4 )
Income before income taxes (GAAP measure) $ 478.3 $ 422.7 $ 1,662.6 $ 1,819.1
Reconciliation to Net Income:
Operating earnings, excluding interest expense and amortization of other acquired intangible assets $ 363.2 $ 592.5 $ 1,225.5 $ 1,636.4
Interest expense, net of tax (39.4 ) (39.3 ) (118.8 ) (111.5 )
Amortization of other acquired intangible assets, net of tax (15.6 ) (16.5 ) (47.4 ) (52.3 )
Allowance on reinsurance recoverable, net of tax - (27.4 ) - (27.4 )
Reduction of reserve for anticipated future losses on discontinued products, net of tax - - - 28.5
Litigation-related insurance proceeds, net of tax - - 24.9 -
Net realized capital gains (losses), net of tax 18.0 (232.0 ) 26.4 (284.3 )
Net income (B) (GAAP measure) $ 326.2 $ 277.3 $ 1,110.6 $ 1,189.4
Reconciliation of Revenue:
Revenue, excluding net realized capital gains (losses) (C) $ 8,704.4 $ 7,981.4 $ 25,981.5 $ 23,628.8
Net realized capital gains (losses) 18.0 (356.8 ) 26.4 (437.4 )
Total revenue (D) (GAAP measure) $ 8,722.4 $ 7,624.6 $ 26,007.9 $ 23,191.4
Operating and Net Income Margins:
Total Company - Pretax operating margin (A)/(C) 6.3 % 11.4 % 7.1 % 10.6 %
Total Company - After-tax net income margin (B)/(D) (GAAP measure) 3.7 % 3.6 % 4.3 % 5.1 %
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(1) Operating earnings exclude net realized capital gains and
losses and other items, if any, from net income. Although the excluded
items may recur, management believes that operating earnings and
operating earnings per share provide a more useful comparison of Aetna's
underlying business performance from period to period. Management uses
operating earnings to assess business performance and to make decisions
regarding Aetna's operations and allocation of resources among Aetna's
businesses. Operating earnings is also the measure reported to the Chief
Executive Officer for these purposes.
Each of the excluded items is discussed below:
Net realized capital gains and losses arise from various types of
transactions, primarily in the course of managing a portfolio of
assets that support the payment of liabilities. However, these
transactions do not directly relate to the underwriting or servicing
of products for customers and are not directly related to the core
performance of Aetna's business operations.
Following a Pennsylvania Supreme Court ruling in June 2009, we
received $38.2 million ($24.9 million after tax) from one of our
liability insurers related to certain litigation we settled in 2003.
We believe these litigation-related insurance proceeds neither relate
to the ordinary course of our business nor reflect our underlying
business performance, and therefore, we consider these to be an other
item for the nine months ended September 30, 2009.
Release of reserves for anticipated future losses on discontinued
products in Large Case Pensions of $28.5 million, after tax, is
considered an other item for the nine months ended September 30, 2008,
as it represents a reduction of reserves previously established for
certain products no longer offered by Aetna that do not benefit
ongoing business operations.
As a result of the liquidation proceedings of Lehman Re Ltd. ("Lehman
Re"), a subsidiary of Lehman Brothers Holdings Inc., Aetna recorded an
allowance against its reinsurance recoverable from Lehman Re of $27.4
million ($42.2 million pretax) in the three and nine months ended
September 30, 2008. This reinsurance was placed in 1999 and is on a
closed book of paid-up group whole life insurance business. This is an
other item for the three and nine months ended September 30, 2008
because it does not reflect underlying 2008 performance.
Revenue excludes net realized capital gains and losses.
For a reconciliation of these items to financial measures calculated
under U.S. generally accepted accounting principles ("GAAP"), refer to
the tables on pages 7 through 9 and page 11 of this press release.
(2) Projected operating earnings per share exclude any future
net realized capital gains or losses and other items, if any, from net
income. Aetna is not able to project the amount of future net realized
capital gains or losses and therefore cannot reconcile projected
operating earnings to projected net income in any period. Projected
operating earnings per share for the full year 2009 assumes
approximately 450 million weighted average diluted shares.
(3) The Commercial MBR for the second quarter of 2009
reflected approximately $65 million pretax of unfavorable development of
prior period health care cost estimates. Including this development, the
Commercial MBR for the second quarter of 2009 was 85.9%.
(4) The operating expense ratio excludes net realized capital
gains and losses and other items, if any. Refer to a reconciliation of
this metric to the comparable GAAP measure on page 9 of this press
release.
(5) In order to provide useful information regarding Aetna's
profitability on a basis comparable to others in the industry, without
regard to financing decisions, income taxes or amortization of other
acquired intangible assets (each of which may vary for reasons not
directly related to the performance of the underlying business), Aetna's
pretax operating margin is based on operating earnings excluding
interest expense, income taxes and amortization of other acquired
intangible assets. Management also uses pre-tax operating margin to
assess Aetna's performance, including performance versus competitors.
(6) Includes an allowance on reinsurance recoverable and
litigation-related insurance proceeds as described in footnote (1) above.
(7) Our Corporate Financing segment is not a business
segment. It is added to our business segments to reconcile to our
consolidated results. The Corporate Financing segment includes interest
expense on our outstanding debt and, beginning in 2009, the financing
components of our pension and other postretirement benefit plan expenses
(referred to herein as "pension expense") (the service cost (or
operating component) of this expense is allocated to our business
segments). The service cost component allocated to our business segments
for the three and nine months ended September 30, 2009 was $10.7 million
($6.9 million after tax) and $32.0 million ($20.7 million after tax),
respectively, and $9.5 million ($6.2 million after tax) and $28.3
million ($18.4 million after tax) for the three and nine months ended
September 30, 2008, respectively. Prior periods have been reclassified
to reflect this change.
(8) Revenue and operating expense information is presented
before income taxes. Operating earnings information is presented net of
income taxes.
(9) Represents members in consumer-directed health plans
included in Aetna's Commercial medical membership.
(10) Represents members in products that allow these members
access to Aetna's dental provider network for a nominal fee.
(11) Represents members who purchased medications through
Aetna Rx Home Delivery®, our mail order pharmacy, during the
quarterly period and are included in pharmacy membership above.
CAUTIONARY STATEMENT; ADDITIONAL INFORMATION -- -- Certain information
in this press release is forward-looking, including our projections as
to operating earnings per share and weighted average diluted shares.
Forward-looking information is based on management's estimates,
assumptions and projections, and is subject to significant uncertainties
and other factors, many of which are beyond Aetna's control. Important
risk factors could cause actual future results and other future events
to differ materially from those currently estimated by management,
including unanticipated increases in medical costs (including increased
intensity or medical utilization as a result of the H1N1 flu, increased
COBRA participation rates or otherwise; changes in membership mix to
higher cost or lower-premium products or membership-adverse selection;
changes in medical cost estimates due to the necessary extensive
judgment that is used in the medical cost estimation process, the
considerable variability inherent in such estimates, and the sensitivity
of such estimates to changes in medical claims payment patterns and
changes in medical cost trends; increases resulting from unfavorable
changes in contracting or re-contracting with providers; and increased
pharmacy costs); adverse and less predictable economic conditions in the
U.S. and abroad (including unanticipated levels of or rate of increase
in the unemployment rate) which can significantly and adversely affect
Aetna's business and profitability; failure to achieve desired rate
increases and/or profitable membership growth due to the slowing economy
and/or significant competition, especially in key geographic markets
where membership is concentrated; continued volatility and further
deterioration of the U.S. and global capital markets, including
fluctuations in interest rates, fixed income and equity prices and the
value of financial assets, along with the general deterioration in the
commercial paper, capital and credit markets, which can adversely impact
the value of Aetna's investment portfolio, Aetna's profitability by
reducing net investment income and/or Aetna's financial position by
causing us to realize additional impairments on our investments; adverse
pricing or funding actions by federal or state government payors;
adverse changes in federal or state government policies or regulation
(including legislative proposals that would affect our business model
and/or limit our ability to price for the risk we assume and/or reflect
reasonable costs or profits in our pricing and other proposals, such as
initiatives to mandate minimum medical benefit ratios or eliminate or
reduce ERISA pre-emption of state laws, that would increase potential
litigation exposure or mandate coverage of certain health benefits); and
the ability to improve relations with providers while taking actions to
reduce medical costs and/or expand the services we offer. Other
important risk factors include, but are not limited to: adverse changes
in size, product mix or medical cost experience of membership; increases
in medical costs or Group Insurance claims resulting from any epidemics,
acts of terrorism or other extreme events; the ability to reduce
administrative expenses while maintaining targeted levels of service and
operating performance; the ability to successfully integrate our
businesses (including acquired businesses) and implement multiple
strategic and operational initiatives simultaneously; our ability to
integrate, simplify, and enhance our existing information technology
systems and platforms to keep pace with changing customer and regulatory
needs; the outcome of various litigation and regulatory matters,
including litigation concerning, and ongoing reviews by various
regulatory authorities of, certain of our payment practices with respect
to out-of-network providers; and reputational issues arising from data
security breaches or other means. For more discussion of important risk
factors that may materially affect Aetna, please see the risk factors
contained in Aetna's 2008 Annual Report on Form 10-K on file with the
Securities and Exchange Commission ("SEC"), Aetna's 2009 Quarterly
Report on Form 10-Q for the quarter ended June 30, 2009 and Aetna's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2009
(Aetna's "Third Quarter 10-Q"), when filed with the SEC. You also should
read Aetna's Third Quarter 10-Q, when filed with the SEC, for a
discussion of Aetna's historical results of operations and financial
condition.
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