Cigna Corporation (CI)

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CIGNA Corporation (CI)

Q3 2009 Earnings Call

November 5, 2009 8:30 am ET


David Cordani – President & COO

Edward Hanway – CEO

Annmarie Hagan – EVP & CFO

Ted Detrick – VP IR


Ana Gupte – Sanford C. Bernstein

Matthew Borsch – Goldman Sachs

Scott Fidel – Deutsche Bank

John Rex – JPMorgan

Joshua Raskin – Barclays Capital

Justin Lake – UBS

Christine Arnold – Cowen & Co.

Peter Costa – FTN Equity Markets

Charles Boorady – Citigroup

Kevin Fischbeck – Bank of America

Carl McDonald – Oppenheimer



Ladies and gentlemen, thank you for standing by for CIGNA’s third quarter 2009 results review. (Operator Instructions) We’ll begin by turning the conference over to Ted Detrick. Please go ahead Mr. Detrick.

Ted Detrick

Good morning everyone, and thank you for joining today's call. I am Ted Detrick, Vice President of Investor Relations, and with me this morning are Edward Hanway, CIGNA's Chairman and CEO; David Cordani, our President and Chief Operating Officer; and Annmarie Hagan CIGNA's Chief Financial Officer.

In our remarks today, Edward Hanway will begin by briefly commenting on CIGNA’S third quarter results. David Cordani will provide his perspective on the third quarter and the full year outlook for CIGNA’s ongoing businesses. He will also provide an update on our cost reduction initiatives and how we are positioning ourselves for 2010 and beyond.

Annmarie Hagan will then review the financial details for the quarter and provide the financial outlook for full year 2009. She will also provide high-level commentary regarding our 2010 outlook.

Edward will then conclude with an update on the topic of health care reform before we open the lines for your questions.

Now as noted in our earnings release CIGNA uses certain financial measures, which are not determined in accordance with Generally Accepted Accounting Principals or GAAP when describing its financing results.

Specifically we use the term labeled adjusted income from operations as the principle measure of performance for CIGNA and our operating segments. Adjusted income from operations is defined as shareholders income from continuing operations excluding realized investment results, special items and the results of our guaranteed minimum income benefits business.

A reconciliation of adjusted income from operations to shareholders income from continuing operations, which is the most directly comparable GAAP measure, is contained in today’s earnings release, which was filed this morning on Form 8-K with the Securities and Exchange Commission and is also posted in the Investor Relation section of

Now in our remarks today, we will be making some forward-looking comments. We would remind you that there are risks factors that could cause actual results to differ materially from our current expectations and those risk factors are discussed in today’s earnings release.

Now before turning the call over to Edward, I will cover a few items pertaining to our third quarter results. Regarding results I note that in the quarter we recorded a charge of $7 million after tax related to CIGNA’s previously announced cost reduction plan which we reported as a special item.

I would remind you that special items are excluded from adjusted income from operations in today’s discussion of both our third quarter results and full year 2009 and 2010 outlooks. Relative to our run-off reinsurance operations our third quarter shareholders net income included after tax income of $16 million or $0.06 per share related to the guaranteed minimum income benefits business, otherwise known as GMIB.

I would remind you that the impact of FASB fair value disclosure and measurement guidance on our GMIB results is for GAAP accounting purposes only. We believe that the application of this guidance does not represent management’s expectation of the ultimate liability payout.

Because of application 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 2009 and 2010 earnings outlooks which we will discuss in a few moments exclude the results of the GMIB business and therefore any potential volatility related to the perspective application of this accounting guidance.

And then one last item, I would like to remind you that CIGNA will be hosting its annual Investor Day this year on November 20 in New York City. And with that, I’ll turn it over to Edward.

Edward Hanway

Thanks Ted, good morning everyone. Our third quarter 2009 adjusted income from operations was $311 million or $1.13 per share and our third quarter consolidated results reflect solid earnings contributions from each of our ongoing operations and demonstrates the benefits of our diversified portfolio of businesses in this challenging economic environment.

For heath care, earnings were $204 million in the third quarter representing a $27 million increase over the second quarter of 2009 result. This result is in line with our expectation of second half health care earnings being meaningfully higher then the first half and is consistent with the earnings trajectory provided in our full year earnings outlook.

Our health care results continue to demonstrate our strong focus on managing operating expenses while maintaining our quality service and clinical program delivery. For our group disability and life business we reported earnings of $65 million and we continued to achieve competitively attractive margins in this business.

This earnings result is evidence that our superior disability management programs continue to create value for our customers. Third quarter earnings in our international segment were $40 million which were below expectations. We continue to be pleased with both the top line growth and earnings contributions of international where margins continue to be competitively strong.

Our investment portfolio including our commercial mortgage loans continues to perform well relative to market conditions and we believe this is a direct result of our disciplined approach to investing. In addition our capital position remains strong and we continue to maintain the financial flexibility to weather potential challenges in the capital markets.

Regarding our full year 2009 outlook we continue to expect earnings per share will be in the range of $3.80 to $4.00 a share. Now this reflects a modest change to the upper end of our health care outlook as well as favorable third quarter results from our run-off reinsurance business.

Overall I remain confident in our ability to achieve our 2009 operating goals and earnings estimates in this challenging business environment. Achievement of these goals has been and will continue to be the direct result of our disciplined focus on creating value for our customers by improving the health, well-being, and sense of security of the people we serve.

And with that I’m going to turn the call over to David.

David Cordani

Thanks Edward and good morning everyone. Today I will review our third quarter results for ongoing operations and I’ll comment on our full year 2009 outlook, both against the backdrop of the current conditions in the health benefits marketplace. I’ll also provide an update on our ongoing operating cost reduction initiatives and I will briefly discuss our strategy, specifically how we are positioning ourselves for 2010 and beyond. So let’s get started.

Third quarter 2009 health care earnings increased sequentially at expected and reflect good progress on reducing operating expenses as well as seasonal improvement in Medicare Part D results. This was tempered by medical cost pressure in our guaranteed cost book of business.

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