Aetna to Announce Second-Quarter 2018 Results
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Statements of Income Before Income Taxes Attributable to |
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Health Care | |||||||||||||||||||||||||
(Millions) | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | Full Year 2017 | ||||||||||||||||||||
Revenue: | |||||||||||||||||||||||||
Premiums | $ | 13,240 | $ | 13,242 | $ | 12,730 | $ | 12,890 | $ | 52,102 | |||||||||||||||
Fees and other revenue | 1,448 | 1,458 | 1,416 | 1,428 | 5,750 | ||||||||||||||||||||
Net investment income | 117 | 114 | 113 | 138 | 482 | ||||||||||||||||||||
Net realized capital gains | 1 | 7 | 26 | 21 | 55 | ||||||||||||||||||||
Total revenue | 14,806 | 14,821 | 14,285 | 14,477 | 58,389 | ||||||||||||||||||||
Benefits and expenses: | |||||||||||||||||||||||||
Benefit costs | 10,928 | 10,591 | 10,423 | 10,862 | 42,804 | ||||||||||||||||||||
Operating expenses | 2,625 | 2,472 | 2,521 | 2,934 | 10,552 | ||||||||||||||||||||
Amortization of other acquired intangible assets | 60 | 58 | 58 | 96 | 272 | ||||||||||||||||||||
Total benefits and expenses | 13,613 | 13,121 | 13,002 | 13,892 | 53,628 | ||||||||||||||||||||
Income before income taxes including non-controlling interests | 1,193 | 1,700 | 1,283 | 585 | 4,761 | ||||||||||||||||||||
Less: Income (loss) before income taxes attributable to non-controlling interests | 2 | (23 | ) | 14 | (4 | ) | (11 | ) | |||||||||||||||||
Income before income taxes attributable to |
$ | 1,191 | $ | 1,723 | $ | 1,269 | $ | 589 | $ | 4,772 | |||||||||||||||
Reconciliation of the Most Directly Comparable GAAP Measure to Certain Reported Amounts | |||||||||||||||||||||||||
(Millions) | Health Care | ||||||||||||||||||||||||
Reconciliation of total revenue to adjusted revenue | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | Full Year 2017 | ||||||||||||||||||||
Total revenue (GAAP measure) | $ | 14,806 | $ | 14,821 | $ | 14,285 | $ | 14,477 | $ | 58,389 | |||||||||||||||
Net realized capital gains | (1 | ) | (7 | ) | (26 | ) | (21 | ) | (55 | ) | |||||||||||||||
Adjusted revenue(2) (excludes net realized capital gains) | $ | 14,805 | $ | 14,814 | $ | 14,259 | $ | 14,456 | $ | 58,334 | |||||||||||||||
Reconciliation of income before income taxes to pre-tax adjusted earnings | |||||||||||||||||||||||||
Income before income taxes (GAAP measure) | $ | 1,193 | $ | 1,700 | $ | 1,283 | $ | 585 | $ | 4,761 | |||||||||||||||
Less: Income (loss) before income taxes attributable to non-controlling interests (GAAP measure) | 2 | (23 | ) | 14 | (4 | ) | (11 | ) | |||||||||||||||||
Income before income taxes attributable to |
1,191 | 1,723 | 1,269 | 589 | 4,772 | ||||||||||||||||||||
Penn Treaty-related guaranty fund assessments | 231 | — | — | — | 231 | ||||||||||||||||||||
Amortization of other acquired intangible assets | 60 | 58 | 58 | 96 | 272 | ||||||||||||||||||||
Net realized capital gains | (1 | ) | (7 | ) | (26 | ) | (21 | ) | (55 | ) | |||||||||||||||
Pre-tax adjusted earnings(1) | $ | 1,481 | $ | 1,774 | $ | 1,301 | $ | 664 | $ | 5,220 | |||||||||||||||
Statements of Income Before Income Taxes Attributable to |
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Corporate/Other (3) | |||||||||||||||||||||||||
(Millions) | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | Full Year 2017 | ||||||||||||||||||||
Revenue: | |||||||||||||||||||||||||
Premiums | $ | 523 | $ | 533 | $ | 542 | $ | 194 | $ | 1,792 | |||||||||||||||
Fees and other revenue | 27 | 28 | 27 | 98 | 180 | ||||||||||||||||||||
Net investment income | 143 | 123 | 120 | 82 | 468 | ||||||||||||||||||||
Net realized capital (losses) gains | (334 | ) | 18 | 20 | 2 | (294 | ) | ||||||||||||||||||
Total revenue | 359 | 702 | 709 | 376 | 2,146 | ||||||||||||||||||||
Benefits and expenses: | |||||||||||||||||||||||||
Benefit costs | 533 | 525 | 537 | 229 | 1,824 | ||||||||||||||||||||
Operating expenses | 1,228 | 80 | 91 | 113 | 1,512 | ||||||||||||||||||||
Interest expense | 173 | 86 | 90 | 93 | 442 | ||||||||||||||||||||
Loss on early extinguishment of long-term debt | 246 | — | — | — | 246 | ||||||||||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | — | (109 | ) | — | — | (109 | ) | ||||||||||||||||||
Total benefits and expenses | 2,180 | 582 | 718 | 435 | 3,915 | ||||||||||||||||||||
(Loss) income before income taxes including non-controlling interests | (1,821 | ) | 120 | (9 | ) | (59 | ) | (1,769 | ) | ||||||||||||||||
Less: Income before income taxes attributable to non-controlling interests | 1 | — | — | — | 1 | ||||||||||||||||||||
(Loss) income before income taxes attributable to |
$ | (1,822 | ) | $ | 120 | $ | (9 | ) | $ | (59 | ) | $ | (1,770 | ) | |||||||||||
Reconciliation of the Most Directly Comparable GAAP Measure to Certain Reported Amounts | |||||||||||||||||||||||||
(Millions) | Corporate/Other (3) | ||||||||||||||||||||||||
Reconciliation of total revenue to adjusted revenue | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | Full Year 2017 | ||||||||||||||||||||
Total revenue (GAAP measure) | $ | 359 | $ | 702 | $ | 709 | $ | 376 | $ | 2,146 | |||||||||||||||
Gain related to sale of certain domestic group insurance businesses | — | — | — | (88 | ) | (88 | ) | ||||||||||||||||||
Interest income on proceeds of transaction-related debt | (11 | ) | — | — | — | (11 | ) | ||||||||||||||||||
Net realized capital losses (gains) | 334 | (18 | ) | (20 | ) | (2 | ) | 294 | |||||||||||||||||
Adjusted revenue(2) (excludes net realized capital losses (gains) and other items) | $ | 682 | $ | 684 | $ | 689 | $ | 286 | $ | 2,341 | |||||||||||||||
Reconciliation of income before income taxes to pre-tax adjusted loss | |||||||||||||||||||||||||
(Loss) income before income taxes (GAAP measure) | $ | (1,821 | ) | $ | 120 | $ | (9 | ) | $ | (59 | ) | $ | (1,769 | ) | |||||||||||
Less: Income before income taxes attributable to non-controlling interests (GAAP measure) | 1 | — | — | — | 1 | ||||||||||||||||||||
(Loss) income before income taxes attributable to |
(1,822 | ) | 120 | (9 | ) | (59 | ) | (1,770 | ) | ||||||||||||||||
Gain related to sale of certain domestic group insurance businesses | — | — | — | (88 | ) | (88 | ) | ||||||||||||||||||
Loss on early extinguishment of long-term debt | 246 | — | — | — | 246 | ||||||||||||||||||||
Transaction and integration-related costs | 1,212 | (10 | ) | — | 38 | 1,240 | |||||||||||||||||||
Restructuring costs | — | — | — | 60 | 60 | ||||||||||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | — | (109 | ) | — | — | (109 | ) | ||||||||||||||||||
Net realized capital losses (gains) | 334 | (18 | ) | (20 | ) | (2 | ) | 294 | |||||||||||||||||
Pre-tax adjusted loss(1) | $ | (30 | ) | $ | (17 | ) | $ | (29 | ) | $ | (51 | ) | $ | (127 | ) | ||||||||||
Statements of Income Before Income Taxes Attributable to |
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(Millions) | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | Full Year 2017 | ||||||||||||||||||||
Revenue: | |||||||||||||||||||||||||
Premiums | $ | 13,763 | $ | 13,775 | $ | 13,272 | $ | 13,084 | $ | 53,894 | |||||||||||||||
Fees and other revenue | 1,475 | 1,486 | 1,443 | 1,526 | 5,930 | ||||||||||||||||||||
Net investment income | 260 | 237 | 233 | 220 | 950 | ||||||||||||||||||||
Net realized capital (losses) gains | (333 | ) | 25 | 46 | 23 | (239 | ) | ||||||||||||||||||
Total revenue | 15,165 | 15,523 | 14,994 | 14,853 | 60,535 | ||||||||||||||||||||
Benefits and expenses: | |||||||||||||||||||||||||
Benefit costs | 11,461 | 11,116 | 10,960 | 11,091 | 44,628 | ||||||||||||||||||||
Operating expenses | 3,853 | 2,552 | 2,612 | 3,047 | 12,064 | ||||||||||||||||||||
Interest expense | 173 | 86 | 90 | 93 | 442 | ||||||||||||||||||||
Loss on early extinguishment of long-term debt | 246 | — | — | — | 246 | ||||||||||||||||||||
Amortization of other acquired intangible assets | 60 | 58 | 58 | 96 | 272 | ||||||||||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | — | (109 | ) | — | — | (109 | ) | ||||||||||||||||||
Total benefits and expenses | 15,793 | 13,703 | 13,720 | 14,327 | 57,543 | ||||||||||||||||||||
(Loss) income before income taxes including non-controlling interests | (628 | ) | 1,820 | 1,274 | 526 | 2,992 | |||||||||||||||||||
Less: Income (loss) before income taxes attributable to non-controlling interests | 3 | (23 | ) | 14 | (4 | ) | (10 | ) | |||||||||||||||||
(Loss) income before income taxes attributable to |
$ | (631 | ) | $ | 1,843 | $ | 1,260 | $ | 530 | $ | 3,002 | ||||||||||||||
Reconciliation of the Most Directly Comparable GAAP Measure to Certain Reported Amounts | |||||||||||||||||||||||||
(Millions) | |
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Reconciliation of total revenue to adjusted revenue | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | Full Year 2017 | ||||||||||||||||||||
Total revenue (GAAP measure) | $ | 15,165 | $ | 15,523 | $ | 14,994 | $ | 14,853 | $ | 60,535 | |||||||||||||||
Gain related to sale of certain domestic group insurance businesses | — | — | — | (88 | ) | (88 | ) | ||||||||||||||||||
Interest income on proceeds of transaction-related debt | (11 | ) | — | — | — | (11 | ) | ||||||||||||||||||
Net realized capital losses (gains) | 333 | (25 | ) | (46 | ) | (23 | ) | 239 | |||||||||||||||||
Adjusted revenue(2) (excludes net realized capital losses (gains) and other items) | $ | 15,487 | $ | 15,498 | $ | 14,948 | $ | 14,742 | $ | 60,675 | |||||||||||||||
Reconciliation of income before income taxes to pre-tax adjusted earnings | |||||||||||||||||||||||||
(Loss) income before income taxes (GAAP measure) | $ | (628 | ) | $ | 1,820 | $ | 1,274 | $ | 526 | $ | 2,992 | ||||||||||||||
Less: Income (loss) before income taxes attributable to non-controlling interests (GAAP measure) | 3 | (23 | ) | 14 | (4 | ) | (10 | ) | |||||||||||||||||
(Loss) income before income taxes attributable to |
(631 | ) | 1,843 | 1,260 | 530 | 3,002 | |||||||||||||||||||
Gain related to sale of certain domestic group insurance businesses | — | — | — | (88 | ) | (88 | ) | ||||||||||||||||||
Loss on early extinguishment of long-term debt | 246 | — | — | — | 246 | ||||||||||||||||||||
Penn Treaty-related guaranty fund assessments | 231 | — | — | — | 231 | ||||||||||||||||||||
Transaction and integration-related costs | 1,212 | (10 | ) | — | 38 | 1,240 | |||||||||||||||||||
Restructuring costs | — | — | — | 60 | 60 | ||||||||||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | — | (109 | ) | — | — | (109 | ) | ||||||||||||||||||
Amortization of other acquired intangible assets | 60 | 58 | 58 | 96 | 272 | ||||||||||||||||||||
Net realized capital losses (gains) | 333 | (25 | ) | (46 | ) | (23 | ) | 239 | |||||||||||||||||
Pre-tax adjusted earnings(1) | $ | 1,451 | $ | 1,757 | $ | 1,272 | $ | 613 | $ | 5,093 | |||||||||||||||
Health Care Medical Benefit Ratios | |||||||||||||||||||||||||
(Millions) | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | Full Year 2017 | ||||||||||||||||||||
Premiums (GAAP measure) | |||||||||||||||||||||||||
Commercial | $ | 6,129 | $ | 6,287 | $ | 6,063 | $ | 6,149 | $ | 24,628 | |||||||||||||||
Government | 7,111 | 6,955 | 6,667 | 6,741 | 27,474 | ||||||||||||||||||||
Health Care | $ | 13,240 | $ | 13,242 | $ | 12,730 | $ | 12,890 | $ | 52,102 | |||||||||||||||
Health Care Costs (GAAP measure) | |||||||||||||||||||||||||
Commercial | $ | 4,860 | $ | 4,938 | $ | 4,928 | $ | 5,277 | $ | 20,003 | |||||||||||||||
Government | 6,068 | 5,653 | 5,495 | 5,585 | 22,801 | ||||||||||||||||||||
Health Care | $ | 10,928 | $ | 10,591 | $ | 10,423 | $ | 10,862 | $ | 42,804 | |||||||||||||||
Medical Benefit Ratios "MBRs" | |||||||||||||||||||||||||
Commercial | 79.3 | % | 78.5 | % | 81.3 | % | 85.8 | % | 81.2 | % | |||||||||||||||
Government | 85.3 | % | 81.3 | % | 82.4 | % | 82.9 | % | 83.0 | % | |||||||||||||||
Health Care | 82.5 | % | 80.0 | % | 81.9 | % | 84.3 | % | 82.2 | % | |||||||||||||||
Footnotes
(1) Non-GAAP financial measures such as pre-tax adjusted earnings (loss) and adjusted revenue exclude from the relevant GAAP metrics, as applicable:
- Amortization of other acquired intangible assets;
- Net realized capital gains or losses; and
- Other items, if any, that neither relate to the ordinary course of
Aetna 's business nor reflectAetna 's underlying business performance.
Although the excluded items may recur, management believes that non-GAAP financial measures
For the periods covered in this press release, the following items are excluded from the non-GAAP financial measures described above, as applicable, because
- During the three months ended
December 31, 2017 ,Aetna sold its domestic group life insurance, group disability insurance and absence management businesses (the "Group Insurance sale"). The transaction was accomplished through an indemnity reinsurance arrangement. A significant portion of the gain has been deferred and will be amortized into earnings: (a) over the remaining contract period (estimated to be approximately 3 years) in proportion to the amount of insurance protection provided for the prospective reinsurance portion of the gain and (b) asAetna recovers amounts due from the buyer over a period estimated to be approximately 30 years for the retrospective reinsurance portion of the gain. The gain recognized does not directly relate to the underwriting or servicing of products for customers and is not directly related to the core performance ofAetna 's business operations. - During the three months ended
March 31, 2017 ,Aetna incurred losses on the early extinguishment of long-term debt due to (a) the mandatory redemption of$10.2 billion aggregate principal amount of certain of its senior notes issued inJune 2016 (collectively, the "SMR Notes") following the termination of the definitive agreement (the "Humana Merger Agreement") to acquire Humana Inc. ("Humana") and (b) the early redemption of$750 million aggregate principal amount of its outstanding senior notes due 2020. - During the three months ended
March 31, 2017 ,Aetna recorded an expense for estimated future guaranty fund assessments related toPenn Treaty Network America Insurance Company and one of its subsidiaries (collectively, "Penn Treaty"), which was placed in rehabilitation in 2009 and placed in liquidation inMarch 2017 . This expense does not directly relate to the underwriting or servicing of products for customers and is not directly related to the core performance ofAetna 's business operations. -
Aetna recorded transaction and integration-related costs during the year endedDecember 31, 2017 primarily related to its proposed acquisition by CVS Health and its proposed acquisition of Humana (the "Humana Transaction"). Transaction costs include costs associated with the transactions contemplated by the merger agreement under which CVS Health Corporation has agreed to acquire all ofAetna 's outstanding stock, the termination of the Humana Merger Agreement, the termination ofAetna 's agreement to sell certain assets to Molina Healthcare, Inc. and advisory, legal and other professional fees which are reflected inAetna 's GAAP Consolidated Statements of Income in general and administrative expenses. Transaction costs also include the negative cost of carry associated with the debt financing thatAetna obtained inJune 2016 for the Humana Transaction. Prior to the mandatory redemption of the SMR Notes, the negative cost of carry associated with these senior notes was excluded from pre-tax adjusted earnings. The negative cost of carry associated with the$2.8 billion aggregate principal amount ofAetna 's senior notes issued inJune 2016 that are not subject to mandatory redemption (the "Other 2016 Senior Notes") was excluded from pre-tax adjusted earnings through the date of the termination of the Humana Merger Agreement. The components of the negative cost of carry are reflected inAetna 's GAAP Consolidated Statements of Income in interest expense and net investment income. Subsequent to the termination of the Humana Merger Agreement, the interest expense and net investment income associated with the Other 2016 Senior Notes were no longer excluded from pre-tax adjusted earnings. - Restructuring costs for the three months ended
December 31, 2017 include severance costs associated withAetna 's expense management and cost control initiatives. The restructuring costs are reflected inAetna 's GAAP Consolidated Statements of Income in general and administrative expenses. - In 1993,
Aetna discontinued the sale of fully guaranteed large case pensions products and established a reserve for anticipated future losses on these products, whichAetna reviews quarterly. During the three months endedJune 30, 2017 ,Aetna reduced the reserve for anticipated future losses on discontinued products.Aetna believes excluding any changes in the reserve for anticipated future losses on discontinued products from pre-tax adjusted earnings provides more useful information as toAetna 's continuing products and is consistent with the treatment of the operating results of these discontinued products, which are credited or charged to the reserve and do not affectAetna 's operating results. - Other acquired intangible assets relate to
Aetna 's acquisition activities and are amortized over their useful lives. However, this amortization does not directly relate to the underwriting or servicing of products for customers and is not directly related to the core performance ofAetna 's business operations. - 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.
For a reconciliation of financial measures calculated under GAAP to these items, refer to the tables on pages 3 through 5 of this press release.
(2) Adjusted revenue excludes net realized capital gains and losses, gain related to the
(3)
- Products for which
Aetna no longer solicits or accepts new customers such as its large case pensions and long-term care products; - Contracts
Aetna has divested through reinsurance or other contracts, such as its domestic group life insurance, group disability insurance and absence management businesses; and - Corporate expenses not supporting Aetna’s business operations, including transaction and integration-related costs, income taxes, interest expense on its outstanding debt and the financing components of its pension and other postretirement employee benefit plans expense.
As described in (1) above, the pre-tax adjusted earnings of the Corporate/Other category exclude other items, if any, that neither relate to the ordinary course of
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