This summary is based on the second quarter fiscal 2008 earnings call conducted by CIGNA Corporation (CI) on August 1, 2008.
Management:
Vice President Investor Relations: Ted Detrick
Chairman and CEO: Ed Hanway
President and Chief Operating Officer: David Cordani
Chief Financial Officer: Mike Bell
Financial Officer CIGNA Health Care: Marcia Dall
Key Investors Issues
- EPS were 97 cents a share compared to 68 cents per share last year.
- Net income rose 37% to $272 million compared to $198 million a year earlier.
- Revenue rose to $4.86 billion from $4.38 billion a year ago.
Second Quarter Highlights
Net income included an after-tax charge of $52 million related to a litigation matter concerning pension plan.
- This charge is reported as a special item and therefore is excluded from adjusted income from operations.
- Net income included after tax gains of $34 million or 12 cents per share related to the guaranteed minimum income benefits business otherwise known as GMIB which is reported in the run off re-insurance segment.
- Earnings were $303 million or $1.08 per share compared to $284 million or 98 cents per share in 2007. Consolidated earnings improved relative to first quarter reflecting increased Health Care earnings and continued strong results in Group Disability and Life and International.
- Health Care earnings were $181 million relative to first quarter this result reflected the benefit of lower operating expenses and an increased contribution from specialty businesses. In addition, Great-West contributed $16 million of after tax earnings in second quarter excluding financing costs which are reflected in the corporate segment.
- Guaranteed cost earnings declined sequentially mainly reflecting a higher than expected MLR and lower membership. Guaranteed cost MLR the first half of 2008 was 84.8% excluding voluntary business. This included approximately 50 basis points for flu related upper respiratory claims in the first quarter and higher than expected year to date catastrophic claims.
- Excluding the non-medical account loss in first quarter experience rated results improved sequentially but was below expectations. The sequential improvement reflected a better medical loss ratio and more favorable operating expenses. Relative to expectations the company experienced a higher dollar amount of account level deficits in the second quarter than anticipated.
- ASO results were strong driven by lower operating expenses and continued increase in the earnings contribution from specialty products. Relative to operating expenses earnings benefited by $16 million after tax due to lower expenses compared to the first quarter. Approximately half of the sequential improvement was due to items which the company does not expect to repeat in the second half of the year.
Medical membership was 12.1 million members as of June 30.
- This includes the impact of the acquisition of Great-West Health Care on April 1. Excluding Great-West membership was 1% higher than at year end 2007. Guaranteed cost membership declined by 2% and ASO membership decreased by 1%. Membership result reflects continued focus on maintaining pricing discipline as well as the impact of higher dis-enrollment.
- Health Care premiums and fees increased 13% relative to second quarter 2007 primarily due the acquisition of Great-West HealthCare. Excluding Great-West premiums and fees were flat reflecting rate increases in guaranteed cost and experience rated businesses and higher specialty revenue offset primarily by a decline in guaranteed cost membership.
- Earnings in Group Disability and Life were $73 million. This result includes an $8 million favorable impact from a disability reserve study. Earnings primarily reflected attractive margins, revenue growth and continued strong disability management results partly offset by a less favorable life claims experience.
- In International segment, earnings of $48 million reflected continued growth and competitively strong margins in Life Accident Supplemental Health and expatriate benefits businesses. Group and International businesses continue to be important contributors to consolidated results.
- Earnings for remaining operations including run off re-insurance, other operations and Corporate were $1 million. Results for the run off re-insurance segment included the net favorable impact of settlement activity.
Investment strategy is to maintain a higher quality, well diversified portfolio.
- Investment portfolio performance continues to be strong competitively. The company continues to have no direct exposure to sub-prime loans and no material direct exposure to residential mortgages.
- Current commercial mortgage portfolio results are strong, reflecting consistent disciplined approach to underwriting. All of loans in this portfolio are fully performing and said differently, none of loans is currently 30 days delinquent.
- Future realized capital gains and losses cannot be reasonably estimated. Based on the current strength of the portfolio and consistent record of investment management discipline the company currently does not expect net capital gain or loss results to be material to full year 2008 net income for the enterprise or have any material impact on outlook for full year subsidiary dividends.
- Parent company Capital Position continues to be strong and subsidiaries remain well capitalized. The company ended second quarter 2008 with cash in short term investments at the parent of approximately $100 million. The company resumed share repurchase program and repurchased approximately 6.7 million shares or $264 million through July 31, including $44 million in the month on July.
Fiscal 2008 Outlook
- The company expects guaranteed cost MLR to improve to a range of 83% to 83.5% for the full year. This range is higher than previous estimate of 83% it reflects higher expectations for medical trends due to the higher upper respiratory and catastrophic claims in the first half of the year. The company expects the improvement in the MLR during the second half of the year to be driven primarily by renewal price increases that are higher than trend and the impact of additional underwriting actions.
- With respect to medical costs there is no change in the full year medical trend outlook for total book of business. The company continues to expect medical cost trend for total book to be in the range of 6.5% to 7.5% for full year 2008.
