This summary is based on the fourth quarter fiscal 2006 earnings call conducted by Cigna Corp. (CI) on February 7, 2007.
Management:
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Chairman and CEO: Ed Hanway.
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Chief Financial Officer: Mike Bell
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President, HealthCare: David Cordani
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Financial Officer, HealthCare: Jon Rubin
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Vice President, Investor Relations: Ted Detrick
Key Investors Issues
- Revenues decreased marginally to $4.2 billion from $4.21 billion in the prior year.
- Net income of $232 million, or $2.28 per share, was up 10.5%
- The firm repurchased 4.5 million shares of stock for $550 million.
Full Year Highlights:
- Revenues dropped 2% from $16.5 billion from $16.8 billion in 2005.
- Net income was $1.16 billion, or $10.28 per share, up marginally from $1.63 billion, or $12.52 per share, in 2005.
- The firm repurchased $2.8 billion of stock, bringing the year to date repurchases to $220 million, with 760 million of stock repurchase authority available.
Fourth Quarter Highlights
Net income of $232 million, or $2.28 per share, was up 10.5% from $210 million, or $1.67 per share for the same period in 2005, reflecting strong results in each of the health and related benefits businesses.
- Revenues decreased marginally to $4.2 billion from $4.21 billion in the prior year on lower investment income despite realised investment gains of $25 million.
- Cash and short-term investments at the parent were $425 million from $1.1 billion in the prior year, reflective of the share repurchase activities.
- The firm continued with the share repurchase program and repurchased approximately 4.5 million shares of stock for $550 million, and currently has 760 million of repurchase authority, which includes an additional 500 million authorized by the Board.
- AM Best upgraded CG Life’s rating to A and Moody’s placed the firm’s ratings under formal review for possible upgrade.
- Health care medical claims payable were $710 million, down from $800 million in the prior year, reflecting the impact of favorable prior year claim development during 2006.
Segment Highlights:
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Healthcare results reflected continued strong execution of the fundamentals as the firm achieved organic membership growth of 1.5%.
- Earnings of $165 million were in the upper end of the expected range, reflecting better-than-expected results on experience rated business and strong contributions from the specialty businesses.
- Earnings also included the favorable impact of an insurance recovery of $14 million after-tax, which was offset by a comparable amount of non-recurring expense adjustments.
The guarantee cost medical loss ratio continued to improve, reflecting continued strong execution of the pricing actions and effective medical cost management.
- Excluding prior-year claim development and the results of the recently acquired voluntary benefits business, the MLR was 85.8%.
- Operating expenses declined by $155 million or 6% relative to 2005, driven by continued progress in efforts to improve productivity.
- Healthcare premiums and fees were up 9% versus 2005, excluding the loss of the New York State Prescription Drug Program, driven by higher guarantee cost medical membership and rate increases.
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Disability and life earnings were $46 million, down 12%, reflecting competitively attractive margins driven by strong disability management results.
- Adjusted segment earnings for the prior periods benefited from the net favorable impact of reserve reviews of $12 million after-tax.
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International earnings were up 48% to $34 million on strong top line growth and margins in both the expatriate benefits and life, accident and health businesses.
- Results in the run-off reinsurance segment included favorable reserve development and settlement activity related to the person accident and workers’ comp lines of business, which are not expected to recur in 2007.
Capital Management Priorities:
- The first priority is to maintain appropriate liquidity at the parent company and to ensure that subsidiaries remain adequately capitalized to support growth and to maintain their credit ratings.
- The second priority for excess capital is to consider acquisition opportunities and the firm is routinely reviewing a range of acquisition opportunities that would enhance its strategic position.
- Acquisitions in the year included Star HRG and Vielife.
Operational Insights:
- During the year, the firm significantly improved the fundamentals of its healthcare business and invested in enhanced capabilities in the areas of consumerism and health advocacy.
- The firm achieved its primary objective for the year, which was to profitably grow the medical membership, membership rose by 1.5% on an organic basis, reflecting a very strong result in the regional market segment of 9%.
- The regional market is the largest segment representing approximately 55% of the total membership and the firm also saw improvement in retention and new sales in national accounts, setting the stage for solid growth in national accounts.
