Cigna (CI)

Q2 2012 Earnings Call

August 02, 2012 8:30 am ET

Executives

Edwin J. Detrick - Vice President of Investor Relations

David M. Cordani - Chief Executive Officer, President, Director and Member of Executive Committee

Ralph J. Nicoletti - Chief Financial Officer and Executive Vice President

Analysts

Matthew Borsch - Goldman Sachs Group Inc., Research Division

Joshua R. Raskin - Barclays Capital, Research Division

Justin Lake - JP Morgan Chase & Co, Research Division

Justin Lake - UBS Investment Bank, Research Division

Ana Gupte - Sanford C. Bernstein & Co., LLC., Research Division

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

Christine Arnold - Cowen and Company, LLC, Research Division

Carl R. McDonald - Citigroup Inc, Research Division

David H. Windley - Jefferies & Company, Inc., Research Division

Melissa McGinnis - Morgan Stanley, Research Division

Scott J. Fidel - Deutsche Bank AG, Research Division

Christian Rigg - Susquehanna Financial Group, LLLP, Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by for Cigna's Second Quarter 2012 Results Review. [Operator Instructions] As a reminder, ladies and gentlemen, this conference, including the question-and-answer session is being recorded. We'll begin by turning the conference over to Mr. Ted Detrick. Please go ahead, Mr. Detrick

Edwin J. Detrick

Good morning, everyone, and thank you for joining today's call. I'm Ted Detrick, Vice President of Investor Relation and with me this morning are David Cordani, our President and Chief Executive Officer; and Ralph Nicoletti, Cigna's Chief Financial Officer. In our remarks today, David will begin by commenting on Cigna's second quarter results. He will then review our approach to delivering value for our customers and clients, he will also identify our key earnings drivers and why we believe Cigna is well-positioned to deliver attractive top line and bottom line growth on a sustained basis. David will conclude his remarks by discussing our capital deployment strategy and how we have invested in our businesses by adding differentiated capabilities that will create shareholder value over the long term. Next, Ralph will review the financial results for the second quarter, and provide an update on Cigna's financial outlook for full year 2012. We will then open the lines for your questions. And following our question-and-answer session, David will provide some pre-closing remarks before we end the call.

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 principal measure of performance for Cigna and our operating segments. A reconciliation of these measures to the most directly comparable GAAP measure is contained in today's earnings release, which 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 expectation and those risk factors are discussed in today's earnings release.

Now before turning the call over to David, I will cover a few items pertaining to our second quarter results and disclosures. Relative to our one-off reinsurance operations, our second quarter shareholders net income included an after-tax, noncash loss of $51 million or $0.17 per share related to the guaranteed minimum income benefits business otherwise knows as GMIB. I would remind you that the impact of the financial accounting standards towards fair value disclosure and measurement guidance on our GMIB result is for GAAP accounting purposes only. We believe that the application of this guidance is not reflective of the underlying economics as it does not represent management's expectation of the ultimate liability payout. Because of advocation of this accounting guidance, Cigna's future results for the GMIB business will be volatile as any future change in the exit value of GMIB's assets and liabilities will be recorded in shareholders net income. Cigna's 2012 earnings outlook, which we will discuss in a few moments, excludes the results of the GMIB business and therefore, any potential volatility related to the prospective application of this accounting guidance.

Also please note that when we discuss our full year 2012 outlook, it will be on a basis which exclude any future capital deployment and includes the year-to-date results of our Run-off Guaranteed Minimum Death Benefits business known as VADBe but does not include an estimate for future impacts as these potential impacts, including the effect of changes in capital markets or periodic updates to long-term reserve assumptions are not known or reasonably estimable.

And one last item, I remind you that Cigna will be hosting our upcoming Investor Day on November 16 in New York City.

With that, I'll turn the call over to David.

David M. Cordani

Thanks, Ted and good morning, everyone. Before Ralph reviews our results and outlook, I'll comment on our second quarter performance, then I'll discuss how the focused execution of our strategy is strengthening our ability to drive sustainable growth in revenue and earnings, as well as strong free cash flow. Finally, I'll highlight how we are further investing in our business to create differentiated value for customers and clients.

Turning to our results. We are pleased with our performance in the second quarter, specifically delivering another quarter of strong revenue and earnings contribution, making good progress on integrating HealthSpring, continuing strategic investments to ensure we are well-positioned to serve our targeted markets and customer segments. And as a result, continued to deliver attractive revenue and earnings growth. With the momentum we've continued to build in 2012, we are, again, increasing our full year outlook for earnings and capital available for deployment. More specifically for the quarter, we reported adjusted income from operations of $444 million or $1.52 per share. Our consolidated revenue increased by 35% to $7.5 billion. These results demonstrate the ongoing effectiveness of our Go Deep, Go Global and Go Individual strategy, and our commitment to consistently institution of our business fundamentals, including clinical quality, service excellence and pricing discipline. Each of our ongoing businesses, Health Care, International and Group Disability and Life provided strong revenue and earnings contributions in the second quarter and year-to-date. Our Health Care business results benefited from strong client retention and growth in our targeted customer segments. Revenue grew 46% in Health Care relative to the second quarter 2011, reflecting a full quarter of contribution from HealthSpring and solid organic growth. Our U.S. medical customer base grew by approximately 1.1 million during the first 6 months of 2012, representing 10% net growth from year end 2011, including 6% organic commercial customer growth. I would highlight that essentially all of these organic growth has been in our ASO products.

In our International business, revenue increased by 22% compared to the second quarter of 2011, driven by solid customer retention and continued new sales in our high-performing businesses. In our Health, Life and Accident business, we leveraged our expertise and customer insights to bring to market, innovative solutions at attractive price points. In our Global Health Benefits business, our portfolio of highly specialized health programs and our global network of more than 1 million health care professionals continues to provide a competitive advantage in serving the globally mobile employee market. In Group Disability and Life, our revenue growth was 4% over the second quarter of 2011, and we reported solid earnings, which is a competitively attractive result. This growth demonstrates the value of our health and productivity programs for the benefit of our customers and clients.

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