CIGNA Corporation (CI)
Q4 2008 Earnings Call Transcript
February 5, 2009 8:30 a.m. ET

Executives

Ted Detrick – Vice President, Investor Relations
Edward Hanway - Chairman and Chief Executive Officer
David Cordani - President and Chief Operating Officer
Michael Bell – Executive Vice President and Chief Financial Officer

Analysts

Matthew Borsch - Goldman Sachs
Joshua Raskin - Barclays Capital
John Rex - JPMorgan
Justin Lake - UBS
Greg Nersessian - Credit Suisse
Ana Gupte - Sanford C. Bernstein & Co.
Charles Boorady - Citigroup
Scott Fidel - Deutsche Bank
Peter Costa - FTN Equity Capital Markets
Carl McDonald – Oppenheimer & Co.
Michael Baker - Raymond James & Associates

Presentation

Operator

Ladies and gentlemen, thank you for standing by for CIGNA''s fourth quarter 2008 results review. At this time, all callers are in a listen-only mode. We will conduct a question-and-answer session later during the conference and review procedures on how to enter the queue to ask questions at that time. If you should require assistance during the call, please press “*0” on your touchtone phone. As a reminder, ladies and gentlemen, this conference, including the Q&A session, is being recorded.

We will begin by turning the conference over to Mr. Ted Detrick. Please go ahead, Mr. Detrick.

Ted Detrick

Good morning, everyone, and thank you for joining today''s call. I am Ted Detrick, Vice President of Investor Relations, and with me this morning are Ed Hanway, CIGNA''s Chairman and CEO; David Cordani, President and Chief Operating Officer, and Mike Bell, CIGNA''s Chief Financial Officer.

In our remarks today, Ed will begin by briefly commenting on CIGNA''s 2008 results and 2009 outlook. David will provide his perspective on the outlook for CIGNA''s ongoing businesses. He will also discuss our medical membership results and outlook, and provide a current assessment of the healthcare marketplace. Mike will then review the financial details for 2008 and provide the specifics for the 2009 financial outlook. They will make some concluding remarks and then we will open the lines for your questions.
Now, as noted in our earnings release, CIGNA uses certain financial measures, which are not determined in accordance with Generally Accepted Accounting Principles or GAAP, when describing its financial results. Specifically, we use the term labeled ""adjusted income from operations"" as the principle measure of performance for CIGNA in our operating segments. Adjusted income from operations is defined as income from continuing operations, excluding realized investment results, special items and the results of our guaranteed minimum income benefits business and a reconciliation of adjusted income from operations to income from continuing operations, which is the most directly comparable GAAP measure, is contained in today''s earnings release, which was filed this morning on Form 8-K with the Securities and Exchange Commission and is posted in the Investor Relations section of CIGNA.com.

Now, in our remarks today, we will be making some forward-looking comments. We would remind you that there are risk factors that could cause actual results to differ materially from our current expectations and those risk factors are discussed in today''s earnings release.

Now, before I turn the call over to Ed, I will cover a few items pertaining to our fourth quarter and full-year 2008 results and disclosures.

Our fourth quarter results included an after-tax charge of $35 million related to CIGNA''s cost reduction initiative. This charge is reported as a special item and therefore, is excluded from adjusted income from operations in today''s discussion of our 2008 results.

As a reminder, in an effort to improve the quality and transparency regarding our investment asset disclosures, we again provide this quarter additional information about our bond and commercial mortgage portfolios in the quarterly statistical supplement, which is posted in the Investor Relations section of CIGNA.com.

Now, regarding our run-off operations, I would note that CIGNA''s 2008 net income included after-tax losses of $437 million, or $1.58 per share related to the Guaranteed Minimum Income Benefits business, otherwise known as GMIB. Now, remember that CIGNA adopted Financial Accounting Standards No. 157 in the first quarter of 2008, which impacts the measurement of fair value of the assets and liabilities of our GMIB business. I would also remind you that the impact of statement 157 reporting for our GMIB results is for GAAP accounting purposes only. We believe that the implementation and perspective application of this statement would not represent management''s expectation of the ultimate liability payout. Instead, management believes that a more relevant measure of GMIB results is its impact on statutory capital. In a few moments, Mike Bell will provide an update on our capital management outlook, which will include the impact from losses in our run-off reinsurance business, including GMIB.

Now, because of statement 157, CIGNA’s future results for the GMIB business will become more volatile, as any future change in the exit value of GMIB''s asset and liabilities will be reported in net income.

CIGNA''s 2009 earnings outlook, which Mike will discuss in a few moments, excludes the results of the GMIB business, and therefore, any potential volatility related to the perspective application of statement 157.

And with that, I am going to turn it over to Ed.