2nd UPDATE: Aetna's 4Q Earnings Up 73% On Light Health Usage
February 01 2012 - 11:52AM
Dow Jones News
Aetna Inc.'s (AET) fourth-quarter earnings rose 73% as the
health insurer continued to benefit from light medical costs amid a
sluggish pace of patient visits to hospitals and doctors'
offices.
This trend, brought on by the weak economy and high
unemployment, fueled earnings gains and rising stock prices across
the managed-care sector last year. Aetna in mid-December indicated
it capped the year on a strong note by raising its 2011
guidance.
Analysts expect issues such as the upcoming U.S. presidential
election and Supreme Court ruling on the U.S. health-care overhaul
law could be more influential drivers for health-insurance stocks
this year. The industry has generally taken a cautious approach
with 2012 guidance projections, although companies steadily raised
guidance through last year.
Aetna on Wednesday maintained its forecast--which it raised in
mid-December--for operating earnings of about $5.00 a share this
year, which is less than analysts were recently expecting.
The company is "encouraged by our early indications for 2012,"
Chief Executive Mark Bertolini said during a conference call.
Shares of the Hartford-based company rose 3.1% to $45.06 in
recent trading, putting them up more than 33% over the last
year.
The insurer reported a profit of $372.6 million, or $1.02 a
share, up from $215.6 million, or 53 cents, a year earlier.
Excluding items such as realized capital gains, transaction-related
costs and severance, earnings rose to 97 cents a share from 63
cents. Revenue excluding capital gains and losses edged up slightly
to $8.54 billion.
Analysts polled by Thomson Reuters had most recently forecast
earnings of 97 cents a share on revenue of $8.5 billion.
Pretax operating margin rose to 7.9% from 5.5%.
Aetna's total medical-benefit ratio, or the amount of premiums
used to pay patient medical costs, fell to 80.7% from 83% a year
earlier and was up from 78.9% in the prior quarter.
Aetna is taking a cautious approach by forecasting that
health-care usage will rise in the new year. But this is more about
prudently managing risk while setting prices than actual signs
patients are ramping up their health-care usage, officials
said.
"The consumer still seems retrenched," said Joseph Zubretsky,
Aetna's chief financial officer, in an interview. One big question
for Aetna and insurers in general is whether, once the economy and
employment trends improve, consumers will revert to normal
health-usage patterns or continue holding back because of rising
out-of-pocket costs.
"We're guarded against whether this is the new normal,"
Zubretsky said, regarding recent usage trends. "That's what we
don't know."
Meantime, he noted in a release that the company expects to have
$1.35 billion of deployable capital for this year. Aetna has been
making acquisitions lately as it diversifies its operations, with
recent purchases including Prodigy Health Group, an administrator
of self-funded health-care plans, in June.
In October, Aetna bought account-based health-plan administrator
PayFlex Holdings Inc. and a Medicare supplement business with more
than 150,000 members from Genworth Financial Inc. (GNW).
Unlike some competitors, however, Aetna hasn't made big
purchases aimed at broadly boosting its exposure to senior-focused
health coverage such as Medicare Advantage plans. Data released by
the government Wednesday underscored insurers' interest in the
market by showing 10% Medicare Advantage enrollment growth since
this time last year. Premiums, however, were down 7% on
average.
Zubretsky in the interview stressed how much Aetna has grown in
the market since the middle of the last decade, plus the
opportunity Aetna has to covert its own commercial customers to
Medicare Advantage. "We've been focusing on organic opportunities,"
he said.
Aetna's total medical membership at the end of last year rose to
18.5 million from 18.23 million at the end of September. Membership
was little changed compared with the tally at the end of 2010.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728;
jon.kamp@dowjones.com
--Melodie Warner contributed to this article.
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