Aetna Reports Second-Quarter 2007 Results

* Second-quarter operating earnings were $0.83 per share, compared to the Thomson/First Call mean of $0.80, a 28 percent increase over the prior-year quarter
* Second-quarter net income was $0.85 per share, a 27 percent increase over the prior-year quarter
* Second-quarter Commercial Medical Benefit Ratio was 80.5 percent
* Second-quarter medical membership increased by 64,000 to 15.8 million
* Guidance for full-year 2007 operating earnings increased to $3.40 to $3.42, from prior guidance of $3.35 per share; Third-quarter operating earnings per share expected to be $0.90 to $0.92



HARTFORD, Conn.— Aetna (NYSE: AET) today announced second-quarter 2007 operating earnings of $0.83 per share, an increase of 28 percent compared to the prior-year quarter. The increase in operating earnings reflects 9 percent total revenue growth primarily from quarter-over-quarter premium and fee rate increases and membership growth, as well as solid underwriting results, continued general and administrative expense efficiencies and higher net investment income. Operating earnings exclude net realized capital gains (losses) and other items.1 Second quarter 2007 net income was $0.85 per share, an increase of 27 percent over the prior-year quarter.

Aetna continues to produce solid financial results that reflect our disciplined strategy of delivering sustained profitable growth,“ said Ronald A. Williams, chairman and CEO. ”We continue to win in the marketplace by offering high-quality products and services that customers want as we invest in technology that helps deliver better cost and quality outcomes for our members.

“Aetna’s announced agreement in May to acquire Schaller Anderson, a leading provider of health care management services for Medicaid plans, furthers our strategy by diversifying our product offerings and improving our local market presence in targeted geographies while strengthening our ability to improve quality and manage medical costs. This acquisition will position Aetna as a significant player in the Medicaid market and give us an additional avenue for profitable growth.”

“Second-quarter results reflect our continued focus on disciplined underwriting and pricing, effective medical cost management, continued leverage of our expense base, as well as diversified medical membership growth,” said Joseph M. Zubretsky, executive vice president and chief financial officer. "We are particularly pleased with our Commercial Medical Benefit Ratio of 80.5 percent, which is at the favorable end of our previous guidance range.

“Based on these results and increased confidence in our ability to sustain our level of performance for the remainder of 2007, we now expect to achieve full-year operating earnings per share of $3.40 to $3.42.2 We expect third-quarter operating earnings per share to be $0.90 to $0.92.2”

Health Care business results

Health Care, which provides a full range of insured and self-insured medical, dental, pharmacy and behavioral health products and services, reported:

* Operating earnings of $420.0 million for the second quarter of 2007, compared with $352.9 million for the second quarter of 2006. The increase in operating earnings reflects a 10 percent increase in revenue primarily from premium and fee rate increases and membership growth, as well as solid underwriting results, continued general and administrative expense efficiencies, and higher net investment income.

* Net income of $403.1 million for the second quarter of 2007, compared with $293.2 million for the second quarter of 2006.

* A Commercial Medical Benefit Ratio (“MBR”) of 80.5 percent for the second quarter of 2007, compared to 81.1 percent for the second quarter of 2006.

* A Medicare MBR of 88.2 percent for the second quarter of 2007, compared to 89.5 percent for the second quarter of 2006.

* A total MBR of 81.5 percent for the second quarter of 2007, compared to 81.9 percent for the second quarter of 2006. Total MBR combines the benefit ratios of the Commercial, Medicare and Medicaid products.

* Total medical membership of 15.767 million at June 30, 2007, compared with 15.703 million at March 31, 2007, an increase of approximately 64,000. Second quarter pharmacy membership increased by 90,000 to 10.586 million and dental membership decreased by 470,000 to 13.185 million from March 31, 2007, primarily due to the loss of a customer with network access to our dental providers, with a nominal impact to fees.

* Total revenues for the second quarter of 2007 increased by 10 percent to $6.1 billion from $5.5 billion for the second quarter of 2006.


Group Insurance business results

Group Insurance, which includes group life, disability and long-term care products, reported:

* Operating earnings of $39.2 million for the second quarter of 2007, compared with $36.0 million for the second quarter of 2006, reflecting higher net investment income and a lower group benefit ratio.

* Net income of $25.6 million for the second quarter of 2007, compared with $31.4 million for the second quarter of 2006.

* Total revenues for second quarter of 2007 were $532.2 million, compared with $553.1 million for the second quarter of 2006.


Large Case Pensions business results

Large Case Pensions, which manages a variety of discontinued and other retirement and savings products, primarily qualified pension plans, reported:

* Operating earnings of $8.4 million for the second quarter of 2007, compared with $10.1 million for the second quarter of 2006.

* Net income of $50.4 million for the second quarter of 2007, compared with $86.8 million for the second quarter of 2006. Net income included a $41.8 million after-tax benefit for second quarter 2007 and a $75.0 million after-tax benefit for second quarter 2006 related to the reduction of reserves for discontinued products.


Total company results

* Total Revenues. Revenues increased 9 percent to $6.8 billion for the second quarter of 2007, compared with $6.3 billion for the second quarter of 2006. The growth in second-quarter revenue reflects premium and fee rate increases and a higher level of membership that resulted in an increase of 10 percent in premiums and 3 percent in fees and other revenue.

* Total Operating Expenses. Operating expenses were $1.2 billion for the second quarter of 2007, $62.0 million higher than the second quarter of 2006, excluding the 2006 debt refinancing charge of $12.4 million, pre-tax and the 2006 write-off of an insurance recoverable related to a prior-year physician class action settlement of $72.4 million, pre-tax. Including the other items, operating expenses were $22.8 million lower than the second quarter of 2006. Operating expenses, excluding the other items, as a percentage of revenue3 improved to 17.8 percent for the second quarter of 2007 from 18.4 percent for the second quarter of 2006, reflecting continued expense efficiencies. Including net realized capital gains (losses) and the other items, these percentages were 17.9 percent for the second quarter of 2007 and 19.8 percent for the second quarter of 2006.

* Corporate Interest Expense, after tax, was $27.8 million for the second quarter of 2007, compared with $21.9 million for the second quarter of 2006. The increase was due to higher average debt levels due to the company’s June 2006 debt refinancing.

* Net Income. Aetna reported net income of $451.3 million for the second quarter of 2007, compared with $389.5 million for the second quarter of 2006.

* Operating Margin was 10.8 percent for the second quarter of 2007, compared with 10.1 percent for the second quarter of 2006, pre-tax.4 The after-tax operating margin, which represents income from continuing operations divided by total revenue, was 6.6 percent for the second quarter of 2007, compared with 6.2 percent for the second quarter of 2006.