CIGNA Corporation (CI)
Q4 2009 Earnings Call Transcript
February 4, 2010 8:30 am ET
Ted Detrick – VP, IR
David Cordani – President and CEO
Annmarie Hagan – EVP and CFO
Matthew Borsch – Goldman Sachs
John Rex – J.P. Morgan
Christine Arnold – Cowen and Company
Carl McDonald – Oppenheimer
Ana Gupte – Sanford Bernstein
Josh Raskin – Barclays Capital
Charles Boorady – Citi
Justin Lake – UBS
Scott Fidel – Deutsche Bank
Kevin Fischbeck – Bank of America/Merrill Lynch
Doug Simpson – Morgan Stanley
Previous Statements by CI
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Good morning, everyone, and thank you for joining today’s call. I’m Ted Detrick, Vice President of Investor Relations. And with me this morning are David Cordani, our President and Chief Executive Officer; and, Annmarie Hagan, CIGNA’s Chief Financial Officer. In our remarks today, David will begin by discussing the highlights of CIGNA’s 2009 results. He will also provide his perspective on the marketplace as we head into 2010. He will also comment briefly on healthcare reforms. Then Annmarie will provide a detailed review of the financial results for the year and discuss the 2010 financial outlook. She will also provide an update on our achievements and expectations related to our expense reductions and capital management goals. And lastly, she will share some early indications on how our January 1st business is developing. David will then conclude with a discussion of CIGNA’s growth strategy before we open the lines for your questions.
As noted in our earnings release this morning, CIGNA uses certain non-GAAP financial measures when describing its financial results. A reconciliation of these measures to 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 posted in the Investor Relations section of cigna.com.
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 expectations. 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 fourth quarter results. Regarding our results, I would note that in the quarter, we recorded an after tax charge of $13 million related to CIGNA’s previously announced cost reduction plan, which we reported to the special item. I would remind you that special items are excluded from adjusted income from operations in today’s discussion of both our 2009 results and our 2010 outlook.
Relative to our runoff reinsurance operations, our fourth quarter shareholders net income included after tax income of $60 million or $0.22 per share related to the guaranteed minimum income benefits business, otherwise known as GMIB. I would remind you that the impact of FASB’s fair value disclosure and measurement guidance on our GMIB results is for GAAP accounting purposes only. We continue to believe that the application of this guidance does not represent management’s expectations of the ultimate liability payout. And because of the application of this accounting guidance, CIGNA’s future results for the GMIB business will be volatile as any future change and the exit value of GMIB’s assets and liabilities will be recorded in shareholders net income.
CIGNA’s 2010 earnings outlook, which we will discuss in a few moments, excludes the results for the GMIB business, and therefore, any potential volatility related to the perspective applications of this accounting guidance. And with that, I will turn it over to David.
Thanks, Ted, and good morning, everyone. Before Annmarie reviews our result and outlook, I'm going to give you a brief update and overview of 2009, and why, despite economic turbulence, we’ve delivered very good results. I’ll cover market highlights, our point of focus and why we’re winning in the market, and I’ll share some brief comments on healthcare reform. And later in my closing comments, I’ll discuss highlights of our strategy and related actions.
Let’s get started with the results from last year. As we reflect in 2009, it is clear that the global economic decline, the competitive environment as well as the uncertain political landscape combined to make it a very challenging year for our company and the industry overall. With that as a backdrop, we believe our 2009 results represented good outcome both in absolute terms as well as from a competitive perspective. For full year 2009, we delivered earnings per share of $3.98, an adjusted income from operations of approximately $1.1 billion, which represents year-over-year earnings growth of 16%. This result reflects solid earnings in each of our ongoing businesses, our healthcare, (inaudible) life, and international operations.
In addition, our runoff reinsurance results improved significantly due to stabilization of the capital markets. In 2009, we delivered on our capital management goals by restoring our subsidiary capital to targeted levels, significantly building our parent company cash, and as expected, making a meaningful contribution to our pension plans. Relative to operating expenses, we made good progress in 2009 by driving $100 million in reductions in our healthcare operating expenses. Remember, as I said before, reducing expenses is an integral part of our growth strategy, not a one-time initiative. To underscore this, looking to 2010 and beyond, we’ve already identified actions to further drive operating efficiencies.
So how are we able to post solid financial and operating results in 2009? Well, by executing on the fundamentals and delivering attractive value for our customers. Our results reflect a clear focus on improving the health, well-being, and sense of security of our customers, which has a positive impact on productivity and performance, while lowering costs for all involved. We are winning in a marketplace through consistent and effective service delivery, differentiated clinical and productivity programs, and consultative selling.
I'll now provide some additional color on our service model, a model that continues to be a competitive strength for us. In 2009, we became the first and only major health service company in the US that is open 24/7 for the convenience of our customers and physician partners. Recently, our healthcare operation was recognized for customer satisfaction excellence for the fourth consecutive year by JD Power and Associates, a unique distinction in our industry.
Now in China, CIGNA was named for the second consecutive year as the best foreign life insurance company. In addition, we are in the distinction as one of the 10 most trusted life insurance companies in China as well. This recognition reinforces the strength of our current global position.
In addition to our administrative services, we serve our clients and customers by providing market leading clinical quality. For our self-insurance clients, we continue to deliver leading clinical programs while effectively managing the medical costs. We believe sustainable cost savings are only achievable through health improvement and reducing the risk factors that drive injury, illness, and disease. At CIGNA, we have a broad portfolio of capabilities to achieve health improvement, including risk identification, lifestyle and wellness programs, incentives, coaching, and engagement services. By integrating our health and productivity solutions we help our customers live better and healthier lives. And we have the proof points to support our value propositions.