Cigna Corporation (CI)

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CIGNA (CI)

Q4 2010 Earnings Call

February 03, 2011 8:30 am ET

Executives

Thomas McCarthy - Acting Chief Financial Officer

Edwin Detrick - Vice President of Investor Relations

David Cordani - Chief Executive Officer, President, and Director

Analysts

Ana Gupte - Bernstein Research

Joshua Raskin - Barclays Capital

Peter Costa - Wells Fargo Securities, LLC

Justin Lake - UBS Investment Bank

Scott Fidel - Deutsche Bank AG

Charles Boorady - Crédit Suisse AG

Carl McDonald - Citigroup Inc

Matthew Borsch - Goldman Sachs Group Inc.

David Windley - Jefferies & Company, Inc.

John Rex - JP Morgan Chase & Co

Kevin Fischbeck - BofA Merrill Lynch

Doug Simpson - Morgan Stanley

Christine Arnold - Cowen and Company, LLC

Presentation

Operator

Ladies and gentlemen, thank you for standing by for CIGNA's Fourth Quarter 2010 Results Review. [Operator Instructions] We'll begin by turning the conference over to Mr. Ted Detrick. Please go ahead, sir.

Edwin 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 David Cordani, our President and Chief Executive Officer ; and Tom McCarthy, CIGNA's acting Chief Financial Officer.

In our remarks today, David will begin by commenting on CIGNA's full year 2010 results and how our 2010 accomplishments position us for continued success in 2011. Next, Tom will review the financial results for the quarter and full year of 2010. He will also provide CIGNA's financial outlook for 2011. We will then open the lines for your questions. And following our question-and-answer session, David will provide some brief closing remarks before we end the call.

Now as noted in our earnings release, CIGNA uses certain non-GAAP 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 www.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 expectations, and those risk factors are discussed in today’s earnings release.

Now before turning the call over to David, I will cover a couple of items pertaining to our fourth quarter and full year 2010 results. Regarding the results, I would note that in the quarter, we recorded three special items, which collectively increased shareholders' net income by $42 million after tax or $0.15 per share. These special items were, first, an after-tax gain of $101 million or $0.36 per share related to the completion of an IRS examination, primarily affecting our Run-off Reinsurance operations. The second item was an after-tax charge of $20 million or $0.07 per share related to a transaction to transfer to a third-party the remaining risk for the workers compensation and personal accident businesses and our Run-off Reinsurance operations. And the third item was an after-tax charge of $39 million or $0.14 per share related to our debt refinancing activities.

Now I would remind you that special items are excluded from adjusted income from operations in today's discussion of our 2010 results and 2011 outlook.

Also relative to our Run-off Reinsurance operations, our fourth quarter shareholders net income included an after-tax non-cash gain of $85 million or $0.31 per share related to the guaranteed minimum income benefits business, otherwise known as GMIB. I would remind you that the impact of the financial accounting standards board fair value disclosure and measurement guidance, all our GMIB result is for GAAP accounting purposes only. We believe that the application of this guidance is not reflective of the underlying economics and 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 in the exit value of GMIB's assets and liabilities will be recorded in shareholders' net income.

CIGNA's 2011 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. And one last item, I would remind you that CIGNA will be hosting our upcoming Investor Day on March 11 in New York City.

And with that, I'll turn it over to David.

David Cordani

Thanks, Ted, and good morning, everyone. Before Tom reviews our results and outlook, I'll take a few minutes to briefly comment on our performance in 2010 and discuss how CIGNA's position for success as we step into 2011.

There are really three primary takeaways you should focus on today. First, CIGNA's diversified portfolio and clear growth strategy. Second, our strong execution and performance. And third, our market-leading innovation to enhance service delivery to our clients and customers today and in the future. So let's dive in.

2010 has definitely been a year of disruption and change. For CIGNA, it's also been a year of opportunity. In the face of these challenges in the global economy and the regulatory environment here in the United States, CIGNA has delivered solid results for our customers and our shareholders. The foundation of our achievements has been the continued effective execution of our growth strategy. This strategy that is clear to all in our company. By going deep, going global and going individual, we have focused our portfolio on those businesses delivering the most value for our customers and our shareholders.

Within targeted customer segments and geographies, we have created innovated programs and services to meet changing market demands. We've strengthened our market-leading programs to improve the health, well-being and sense of security of our customers. We've achieved all of this while maintaining high standards for clinical quality and delivering our financial and capital management goals.

For full year 2010, we realized adjusted income from operations of $1.3 billion or $4.64 per share, reflecting very strong earnings contributions from each of our ongoing businesses, International, Group Disability and Life and Health Care. In fact, adjusted income from operations increased by 16% in 2010 and we delivered strong revenue growth in each of our targeted markets.

Our International segment, which includes Health, Life and Accident, as well as our Expatriate business delivered strong top line growth of 21%, with corresponding earnings growth as well. In this context, we are fully leveraging our established global networking capabilities to expand into new geographies with differentiated products. Our footprint across the globe allows our team to bring new products to market more quickly than others.

As many of you know, last year we made the strategic acquisition of Vanbreda International, which now establishes CIGNA as the leader in servicing the globally mobile individual. This transaction also enhances growth prospects for International Expatriate business.

In our Group Disability and Life segment, our results demonstrate the benefit of our leading disability management programs. These programs help employees return to work faster, which increases workforce productivity and importantly drives cost savings for CIGNA's clients and customers. We are delivering value to our employer clients, and as such, we achieved top line growth of 10% in our Disability business this year.

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