Cigna Corporation (CI)

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CIGNA (CI)

Q2 2011 Earnings Call

August 04, 2011 8:30 am ET

Executives

Ralph Nicoletti - Chief Financial Officer and Executive Vice President

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

Edwin Detrick - Vice President of Investor Relations

Analysts

Joshua Raskin - Barclays Capital

Justin Lake - UBS Investment Bank

Carl McDonald - Citigroup Inc

Charles Boorady - Crédit Suisse AG

Scott Fidel - Deutsche Bank AG

Matthew Borsch - Goldman Sachs Group Inc.

David Windley - Jefferies & Company, Inc.

Ana Gupte - Sanford C. Bernstein & Co., Inc.

John Rex - JP Morgan Chase & Co

Doug Simpson - Morgan Stanley

Kevin Fischbeck - BofA Merrill Lynch

Christine Arnold - Cowen and Company, LLC

Presentation

Operator

Ladies and gentlemen, thank you for standing by for CIGNA's Second Quarter 2011 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 Detrick

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 is David Cordani, our President and Chief Executive Officer. In addition, I am pleased to introduce Ralph Nicoletti, CIGNA's Chief Financial Officer.

Ralph has been in the CFO role since late June, and we certainly welcome him to the CIGNA team.

In our remarks today, Dave will begin by briefly commenting on CIGNA's second quarter results. He will also discuss our results in the context of our growth strategy. In addition, David will explain how our focused strategy, coupled with our diversified portfolio of businesses, positions CIGNA to deliver revenue and earnings growth on a sustained basis.

Next, Ralph will review the financial results for the second quarter and provide an update on CIGNA's financial outlook for full year 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 financial measures when describing the 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.

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 one item pertaining to our second quarter results and disclosures. We'll look to our Run-off Reinsurance operations. Our second quarter shareholders' net income included an after-tax noncash loss of $21 million or $0.07 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 on our GMIB results 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 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. And because of this, 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 with that, I'll turn it over to David.

David Cordani

Thanks, Ted, and good morning, everyone. I'll start by welcoming Ralph to our team. This is his first quarterly earnings release. He's been with us for nearly 6 weeks, and I couldn't be more excited to have him here. He brings a significant amount of experience to CIGNA. His customer focus and global background will be instrumental as we continue to execute our growth strategy and become a more customer-centric company. Today, he'll walk through our financial results and outlook. Before that, I'll take a few minutes to briefly comment on our quarterly performance, and then I'll spend some time highlighting the differentiation of our business strategy and how it's driving sustainable operating results. More specifically, I'll outline how our focus and the synergies across our ongoing businesses position us for sustained profitable growth. So let's dive in.

Overall, we've delivered another very strong quarter. Through continued effective execution of our growth strategy, we delivered strong results in 2010, and we've maintained that momentum through the first half of 2011 with organic revenue growth across all our key areas of focus and double-digit earnings growth for our ongoing businesses.

For the second quarter of 2011, we reported consolidated adjusted income of $418 million or $1.53 per share, with revenue growth of approximately 7% and strong earnings in each of our ongoing businesses. By delivering on our Go Deep, Go Global and Go Individual strategy, we've grown our business while demonstrating an ongoing commitment to improve the health, well-being and sense of security of the people we serve. Our approach delivers differentiated value for our customers, clients and shareholders.

We are achieving our business growth by maintaining intense focus as we execute our strategy and by effectively leveraging our diversified portfolio of businesses. Our ability to capitalize on these key strengths gives me confidence that CIGNA's positioned for sustained, profitable growth. I'll now spend a few minutes on each of these components, first the focus element and then diversification.

Since we introduced our growth strategy 2 years ago, we've delivered very attractive growth coupled with strong margins. At CIGNA, we don't seek to be all things to all people. Rather, we continue to grow our business on a targeted basis. This means making thoughtful, strategic choices then using our Go Deep strategy to guide our actions in geographies, customer segments, products and distribution channels, always focusing where we can deliver differentiated value and, as a result, build on our success.

For key areas of our business, we delivered very compelling growth through the first half of the year. Specifically in our U.S. business, our Middle Market segment, which we define as clients with 251 to 5,000 employees plus large single-site employers, we've grown our medical customer base by 3%.

In our Select segment, which represents clients with 51 to 250 employees, we've grown our medical customer base by 10%. And in our disability business, we delivered top line growth of 12%.

And in our international businesses, including our expatriate and health, life and accident businesses, we've delivered outstanding top line growth of 34% on a year-to-date basis while delivering strong earnings.

While we note very importantly that we're growing while continuing to execute the fundamentals of our business, including maintaining pricing discipline and providing strong clinical service excellence, this clinical and service excellence is resonating both in the U.S. and abroad with recognition from third parties, including JD Powers (sic) [Power], NCQA, the American Medical Association and service excellence authorities throughout Asia, just to name a few. In short, intense focus in targeted areas will continue to be a cornerstone of how we deliver value.

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