Date of Report (Date of earliest event reported): | October 29, 2013 |
Pennsylvania | 1-16095 | 23-2229683 |
(State or other jurisdiction of | (Commission | (IRS Employer |
incorporation) | File Number) | Identification No.) |
151 Farmington Avenue, Hartford, CT | 06156 |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: | (860) 273-0123 |
Former name or former address, if changed since last report: | N/A |
99.1 | Press release of Aetna Inc. dated October 29, 2013 announcing results for the quarter ended September 30, 2013. |
Aetna Inc. |
Date: October 29, 2013 | By: | /s/ Rajan Parmeswar |
Name: Rajan Parmeswar | ||
Title: Vice President, Controller and Chief Accounting Officer |
Exhibit Number | Description |
Exhibit 99.1 | Press release of Aetna Inc. dated October 29, 2013 announcing results for the quarter ended September 30, 2013. |
151 Farmington Avenue Hartford, Conn. 06156 | Media Contact: Cynthia Michener 860-273-8553 michenerc@aetna.com | |
Investor Contact: Tom Cowhey 860-273-2402 cowheyt@aetna.com | ||
• | Third-quarter 2013 operating earnings per share (1) were $1.50 |
• | Net income (2) per share was $1.38 |
• | Medical membership of 22.2 million at September 30, 2013, a 22 percent increase over the corresponding period in 2012 |
• | Operating revenue (3) of $13.0 billion for the third quarter of 2013, a 46 percent increase over the corresponding period in 2012 |
• | Aetna reaffirms full-year 2013 operating earnings per share projection of $5.80 to $5.90 (4) |
Third-Quarter Financial Results at a Glance | ||||||||
(Millions, except per share results) | 2013 | 2012 | Change | |||||
Operating revenue (3) | $ | 12,994.2 | $ | 8,900.0 | 46 | % | ||
Total revenue | 13,035.6 | 8,917.3 | 46 | % | ||||
Operating earnings (1) | 561.8 | 523.2 | 7 | % | ||||
Net income (2) | 518.6 | 499.2 | 4 | % | ||||
Per share results: | ||||||||
Operating earnings (1) | $ | 1.50 | $ | 1.55 | (3 | )% | ||
Net income (2) | 1.38 | 1.47 | (6 | )% | ||||
Weighted average common shares - diluted | 375.2 | 338.6 |
• | Operating earnings (1) were $561.8 million for the third quarter of 2013 compared with $523.2 million for the third quarter of 2012. Operating earnings were 7 percent higher in the third quarter of 2013 due to the inclusion of results from the acquisition of Coventry partially offset by lower underwriting margins primarily in our underlying Medicare and Group Life businesses. |
• | Operating revenues (3) for the third quarter of 2013 were $13.0 billion compared with $8.9 billion for the third quarter of 2012. The 46 percent increase is primarily the result of higher Commercial, Medicare and Medicaid Health Care premiums from the acquisition of Coventry as well as growth in our underlying Medicare membership. Total revenue was $13.0 billion and $8.9 billion for the third quarters of 2013 and 2012, respectively. |
• | Operating Expenses (1) were $2.3 billion for the third quarter of 2013. The operating expense ratio (5) was 17.3 percent and 18.3 percent for the third quarters of 2013 and 2012, respectively. The improvement in the operating expense ratio is primarily driven by operating revenue growth and continued execution of our expense initiatives, including execution on our Coventry-related cost synergies. The total company expense ratio was 17.7 percent and 18.4 percent for the third quarters of 2013 and 2012, respectively. |
• | Pre-tax Operating Margin (6) was 7.9 percent for the third quarter of 2013 compared with 10.2 percent for the third quarter of 2012 primarily due to lower underwriting margins in our underlying Medicare business. For the third quarter of 2013, the after-tax net income margin was 4.0 percent compared to 5.6 percent for 2012. |
• | Outstanding Shares were 367.5 million and 334.5 million as of September 30, 2013 and 2012, respectively. Share repurchases in the third quarter of 2013 totaled 5.2 million shares at a cost of $333 million. |
• | Operating earnings (1) of $585.8 million for the third quarter of 2013 compared with $531.8 million for the third quarter of 2012. Operating earnings were 10 percent higher in the third quarter of 2013 due to the acquisition of Coventry partially offset by lower underwriting margins primarily in our underlying Medicare business. |
• | Net income (2) was $549.1 million for the third quarter of 2013 compared with $532.3 million for the third quarter of 2012. |
• | Operating revenues (3) of $12.3 billion for the third quarter of 2013 compared with $8.2 billion for the third quarter of 2012. The 49 percent increase is due primarily to the inclusion of Coventry revenue as well as growth in our underlying Medicare membership. Total revenue for the third quarter of 2013 was $12.3 billion compared with $8.3 billion for the third quarter of 2012. |
• | Sequentially, third-quarter 2013 medical membership increased by 184 thousand due to growth across our Health Care businesses, primarily in Commercial as well as Medicare Supplement. |
• | Medical benefit ratios (MBRs) for the three and nine months ended September 30, 2013 and 2012 were as follows: |
Three Months Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||
Commercial | 80.5 | % | 79.6 | % | 79.5 | % | 80.4 | % | |||
Medicare | 87.8 | % | 82.5 | % | 88.2 | % | 83.3 | % | |||
Medicaid | 84.9 | % | 87.6 | % | 86.0 | % | 89.6 | % | |||
Health Care | 83.1 | % | 80.7 | % | 82.6 | % | 81.5 | % | |||
• | Prior-years' health care costs payable estimates have developed favorably by $396.4 million and $145.0 million during the first nine months of 2013 and 2012, respectively. This development does not directly correspond to an increase in our operating results for the nine months ended September 30, 2013. The development is reported on a basis consistent with the prior years' development reported in the health care costs payable tables in our annual audited financial statements. |
• | Operating earnings (1) of $19.7 million for the third quarter of 2013 compared with $29.3 million for the third quarter of 2012 primarily reflecting lower underwriting margins in our Group Life products due to higher claim incidence, partially offset by higher underwriting margins in our Disability products. |
• | Net income (2) of $17.2 million for the third quarter of 2013 compared with $33.2 million for the third quarter of 2012. |
• | Operating revenues (3) of $577.7 million for the third quarter of 2013, a 9 percent increase over $531.2 million for the third quarter of 2012. Total revenue was $573.7 million in the third quarter of 2013 and $537.1 million in the third quarter of 2012. |
• | Operating earnings (1) of $6.2 million for the third quarter of 2013 compared with $3.7 million for the third quarter of 2012. |
• | Net income (2) of $2.4 million for the third quarter of 2013 compared with $.8 million for the third quarter of 2012. |
• | Operating revenues (3) of $113.7 million for the third quarter of 2013 compared with $124.3 million for the third quarter of 2012. Total revenue, which includes net realized capital losses, was $162.1 million in the third quarter of 2013 compared with $119.8 million in the third quarter of 2012. Third-quarter 2013 total revenue also includes $54.1 million of group annuity conversion premium related to the conversion of an existing Large Case Pensions group annuity contract from a participating to a non-participating contract. That revenue is offset by an equivalent benefit expense associated with that contract conversion. |
Consolidated Statements of Income | |||||||||||||||
For the Three Months | For the Nine Months | ||||||||||||||
Ended September 30, | Ended September 30, | ||||||||||||||
(Millions) | 2013 | 2012 | 2013 | 2012 | |||||||||||
Revenue: | |||||||||||||||
Health care premiums | $ | 11,025.2 | $ | 7,246.8 | $ | 28,512.3 | $ | 21,602.1 | |||||||
Other premiums | 525.9 | 482.1 | 1,561.5 | 1,427.2 | |||||||||||
Group annuity contract conversion premium | 54.1 | — | 54.1 | — | |||||||||||
Fees and other revenue | 1,233.1 | 954.9 | 3,326.1 | 2,881.7 | |||||||||||
Net investment income | 210.0 | 216.2 | 670.1 | 681.6 | |||||||||||
Net realized capital (losses) gains | (12.7 | ) | 17.3 | (12.2 | ) | 77.6 | |||||||||
Total revenue | 13,035.6 | 8,917.3 | 34,111.9 | 26,670.2 | |||||||||||
Benefits and expenses: | |||||||||||||||
Health care costs | 9,161.9 | 5,847.7 | 23,548.3 | 17,613.5 | |||||||||||
Current and future benefits | 557.0 | 517.3 | 1,655.4 | 1,512.5 | |||||||||||
Benefit expense on group annuity contract conversion | 54.1 | — | 54.1 | — | |||||||||||
Operating expenses: | |||||||||||||||
Selling expenses | 353.9 | 272.8 | 983.3 | 820.5 | |||||||||||
General and administrative expenses | 1,950.6 | 1,366.8 | 5,154.8 | 4,131.5 | |||||||||||
Total operating expenses | 2,304.5 | 1,639.6 | 6,138.1 | 4,952.0 | |||||||||||
Interest expense | 86.1 | 68.5 | 247.4 | 192.2 | |||||||||||
Amortization of other acquired intangible assets | 65.3 | 34.1 | 149.5 | 108.9 | |||||||||||
Reduction of reserve for anticipated future losses on | |||||||||||||||
discontinued products | — | — | (86.0 | ) | — | ||||||||||
Loss on early extinguishment of long-term debt | — | 35.4 | — | 35.4 | |||||||||||
Total benefits and expenses | 12,228.9 | 8,142.6 | 31,706.8 | 24,414.5 | |||||||||||
Income before income taxes | 806.7 | 774.7 | 2,405.1 | 2,255.7 | |||||||||||
Income taxes | 287.7 | 275.1 | 862.0 | 786.5 | |||||||||||
Net income including non-controlling interests | 519.0 | 499.6 | 1,543.1 | 1,469.2 | |||||||||||
Less: Net income (loss) attributable to non-controlling interests | .4 | .4 | (1.6 | ) | 1.4 | ||||||||||
Net income attributable to Aetna | $ | 518.6 | $ | 499.2 | $ | 1,544.7 | $ | 1,467.8 | |||||||
Summary of Results | |||||||||||||||
For the Three Months | For the Nine Months | ||||||||||||||
Ended September 30, | Ended September 30, | ||||||||||||||
(Millions) | 2013 | 2012 | 2013 | 2012 | |||||||||||
Operating earnings (1) | $ | 561.8 | $ | 523.2 | $ | 1,606.2 | $ | 1,452.6 | |||||||
Transaction and integration-related costs, net of tax | (34.6 | ) | (12.5 | ) | (140.6 | ) | (12.5 | ) | |||||||
Reduction of reserve for anticipated future losses on | |||||||||||||||
discontinued products, net of tax | — | — | 55.9 | — | |||||||||||
Reversal of allowance and gain on sale of reinsurance | |||||||||||||||
recoverable, net of tax | — | — | 32.1 | — | |||||||||||
Loss on early extinguishment of long-term debt, net of tax | — | (23.0 | ) | — | (23.0 | ) | |||||||||
Net realized capital (losses) gains, net of tax | (8.6 | ) | 11.5 | (8.9 | ) | 50.7 | |||||||||
Net income (2) (GAAP measure) | $ | 518.6 | $ | 499.2 | $ | 1,544.7 | $ | 1,467.8 | |||||||
Weighted average common shares - basic | 371.1 | 334.8 | 351.8 | 342.2 | |||||||||||
Weighted average common shares - diluted | 375.2 | 338.6 | 355.5 | 347.2 | |||||||||||
Per Common Share | |||||||||||||||
Operating earnings (1) | $ | 1.50 | $ | 1.55 | $ | 4.52 | $ | 4.18 | |||||||
Transaction and integration-related costs, net of tax | (.09 | ) | (.04 | ) | (.40 | ) | (.03 | ) | |||||||
Reduction of reserve for anticipated future losses on | |||||||||||||||
discontinued products, net of tax | — | — | .16 | — | |||||||||||
Reversal of allowance and gain on sale of reinsurance | |||||||||||||||
recoverable, net of tax | — | — | .09 | — | |||||||||||
Loss on early extinguishment of long-term debt, net of tax | — | (.07 | ) | — | (.07 | ) | |||||||||
Net realized capital (losses) gains, net of tax | (.03 | ) | .03 | (.02 | ) | .15 | |||||||||
Net income (2) (GAAP measure) | $ | 1.38 | $ | 1.47 | $ | 4.35 | $ | 4.23 |
Segment Information (7) | |||||||||||||||
For the Three Months | For the Nine Months | ||||||||||||||
Ended September 30, | Ended September 30, | ||||||||||||||
(Millions) | 2013 | 2012 | 2013 | 2012 | |||||||||||
Health Care: | |||||||||||||||
Operating revenue (3) (excludes net realized capital (losses) gains | |||||||||||||||
and an other item) | $ | 12,302.8 | $ | 8,244.5 | $ | 31,968.2 | $ | 24,629.0 | |||||||
Interest income on proceeds of transaction-related debt | — | — | 2.5 | — | |||||||||||
Net realized capital (losses) gains | (3.0 | ) | 15.9 | (.5 | ) | 63.2 | |||||||||
Total revenue (GAAP measure) | $ | 12,299.8 | $ | 8,260.4 | $ | 31,970.2 | $ | 24,692.2 | |||||||
Commercial Medical Benefit Ratio: | |||||||||||||||
Premiums | $ | 6,553.6 | $ | 5,266.2 | $ | 17,835.6 | $ | 15,645.9 | |||||||
Health care costs | $ | 5,272.9 | $ | 4,190.0 | $ | 14,185.5 | $ | 12,574.9 | |||||||
Commercial MBR (GAAP measure) | 80.5 | % | 79.6 | % | 79.5 | % | 80.4 | % | |||||||
Medicare Medical Benefit Ratio: | |||||||||||||||
Premiums | $ | 3,220.4 | $ | 1,525.4 | $ | 8,114.9 | $ | 4,731.3 | |||||||
Health care costs | $ | 2,826.9 | $ | 1,259.0 | $ | 7,158.9 | $ | 3,940.9 | |||||||
Medicare MBR (GAAP measure) | 87.8 | % | 82.5 | % | 88.2 | % | 83.3 | % | |||||||
Medicaid Medical Benefit Ratio: | |||||||||||||||
Premiums | $ | 1,251.2 | $ | 455.2 | $ | 2,561.8 | $ | 1,224.9 | |||||||
Health care costs | $ | 1,062.1 | $ | 398.7 | $ | 2,203.9 | $ | 1,097.7 | |||||||
Medicaid MBR (GAAP measure) | 84.9 | % | 87.6 | % | 86.0 | % | 89.6 | % | |||||||
Total Medical Benefit Ratio: | |||||||||||||||
Premiums | $ | 11,025.2 | $ | 7,246.8 | $ | 28,512.3 | $ | 21,602.1 | |||||||
Health care costs | $ | 9,161.9 | $ | 5,847.7 | $ | 23,548.3 | $ | 17,613.5 | |||||||
Total MBR (GAAP measure) | 83.1 | % | 80.7 | % | 82.6 | % | 81.5 | % | |||||||
Operating earnings (1) | $ | 585.8 | $ | 531.8 | $ | 1,637.8 | $ | 1,444.2 | |||||||
Transaction and integration-related costs, net of tax | (34.4 | ) | (10.0 | ) | (126.4 | ) | (10.0 | ) | |||||||
Net realized capital (losses) gains, net of tax | (2.3 | ) | 10.5 | (1.3 | ) | 41.3 | |||||||||
Net income (2) (GAAP measure) | $ | 549.1 | $ | 532.3 | $ | 1,510.1 | $ | 1,475.5 | |||||||
Segment Information continued (7) | |||||||||||||||
For the Three Months | For the Nine Months | ||||||||||||||
Ended September 30, | Ended September 30, | ||||||||||||||
(Millions) | 2013 | 2012 | 2013 | 2012 | |||||||||||
Group Insurance: | |||||||||||||||
Operating revenue (3) (excludes net realized | |||||||||||||||
capital (losses) gains and an other item) | $ | 577.7 | $ | 531.2 | $ | 1,741.4 | $ | 1,589.6 | |||||||
Gain on sale of reinsurance recoverable | — | — | 7.2 | — | |||||||||||
Net realized capital (losses) gains | (4.0 | ) | 5.9 | (1.0 | ) | 16.1 | |||||||||
Total revenue (GAAP measure) | $ | 573.7 | $ | 537.1 | $ | 1,747.6 | $ | 1,605.7 | |||||||
Operating earnings (1) | $ | 19.7 | $ | 29.3 | $ | 80.8 | $ | 116.2 | |||||||
Reversal of allowance and gain on sale of reinsurance recoverable | — | — | 32.1 | — | |||||||||||
Net realized capital (losses) gains | (2.5 | ) | 3.9 | (.6 | ) | 10.5 | |||||||||
Net income (2) (GAAP measure) | $ | 17.2 | $ | 33.2 | $ | 112.3 | $ | 126.7 | |||||||
Large Case Pensions: | |||||||||||||||
Operating revenue (3) (excludes net realized | |||||||||||||||
capital losses and an other item) | $ | 113.7 | $ | 124.3 | $ | 350.7 | $ | 374.0 | |||||||
Group annuity contract conversion premium | 54.1 | — | 54.1 | — | |||||||||||
Net realized capital losses | (5.7 | ) | (4.5 | ) | (10.7 | ) | (1.7 | ) | |||||||
Total revenue (GAAP measure) | $ | 162.1 | $ | 119.8 | $ | 394.1 | $ | 372.3 | |||||||
Operating earnings (1) | $ | 6.2 | $ | 3.7 | $ | 16.2 | $ | 13.4 | |||||||
Reduction of reserve for anticipated future losses on | |||||||||||||||
discontinued products | — | — | 55.9 | — | |||||||||||
Net realized capital losses | (3.8 | ) | (2.9 | ) | (7.0 | ) | (1.1 | ) | |||||||
Net income (2) (GAAP measure) | $ | 2.4 | $ | .8 | $ | 65.1 | $ | 12.3 | |||||||
Corporate Financing: (8) | |||||||||||||||
Operating loss (1) | $ | (49.9 | ) | $ | (41.6 | ) | $ | (128.6 | ) | $ | (121.2 | ) | |||
Transaction and integration-related costs | (.2 | ) | (2.5 | ) | (14.2 | ) | (2.5 | ) | |||||||
Loss on early extinguishment of long-term debt, net of tax | — | (23.0 | ) | — | (23.0 | ) | |||||||||
Net loss (GAAP measure) | $ | (50.1 | ) | $ | (67.1 | ) | $ | (142.8 | ) | $ | (146.7 | ) | |||
Total Company: | |||||||||||||||
Operating revenue (3) (excludes net realized capital (losses) gains | |||||||||||||||
and other items) (A) | $ | 12,994.2 | $ | 8,900.0 | $ | 34,060.3 | $ | 26,592.6 | |||||||
Group annuity contract conversion premium | 54.1 | — | 54.1 | — | |||||||||||
Interest income on proceeds of transaction-related debt | — | — | 2.5 | — | |||||||||||
Gain on sale of reinsurance recoverable | — | — | 7.2 | — | |||||||||||
Net realized capital (losses) gains | (12.7 | ) | 17.3 | (12.2 | ) | 77.6 | |||||||||
Total revenue (GAAP measure) (B) | $ | 13,035.6 | $ | 8,917.3 | $ | 34,111.9 | $ | 26,670.2 | |||||||
Operating expenses (C) | $ | 2,253.3 | $ | 1,629.6 | $ | 6,008.9 | $ | 4,942.0 | |||||||
Transaction and integration-related costs | 51.2 | 10.0 | 171.4 | 10.0 | |||||||||||
Reversal of allowance on reinsurance recoverable | — | — | (42.2 | ) | — | ||||||||||
Total operating expenses (GAAP measure) (D) | $ | 2,304.5 | $ | 1,639.6 | $ | 6,138.1 | $ | 4,952.0 | |||||||
Operating Expense Ratios: | |||||||||||||||
Operating expense ratio (C)/(A) | 17.3 | % | 18.3 | % | 17.6 | % | 18.6 | % | |||||||
Total company expense ratio (D)/(B) (GAAP measure) | 17.7 | % | 18.4 | % | 18.0 | % | 18.6 | % |
Membership | |||||||||||
September 30, | June 30, | December 31, | September 30, | ||||||||
(Thousands) | 2013 | 2013 | 2012 | 2012 | |||||||
Medical Membership: | |||||||||||
Commercial | 18,764 | 18,634 | 16,299 | 16,281 | |||||||
Medicare Advantage | 961 | 948 | 448 | 443 | |||||||
Medicare Supplement | 363 | 341 | 238 | 201 | |||||||
Medicaid | 2,064 | 2,045 | 1,257 | 1,253 | |||||||
Total Medical Membership | 22,152 | 21,968 | 18,242 | 18,178 | |||||||
Consumer-Directed Health Plans (9) | 3,307 | 3,253 | 2,550 | 2,562 | |||||||
Dental Membership: | |||||||||||
Total Dental Membership | 14,215 | 14,254 | 13,615 | 13,608 | |||||||
Pharmacy Benefit Management Membership: | |||||||||||
Commercial | 10,124 | 10,062 | 8,002 | 8,028 | |||||||
Medicare Prescription Drug Plan (stand-alone) | 2,139 | 2,084 | 479 | 479 | |||||||
Medicare Advantage Prescription Drug Plan | 582 | 572 | 203 | 201 | |||||||
Medicaid | 1,244 | 1,128 | 107 | 107 | |||||||
Total Pharmacy Benefit Management Services | 14,089 | 13,846 | 8,791 | 8,815 | |||||||
Operating Margins | |||||||||||||||
For the Three Months | For the Nine Months | ||||||||||||||
Ended September 30, | Ended September 30, | ||||||||||||||
(Millions) | 2013 | 2012 | 2013 | 2012 | |||||||||||
Reconciliation to Income Before Income Taxes: | |||||||||||||||
Operating earnings (1) before income taxes, excluding interest | |||||||||||||||
expense and amortization of other acquired intangible assets (A) | $ | 1,022.0 | $ | 905.4 | $ | 2,847.7 | $ | 2,524.6 | |||||||
Interest expense * | (86.1 | ) | (64.7 | ) | (226.7 | ) | (188.4 | ) | |||||||
Amortization of other acquired intangible assets | (65.3 | ) | (34.1 | ) | (149.5 | ) | (108.9 | ) | |||||||
Transaction and integration-related costs | (51.2 | ) | (13.8 | ) | (189.6 | ) | (13.8 | ) | |||||||
Reduction of reserve for anticipated future losses on | |||||||||||||||
discontinued products | — | — | 86.0 | — | |||||||||||
Reversal of allowance and gain on sale | |||||||||||||||
of reinsurance recoverable | — | — | 49.4 | — | |||||||||||
Loss on early extinguishment of long-term debt | — | (35.4 | ) | — | (35.4 | ) | |||||||||
Net realized capital (losses) gains | (12.7 | ) | 17.3 | (12.2 | ) | 77.6 | |||||||||
Income before income taxes (GAAP measure) | $ | 806.7 | $ | 774.7 | $ | 2,405.1 | $ | 2,255.7 | |||||||
Reconciliation to Net Income: | |||||||||||||||
Operating earnings,(1) excluding interest expense and | |||||||||||||||
amortization of other acquired intangible assets, net of tax | $ | 660.3 | $ | 587.5 | $ | 1,850.8 | $ | 1,645.9 | |||||||
Interest expense, net of tax * | (56.0 | ) | (42.1 | ) | (147.4 | ) | (122.5 | ) | |||||||
Amortization of other acquired intangible assets, net of tax | (42.5 | ) | (22.2 | ) | (97.2 | ) | (70.8 | ) | |||||||
Transaction and integration-related costs, net of tax | (34.6 | ) | (12.5 | ) | (140.6 | ) | (12.5 | ) | |||||||
Reduction of reserve for anticipated future losses on | |||||||||||||||
discontinued products, net of tax | — | — | 55.9 | — | |||||||||||
Reversal of allowance and gain on sale of reinsurance | |||||||||||||||
recoverable, net of tax | — | — | 32.1 | — | |||||||||||
Loss on early extinguishment of long-term debt, net of tax | — | (23.0 | ) | — | (23.0 | ) | |||||||||
Net realized capital (losses) gains, net of tax | (8.6 | ) | 11.5 | (8.9 | ) | 50.7 | |||||||||
Net income (2) (GAAP measure) (B) | $ | 518.6 | $ | 499.2 | $ | 1,544.7 | $ | 1,467.8 | |||||||
Reconciliation of Revenue: | |||||||||||||||
Operating revenue (3) (excludes net realized capital (losses) gains | |||||||||||||||
and other items) (C) | $ | 12,994.2 | $ | 8,900.0 | $ | 34,060.3 | $ | 26,592.6 | |||||||
Group annuity contract conversion premium | 54.1 | — | 54.1 | — | |||||||||||
Interest income on proceeds of transaction-related debt | — | — | 2.5 | — | |||||||||||
Gain on sale of reinsurance recoverable | — | — | 7.2 | — | |||||||||||
Net realized capital (losses) gains | (12.7 | ) | 17.3 | (12.2 | ) | 77.6 | |||||||||
Total revenue (GAAP measure) (D) | $ | 13,035.6 | $ | 8,917.3 | $ | 34,111.9 | $ | 26,670.2 | |||||||
Operating and Net Income Margins: | |||||||||||||||
Pretax operating margin (A)/(C) | 7.9 | % | 10.2 | % | 8.4 | % | 9.5 | % | |||||||
After-tax net income margin (B)/(D) (GAAP measure) | 4.0 | % | 5.6 | % | 4.5 | % | 5.5 | % | |||||||
* | Interest expense of $147.4 million ($226.7 million pretax) for the nine months ended September 30, 2013, excludes the negative cost of carry on transaction-related debt issued in connection with the acquisition of Coventry. Those costs are presented within transaction and integration-related costs prior to the closing of the acquisition of Coventry, which occurred on May 7, 2013 (the "Acquisition Date"). After the Acquisition Date, the interest expense associated with the transaction-related debt is included in interest expense. Interest expense of $42.1 million ($64.7 million pretax) and $122.5 million ($188.4 million pretax), for the three and nine months ended September 30, 2012, respectively, each exclude costs associated with the bridge credit agreement that was in effect prior to the Coventry acquisition. Those costs are presented within transaction and integration-related costs. |
• | We incurred transaction and integration-related costs related to the acquisition of Coventry of $34.6 million ($51.2 million pretax) and $140.6 million ($189.6 million pretax) during the three and nine months ended September 30, 2013, respectively, and $12.5 million ($13.8 million pretax) during the three and nine months ended September 30, 2012. Transaction costs include advisory, legal and other professional fees which are not deductible for tax purposes and are reflected in our GAAP Consolidated Statements of Income in general and administrative expenses, as well as the cost of the bridge credit agreement that was in effect prior to the Coventry acquisition, which is reflected in the GAAP Consolidated Statements of Income in interest expense. Transaction costs also include transaction-related payments as well as expenses related to the negative cost of carry associated with the permanent financing that we obtained in November 2012 for the Coventry acquisition. Prior to the Acquisition Date, the negative cost of carry associated with the permanent financing was excluded from operating earnings and operating earnings per share. The components of the negative cost of carry are reflected in our GAAP Consolidated Statements of Income in interest expense, net investment income, and general and administrative expenses. On and after the Acquisition Date, the interest expense and general and administrative expenses associated with the permanent financing are no longer excluded from operating earnings or operating earnings per share. |
• | In the third quarter of 2013, an existing group annuity contract converted from a participating to a non-participating contract. Pursuant to GAAP accounting standards, we recorded $54.1 million of non-cash group annuity conversion premium for this contract and a corresponding $54.1 million of non-cash benefit expense on group annuity conversion for this contract. |
• | We reduced the reserve for anticipated future losses on discontinued products by $55.9 million ($86.0 million pretax) in the second quarter of 2013. We believe excluding any changes in the reserve for anticipated future losses on discontinued products from operating earnings provides more useful information as to our 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 affect our operating results. |
• | In 2008, as a result of the liquidation proceedings of Lehman Re Ltd. ("Lehman Re"), a subsidiary of Lehman Brothers Holdings Inc., we recorded an allowance against our reinsurance recoverable from Lehman Re of $27.4 million ($42.2 million pretax). This reinsurance was placed in 1999 and was on a closed book of paid-up group whole life insurance business. In the second quarter of 2013, we sold our claim against Lehman Re to an unrelated third party including the reinsurance recoverable and terminated the reinsurance arrangement. Upon the sale of the claim and termination of the arrangement, we released the related allowance thereby reducing other general and administrative expenses by $27.4 million ($42.2 million pretax) and recognized a $4.7 million ($7.2 million pretax) gain on the sale in fees and other revenue. |
• | In the third quarter of 2012, we incurred a loss on the early extinguishment of long-term debt of $23.0 million ($35.4 million pretax) related to repurchases of certain of our outstanding senior notes. |
• | 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. |
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