This summary is based on the third quarter fiscal 2008 earnings call conducted by CIGNA Corp. (CI) on October 30, 2008.
Management:
Vice President of IR: Ted Detrick
Chairman and CEO: Ed Hanway
President and COO: David Cordani
EVP and CFO: Mike Bell
Financial Officer of CIGNA Health Care: Marcia Dall
Key Investors Issues
- EPS were 62 cents a share compared to $1.28 a share last year.
- Net profit fell 53% to $171 million from $365 million a year earlier.
- Revenue rose 10% to $4.85 billion.
Third Quarter Highlights
Consolidated adjusted income from operations was $246 million, or 89 cents a share.
- Consolidated results reflect solid earnings contributions from each of ongoing businesses Health Care, Group Insurance, and International.
- Earnings were $246 million, or 89 cents a share, compared to $321 million, or $1.13 a share in 2007. Third quarter results for ongoing businesses were strong, while results for Run-off Reinsurance business emerged unfavorably.
Health Care earnings were $187 million.
- The third quarter results included strong contributions from specialty businesses and sequential improvement in both the guaranteed cost MLR and experience-rated earnings. Third quarter results also reflect the continued focus on managing operating expenses while increasing investments in key initiatives.
- Guaranteed cost earnings improved sequentially mainly reflecting an improved MLR due to higher renewal rate increases. Guaranteed cost MLR improved to 83.8% excluding voluntary business.
- Although, the improvement was less than expected, MLR reflected good progress on renewal rate actions, partially offset by a higher level of benefit buy-downs.
- Medical cost trend experience-rated results improved sequentially, driven by strong underwriting execution. The MLR for the experienced-rated books improved by 440 basis points versus second quarter, which contributed approximately $15 million after-tax in sequential earnings growth.
- ASO earnings were lower sequentially due to higher operating expenses. Operating expenses included the absence of favorable items in second quarter and increased spending in targeted investment areas including technology.
- Great-West contributed $13 million of after-tax earnings, excluding financing costs, which were reported in the corporate segment. The third quarter result includes a $12 million after-tax impact of transition and integration expenses.
- Medical membership including Great-West was 11.9 million members as of September 30th. Excluding Great-West, membership was essentially flat with year end 2007. Guarantee cost membership declined by 5% and experience-rated membership declined by 2%.
- 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 the third quarter of 2007 primarily due to the acquisition of Great-West Healthcare.
Earnings in Group Disability and Life segment were $70 million.
This result includes a $5 million favorable impact from reserve studies. Earnings primarily reflected revenue growth and competitively strong margins.
In International segment, earnings of $44 million represented revenue growth and strong margins in both the life accident and supplemental health and expatriate benefits businesses.
The results also include a $3 million unfavorable after-tax impact from foreign currency movements in South Korea, CIGNA''s largest non- U.S. market. Group and International businesses continue to be important contributors to consolidated results.
Earnings for remaining operations including Run-off Reinsurance, Other Operations, and Corporate will incur loss of $55 million for the quarter.
This includes an after-tax charge of $72 million related to variable annuity death benefit or VADBe product. The VADBe charge is primarily market related driven by a variety of factors including the unfavorable market returns and increased volatility.
- Realized investment losses of $55 million after-tax were mostly offset by realized gains of $40 million on the sale of a commercial real estate partnership.
- Current commercial mortgage portfolio of $3.6 billion is strong.
- Average current loan-to-value ratio for commercial mortgages, as of September 30th was 64%.
- The company ended third quarter 2008 with cash and short term investments at the parent of approximately $130 million and commercial paper borrowing of approximately $315 million.
Year-to-Date Financial Highlights
