Universal American Corp. (UAM)

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Universal American Corp. (UAM)

Q2 2009 Earnings Call

July 30, 2009; 10:00 am ET


Richard Barasch - Chairman & Chief Executive Officer

Robert Waegelein - Executive Vice President & Chief Financial Officer

Martina Alisuag - Director of Investor Relations


Joshua Raskin - Barclays Capital

David Shove - BMO Capital Markets

Scott Fidel - Deutsche Bank

Sushil Garg - Dowling & Partners

Matthew Borsch - Goldman Sachs

Carl McDonald - Oppenheimer

Steven Schwartz - Raymond James & Associates

Thomas Carroll - Stifel Nicolaus



Good day everyone and welcome to the Universal American Corporation second quarter 2009 conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are currently in a listen-only mode.

I will now turn the conference over to Mr. Richard Barasch, Chairman and CEO. Please go ahead sir.

Richard Barasch

Good morning everyone thanks for joining us on our second quarter 2009 conference call. I’m here with Bob Waegelein our CFO and Martina Alisuag, our Director of Investor Relations.

Before we begin, I would like to ask Martina to read our Safe-Harbor language.

Martina Alisuag

I would like to remind you that some of the information discussed during this conference call will constitute forward-looking statements within the meaning of the Federal Securities laws.

These forward-looking statements may include statements regarding the likelihood or effect of any legislative or regulatory changes, our expectations of the performance of our Medicare Advantage, Part D, Med Supp and other lines of business, the estimation of loss ratios and lapsation, the adequacy of reserves, our ability to institute future rate increases, expectations regarding our Part D and Medicare Advantage programs, including our estimates of membership costs, revenues, future operating results and the risks inherent to these businesses, the identification of acquisition candidates, the completion, integration or accretion of any acquisition transactions and the viability of any acquisition proposal.

Although we believe that the expectations reflected in these statements are based upon reasonable assumptions and estimates, we cannot give assurance that we will achieve the expected results. We also suggest that you review the most recent risk factors that we periodically filed with the SEC. Richard.

Richard Barasch

Thanks Martina. This morning I’m going to spend some time talking about the highlights of the second quarter, and then move on to a discussion about what Universal American is doing to prepare itself to succeed in the changing political and regulatory environment for our Medicare products. Finally, I’ll talk about our prospects for the balance of 2009 including the raising of our full year guidance by $0.05 to a range of 152 to 162.

We are very pleased with our financial and operating results of the second quarter. The financial results demonstrate continued improvement in the fundamental performance and execution in each of our core businesses. Our company has consistently shown its ability to bid our products, so that they provide good value to our members, are competitive in the marketplace and achieve fair returns for our shareholders.

Our value proposition of improved health outcomes for Medicare beneficiaries combined with internal cost reduction initiatives give us confidence that we are well positioned in this increasingly difficult regulatory and political environment. We will be happy to answer any detailed questions that you have about the numbers, either after my remarks or off-line.

First I would like to point out some of the highlights of the quarter. Our operating profit after the special items were excluded was $0.27 per share driven by solid operating metrics in our core Medicare Advantage on Part D businesses. In both our MA and Part D segments, our year-over-year revenues were up, the benefit ratios for the first six months of the year were towards the low end of our forecasted ranges and our expense ratios showed notable improvement as well.

In addition, we took several steps this quarter to put the company on standard, financial and operating footing to meet the challenges ahead. First, we completed the sale of the Life and Annuity business to bolster our capital and sharpen our focus.

Second, we took steps to reduce risk in our investment portfolio to bring it more in line with our ongoing business, and perhaps most imperative we’ve been taking aggressive steps to improve our operations and reduce our G&A to prepare our company to the changed environment that we have entered.

Each one of these steps required additional expenditures in the second quarter as we outlined in the press release. We feel that these investments were prudent to set us up properly for the future. The metrics in our Medicare Advantage segment were excellent for the quarter and for the first six months of the year.

Our revenue was up due to higher membership revenue, our benefit ratios and administrative ratios also improved. The medical benefit ratio for the first six months of the year was 84% compared to 85.3% in 2008 calculated on the same basis.

We continue to grow membership, net probability in our network based Medicare Advantage products further demonstrated in the success for healthy collaboration model in which we work closely with physicians and members to promote better health outcomes and control medical costs.

We are truly aware of the challenges ahead and we know we have our work head out for us to sustain our momentum. First we have to manage through the rate cuts in 2010, followed by an expectation of further rate pressure in 2011 and beyond.

Simultaneously, we have the challenge of building out networks to provide attractive alternatives to as many of our private fee-for-service members as possible. In preparation for 2011 when non-rural teaming expires, to accomplish these objectives we’ve identified a series of critical success factors.

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