Cigna Corporation (CI)

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Cigna (CI)

Q3 2012 Earnings Call

November 01, 2012 8:30 am ET

Executives

Edwin J. Detrick - Vice President of Investor Relations

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

Ralph J. Nicoletti - Chief Financial Officer and Executive Vice President

Analysts

Matthew Borsch - Goldman Sachs Group Inc., Research Division

Scott J. Fidel - Deutsche Bank AG, Research Division

Joshua R. Raskin - Barclays Capital, Research Division

Justin Lake - JP Morgan Chase & Co, Research Division

Ana Gupte - Sanford C. Bernstein & Co., LLC., Research Division

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

Christine Arnold - Cowen and Company, LLC, Research Division

Carl R. McDonald - Citigroup Inc, Research Division

Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division

David H. Windley - Jefferies & Company, Inc., Research Division

Ralph Giacobbe - Crédit Suisse AG, Research Division

Sarah James - Wedbush Securities Inc., Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by for Cigna's Third Quarter 2012 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 J. 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 are David Cordani, our President and Chief Executive Officer; and Ralph Nicoletti, Cigna's Chief Financial Officer.

In our remarks today, David will begin by commenting on Cigna's third quarter results. He will then discuss how continued effective execution of our strategy, coupled with our differentiated capabilities, are creating significant value for our global clients and customers. David will also review our capital deployment strategy and the progress we have made toward achieving our goal of delivering meaningful shareholder value over the long term. And finally, David will conclude his remarks by making some brief observations about 2013, which we will discuss in more depth when we provide our 2013 outlook at our Investor Day in New York City on November 16. Next, Ralph will review the financial results for the third quarter and provide an update on Cigna's financial outlook for full year 2012. 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 financial measures which are not determined in accordance with Generally Accepted Accounting Principles, or GAAP, when describing financial results. Specifically, we use the term labeled adjusted income from operations as the principal measure of performance for Cigna and our operating segments. And a reconciliation of these measures to the most directly comparable GAAP measure is contained in today's earnings release, which is posted in the Investor Relations section of cigna.com.

Now in our remarks today, we will be making some forward-looking comments, and 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 third quarter results and disclosures. Regarding our results, I note in the third quarter, we recorded 2 charges to shareholders' net income, which we reported as special items. The first special item was an after-tax charge of $50 million or $0.17 per share for severance and other costs associated with a series of actions we are taking to improve our organizational alignment, operational effectiveness and efficiency. The second special item was an after-tax charge of $12 million or $0.04 per share for transaction costs related to the HealthSpring acquisition. I would remind you that special items are excluded from adjusted income from operations in today's discussion of our third quarter results and our full year 2012 outlook.

Now relative to our Run-off Reinsurance operations, our third quarter shareholders' net income includes an after-tax non-cash gain of $32 million or $0.11 per share related to the Guaranteed Minimum Income Benefits business, otherwise known as GMIB. I would remind you that the impact to the financial accounting standards or its fair value disclosure and measuring 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 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 2012 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 also, please note that when we discuss our full year 2012 outlook, it will be on a basis which excludes any future capital deployment and includes the year-to-date results for our Run-off Guaranteed Minimum Death Benefits business, known as VADBe, but does not include an estimate for future impacts for this business, as these potential impacts, including the effects of changes in capital markets or periodic updates to long-term reserve assumptions, are not known or reasonably estimable.

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

David M. Cordani

Thanks, Ted, and good morning, everyone. Cigna is a global company, but I do want to take a moment to acknowledge the recent events back here in the United States. This has been a tough week for many of you impacted by Hurricane Sandy on the East Coast, and I know that New York, New Jersey and Connecticut were hit particularly hard, and many dedicated individuals are focused on leading us to recovery. For those of you who were impacted by the storm, we appreciate you joining us on today's call. We hope you and your families remain safe and that you experience a speedy recovery.

Now before Ralph reviews our results and outlook, I want to take a few moments to comment on our third quarter performance. I'll then discuss how the focused execution of our strategy and ongoing strengthening of our capabilities are creating value for our clients and customers across the globe. I'll also review our progress on deploying capital to support our goal of optimizing long-term shareholder value. And finally, I'll briefly comment on our expectations for 2013.

Turning to our results. We are pleased with our strong performance in the third quarter. We delivered outstanding revenue growth, our earnings exceeded expectations, and we further grew our medical customer base. We also increased our strategic investments in targeted markets and in capabilities to position us to drive sustainable growth. Based on our third quarter results and the momentum we've experienced in the first 9 months of 2012, we are once again increasing our full year outlook for earnings and capital available for deployment.

Moving to the specifics of the quarter, we reported adjusted income from operations of $496 million or $1.71 per share, representing a 33% increase in earnings per share versus the third quarter of 2011. Our consolidated revenue increased by 31% to $7.4 billion. These results reflect the effective and disciplined execution of our Go Deep, Go Global and Go Individual strategy. We continue to deliver on the fundamentals of our business, including clinical quality, service and pricing discipline while providing clients and customers with solutions that improve their health, well-being and sense of security. As a direct result of our focus, each of our ongoing businesses: Health Care, International and Group Disability and Life, provided attractive revenue and earnings contributions in the third quarter.

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