Health insurance company Aetna Inc. (AET) Thursday posted higher profit for the third quarter aided primarily by improved valuations in its investment portfolio. However, operating earnings fell 38% from last year, but topped the Street view. In addition, the company updated its operating earnings forecast for the full year, below consensus.
Q3 Results
The Hartford, Connecticut-based company's third-quarter net income was $326.2 million, up 18% from $277.3 million in the previous year. On a per share basis, earnings grew 26% to $0.73 from $0.58 in the same quarter of last year.
The company noted that the latest quarterly results included $18.0 million of net realized capital gains and the prior-year's results encompassed $232.0 million of net realized capital losses, which included significant other-than-temporary impairments of certain investments that decreased due to the then-deteriorating global economic conditions.
Operating earnings, which excluded certain items, for the latest quarter plunged 43% to $308.2 million from $536.7 million a year ago, and per share operating earnings dropped 38% to $0.69 from $1.12 earned in the comparable quarter of the previous year.
On average, 19 analysts polled by Thomson Reuters expected the company to post earnings of $0.66 per share. Analysts' estimates typically exclude special items.
Quarterly revenue, excluding net realized capital gains, totaled $8.70 billion, an increase of 9%, compared to the previous year's revenue of $7.98 billion. Nine Wall Street analysts had a consensus revenue estimate of $8.68 billion for the quarter.
The company's revenue growth in the recent quarter reflects a 9% increase in premium revenue and a 5% rise in fees and other revenue. This revenue growth reflects a higher level of membership and premium rate increases.
Health care premiums advanced to $7.09 billion from $6.45 billion last year, and Other premiums grew to $471.4 million from $466.7 million in the same quarter of last year. Fees and other revenue increased to $876.8 million from $834.1 million in the third quarter of 2008, while net investment income totaled $263.4 million, up from the prior-year's $229.8 million.
Segmental Analysis
The company's Health Care segment, which provides a full range of insured and self-insured medical, pharmacy, dental and behavioral health products and services, generated third-quarter revenue, excluding net realized capital gains, of $8.0 billion, up 9% from $7.3 billion last year. Operating earnings dropped to $345.7 million from $496.8 million a year ago, reflecting a 16% rise in medical costs partially offset by a 10% increase in premiums. Net income lightly declined to $356.5 million from $357.9 million in 2008.
Group Insurance business, which includes group life, disability and long-term care products, fetched quarterly revenues, excluding net realized capital gains, of $528.2 million, compared to $511.2 million last year. The segment reported net income of $46.2 million, compared to a loss of $57.5 million in the previous year. Operating earnings declined to $33.3 million from $46.4 million in the third quarter of 2008, primarily due to lower life underwriting margins.
Third-quarter net income at the company's Large Case Pensions unit, which manages a variety of discontinued and other retirement and savings products, primarily qualified pension plans, amounted to $1.0 million, as against a loss of $7.8 million incurred in the prior-year quarter. Operating earnings fell to $6.7 million from $8.8 million reported last year, reflecting the run-off mode of this business.
Year-To-Date Highlights
For the nine-month period, the company reported net income of $1.11 billion or $2.46 per share, compared to $1.19 billion or $2.40 per share in the year-earlier period.
Operating earnings for the nine months ended September 30, 2009 was $1.06 billion or $2.34 per share, compared to $1.47 billion or $2.97 per share in the same period of last year.
Total revenue advanced to $26.0 billion from $23.2 billion reported in the corresponding period of the previous year.
Outlook
Looking ahead, the company currently projects fiscal 2009 operating earnings to be $2.75 per share, compared to the previously communicated outlook range of $2.75 - $2.90 per share. Analysts are looking for earnings of $2.86 per share for the full year.
Further, the company expects ongoing medical cost management and pricing action plans to have a noticeable effect beginning in the first quarter of 2010, with additional financial impact realized during the remaining three quarters of the year.
Aetna also expects ongoing uncertainty about the U.S. economy with respect to employment and growth will continue to impact provider and member behavior as well as customer preferences in 2010.
Peer Review
Among Aetna's rivals, WellPoint Inc. (WLP) reported a decline in third-quarter profit that totaled $730.2 million or $1.53 per share, compared to $820.7 million or $1.60 per share in the prior-year quarter, as medical enrollment continues to decline, hurt by recession and rise in unemployment. Total revenues increased 3.1% to $15.4 billion from $14.9 billion in the previous year.
Another peer, CIGNA Corp. (CI) is due to publish its third-quarter results before the market opens on November 5, with analysts expecting earnings of $1.03 per share on revenues of $4.60 billion. While releasing second-quarter numbers, the company had boosted its fiscal 2009 outlook, expecting adjusted income from operations in the range of $1.04 billion - $1.10 billion, or $3.80 - $4.00 per share, versus its prior forecast range of $1.02 billion - $1.08 billion, or about $3.70 - $3.90 per share. Also, the company currently projects 2009 adjusted income from operations for the Health Care segment to be in the range of $700 million - $760 million. For the year, medical membership is expected to decline by about 5% - 5.5%.
Yet another competitor, UnitedHealth Group, Inc. (UNH) posted higher profit for the third quarter, totaling $1.04 billion or $0.89 per share, compared to $920 million or $0.75 per share in the prior-year quarter. Total revenues grew 8% to $21.7 billion from $20.16 billion in the previous year.
Stock Quotes
Aetna shares, which have been trading between $14.21 and $34.87 in the past 52 weeks, closed Wednesday's trading session at $25.32.
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