December 5, 2017

Aetna Reports Q3 2014 Results

Hartford, CT – Aetna (NYSE: AET) announced third-quarter 2014 operating earnings of $638.6 million, or $1.79 per share, a per-share increase of 11 percent over the third quarter of 2013. Net income for the third quarter of 2014 was $594.5 million, or $1.67 per share.

“Aetna reported solid third-quarter results, including our 10th consecutive quarter of membership growth, record quarterly operating revenues, and continued high single-digit pretax operating margin,” said Mark T. Bertolini, Aetna chairman, CEO and president. “These results are a testament to the power of our strategy and the strength of our diversified business portfolio.

“We remain confident in our ability to execute our business strategy and in our ability to produce strong overall business performance. Based on our year-to-date results, we are again raising our projection for full-year 2014 operating earnings per share to a range of $6.60 to $6.70 from our previous projection of $6.45 to $6.60 per share.”

“We are pleased with the strength of our third-quarter operating results, including excellent performance in our Government business, which now represents more than 40 percent of our health premiums,” said Shawn M. Guertin, Aetna executive vice president and CFO. “Additionally, we continue to make progress on the integration of Coventry, and now project 2014 operating earnings accretion of $0.60 per share, at the high end of our previous $0.55 to $0.60 range.”

Total company results

  • Operating earnings were $638.6 million for the third quarter of 2014 compared with $604.3 million for the third quarter of 2013. The increase in operating earnings is primarily due to higher underwriting margins in Aetna’s Health Care and Group Insurance businesses partially offset by increased investment spend to support growth, primarily in Aetna’s Government business.
  • Operating revenues for the third quarter of 2014 were $14.7 billion compared with $13.0 billion for the third quarter of 2013. The 13 percent increase in operating revenues is primarily the result of membership growth in Aetna’s Health Care businesses and the effects of pricing actions designed to recover the fees and taxes mandated by health care reform. Total revenue was $14.7 billion and $13.0 billion for the third quarters of 2014 and 2013, respectively.
  • Operating expenses were $2.7 billion for the third quarter of 2014. The operating expense ratio was 18.2 percent and 17.3 percent for the third quarters of 2014 and 2013, respectively. The operating expense ratio increased primarily as a result of the inclusion of fees mandated by health care reform and increased investment spend to support growth, primarily in Aetna’s Government business, partially offset by improvement from the operating revenue growth described above and continued execution of Aetna’s expense initiatives, including execution on the Coventry-related cost synergies. The total company expense ratio was 18.4 percent and 17.7 percent for the third quarters of 2014 and 2013, respectively.
  • Pretax operating margin was 7.8 percent for the third quarter of 2014 compared with 7.9 percent for the third quarter of 2013. Pretax operating margins were relatively flat as a higher percentage of Aetna’s 2014 operating revenue was derived from the lower margin Government business and 2014 public exchange membership, partially offset by pricing actions designed to recover the income tax effects of the non-deductible health insurer fee mandated by health care reform. For both the third quarters of 2014 and 2013, the after-tax net income margin was 4.0 percent.
  • Effective tax rate for the third quarter of 2014 was 40 percent compared with 36 percent for the third quarter of 2013. The increase in the effective tax rate is primarily driven by the non-deductibility of the health insurer fee mandated by health care reform.
  • Share repurchases totaled 3.2 million shares at a cost of $255 million for the third quarter of 2014.

Health Care business results
Health Care, which provides a full range of insured and self-insured medical, pharmacy, dental and behavioral health products and services, reported:

  • Operating earnings of $625.6 million for the third quarter of 2014 compared with $627.5 million for the third quarter of 2013. Operating earnings were relatively flat in the third quarter of 2014 when compared to the third quarter of 2013 primarily as a result of higher underwriting margins in both the Government and Commercial businesses more than offset by increased investment spend to support growth, primarily in the Government business.
  • Net income was $576.7 million for the third quarter of 2014 compared with $549.1 million for the third quarter of 2013.
  • Operating revenues of $14.0 billion for the third quarter of 2014 compared with $12.3 billion for the third quarter of 2013. The 14 percent increase is due primarily to membership growth in both of Aetna’s Government and Commercial businesses, as well as the effects of pricing actions designed to recover the fees and taxes mandated by health care reform. Total revenue was $14.0 billion and $12.3 billion for the third quarters of 2014 and 2013, respectively.
  • Sequentially, third-quarter 2014 medical membership increased by 470,000 due to growth in Aetna’s Commercial ASC and Government products.
  • In the third quarter of 2014, we experienced favorable development of prior-period health care cost estimates in each of our core products, primarily attributable to second quarter 2014 performance.
  • Prior-years’ health care costs payable estimates developed favorably by $549.2 million and $396.4 million during the first nine months of 2014 and 2013, respectively. The May 7, 2013, acquisition of Coventry significantly impacts the year-over-year comparability of prior years’ development. This development is reported on a basis consistent with the prior years’ development reported in the health care costs payable table in Aetna’s annual audited financial statements and does not directly correspond to an increase in 2014 operating results.

The complete earnings release is available here: Aetna Q3 2014 Results (PDF)

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