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The following is a transcript of the prepared remarks from Aetna Inc.'s third
quarter 2000 earnings conference call on November 1, 2000:
AETNA INC.
Moderator: Robyn Walsh
November 1, 2000
9:00 a.m. ET
Operator: Ladies and gentlemen, thank you for standing by. Welcome to
the Aetna Incorporated third quarter earnings release
conference call. At this time, all participants are in a
listen-only mode. Later we will conduct a
question-and-answer session. At that time, if you have a
question, you will need to press the 1 followed by the 4 on
your telephone. As a reminder, this conference is being
recorded Wednesday, November 1, 2000. I would now like to
turn the conference over to Ms. Robyn Walsh, vice president
of investor relations for Aetna Incorporated. Please go
ahead, ma'am.
Robyn Walsh: Good morning, everyone, and welcome the third quarter 2000
earnings conference call. With me this morning and chairman
and CEO, Bill Donaldson, vice chairman and CFO, Alan Weber,
Aetna US Healthcare president and CEO, Dr. Jack Rowe, and
Aetna US Healthcare head of operations, John Coyle. We will
begin today's call with remarks from Bill Donaldson, Jack
Rowe, and Alan Weber. I will review the third quarter
results and key earnings trends for each of the businesses.
Everyone on the call this morning will be available to
respond to questions during the Q&A.
During the call we will make forward-looking statements.
Some factors that may materially impact these statements
and could cause actual future results to differ materially
from currently expected results are described in greater
detail in our SEC filings, particularly our 2000 Form
10Q's, Form 8K filed on July 18 and July 20, our proxy
statement and Form 10 filed on October 18, 2000, our 1999
annual report on Form 10K, and our 1999 annual report to
shareholders.
As you know, the SEC has recently adopted Regulation FD. In
light of Regulation FD, we will be limited in responding to
inquiries from investors or analysts in a non-public forum.
Therefore, we encourage you to ask all questions of a
material nature on this conference call. Now I will turn
the call over to Bill.
Bill Donaldson: Thanks very much, Robyn. Thank you all for joining us
today. Aetna today reported third quarter 2000 operating
earnings before other items of 158 million, or $1.10 per
share versus our earnings in the second quarter of 2000 of
134 million, or 94 cents per share. Third quarter earnings
in 1999 were 184 million, or $1.21 per share. Although we
had an 80 basis-point improvement in the MLR of our Aetna
US Healthcare commercial risk business, the fundamental
medical cost trend as projected on the second quarter
analyst call was essentially flat for the quarter. The
medical cost trend is projected to remain flat for the
fourth quarter. Additional premium increases and cost
reductions underway are not expected to have a material
impact until the first quarter 2001.
Our Prudential Healthcare business is in transition. The
results have deteriorated and are clearly a disappointment,
but as Alan Weber will explain in detail in a few minutes,
we have identified the particular root causes and are
implementing corrective action for this business, which
represents approximately 16 percent of our membership.
At this point, let me try to put upcoming comments by Jack
Rowe, Alan Weber, and Robyn Walsh into the context of the
intensive program for change, which my colleagues and I
have had underway since last February. As I think you know,
our first task was to move quickly to understand the
impediments that seem to be negatively affecting the
operating and financial results of our Aetna US Healthcare
business and, given Aetna US Healthcare's size, the results
of Aetna as a whole.
Upon completion of intensive review by senior management
and our outside financial and legal advisors, we took as a
first step a decision to unlock and return to our
shareholders a value inherent in our Aetna Financial
Services and Aetna international businesses. Our efforts to
this end culminated with the announcement last July of the
proposed sale of these units to ING. The transaction, I'm
pleased to report, is on track and scheduled for closing in
early December. The details are covered in our recently
filed Form 10 and proxy and the shareholders meeting and
vote is scheduled for November 30, 2000. A major collateral
benefit of this transaction, besides on the value to be
received and the focus we can now bring to our leading
physician and health care business is the elimination of
diversions of cash flows from health to other units of
Aetna.
Current with the efforts to affect this transaction, we
organized several strategic teams from within Aetna to take
a fresh and critical look in a number of operating areas --
our market delivery system, our products, customer
services, our e-health resources and initiatives, and our
management structure. Augmenting this work with outside
experts and advisors, we have focused on a range of company
policies and approaches that no longer seemed appropriate
in the rapidly changing landscape to the managed care
industry. Let me mention a few examples.
In retrospect, it was clear that the company's emphasis on
top-line growth and increasing market share had led to
underpricing of our commercial risk business. This was
compounded by broker and sales force incentives which
focused on membership growth rather than expanding margins
and return on investment. Our growth by acquisitions
necessitated the consolidation of service center platforms
which has resulted in a deterioration of our customer
service and satisfaction. We had a provider contracting
rigidity, which added to the hassle factor for both member
and provider with a cost to implement that, in many cases,
did not justify the benefit we sought. We were providing a
limited new product innovation that did not meet the
rapidly changing demands of the marketplace. We were
operating with a highly centralized management structure
that resulted in the promulgation of standardized, uniform
approaches in a business which, although national in scale,
must be responsive to diverse and unique local member and
provider needs. We are moving to address these and many
other new directions for Aetna US Healthcare.
As you all know, we are most fortunate to have Dr. Jack
Rowe as a new president and chief executive of Aetna US
Healthcare. In addition to being a distinguished physician
and proven healthcare manager and executive, Jack brings to
his new role at Aetna, a professional career intimately
involved in the issues that face our industry and company.
Jack will now review the actions we have taken and are
planning to take, and will discuss some of the drivers of
our results and plans for the future that should give you a
feel for the magnitude and timing of these initiatives.
Jack?
Jack Rowe: Thank you, Bill, thank you very much, and thanks to all of
you for joining us this morning. I see my responsibility to
Aetna and its stakeholders as creation of a more
profitable, more effective company. In order to achieve
this objective, we must identify and manage the major
elements that drive our effectiveness and our
profitability, and we must also undertake the changes in
our operating processes and interactions that will
facilitate implementation of a new strategic plan.
As we move forward, I see events and actions breaking into
three somewhat overlapping time periods. The first period
actually began earlier this year and will continue through
the fourth quarter. The second period, what I term the
transition period, will run from the present time through
June of 2001, and then a third period begins and moves
forward, encompassing the announcement and the
implementation of the strategic plan for the new Aetna.
The first period event includes those up to and including
the closing of the ING transaction and related activities.
This is a transformational event for the company. In the
transition period, second period, which starts now, we will
undertake two types of specific actions -- those that
directly improve our financial performance and those that
will facilitate implementation of our new strategic plan.
The actions that will improve our financial performance and
profitability, which we are currently undertaking include
first, withdrawal from certain Medicare Plus Choice service
areas for the year 2001. Second, withdrawal from identified
commercial HMO markets which have not been profitable, and
which are not of key strategic value to the company. Third,
implementation of very significant price increases, which
become effective January 1, 2001. Fourth, completion of the
Phase 1 cost reductions for the year 2000 that were
announced earlier in this year. We had originally announced
plan savings of 100 million to 150 million pretax. Our
actual cost reductions to date have been at the higher end
of that range. Next, a development of very significant
additional cost reductions for the year 2001, at least
twice that of the planned Phase 1 savings, and, lastly,
enhance control of medical costs by implementing several
specific actions as we transition the company from a
centrally to a more regionally managed organization.
In addition to improving profitability during this
transition period, we are also spending very considerable
time and effort on a number of issues that will facilitate
the new plan. These include, first, repairing our relations
with physicians and hospitals, plan sponsors, consultants
and brokers, and other strategic partners. Second,
beginning a reorganization of our administrative systems
and reengineering of many of our business processes and
service elements. Thirdly, strengthening the management
structure of the company with identification of new senior
positions and a proper organization of the senior
management that will align our management resources with
the tasks at hand.
Regarding the new strategic plan, this will be based on our
new member-centric philosophy and the identification and
articulation of our value-added. We aim to go beyond simply
serving as a fiscal intermediary and aim to have the
capacity to enhance physician effectiveness and individual
patients' health-related decision-making. The development
of the plan will be significantly informed by a report
offered by a major consultant group who evaluated the
company earlier this year, and, very importantly, by the
excellent work of the key strategic planning teams that
were established by Bill Donaldson in the spring. These
strategic planning teams have worked and made specific
recommendations in a number of areas, many of which are
already underway including product flexibility and the
introduction of the new products, the creation of strategic
partnerships, sales force realignment, reengineering the
business and service processes, leverage and coordination
of our substantial functional assets, enhancement of our
e-health capacity, and approaches to the identification of
the most effective market presence for the new Aetna.
The development of our strategic plan will encompass much
of the beginning of 2001, by which time the actions that we
are currently undertaking to enhance profitability will be
having beneficial effects, and our efforts to enhance our
relationships with key partners and stakeholders will
prepare the environment for the introduction of the new
Aetna.
I know that you want the answers to many questions
regarding our financial performance, and you deserve to
know. We have had very positive preliminary results in the
strategic teams that Bill Donaldson started, but in light
of the several new initiatives that we've begun, that I
have reviewed in part with you here this morning, we are
refining our projections for the fourth quarter and the
business plan for 2001. We will be in a position to give
you more details with respect to this in December. What I
am confident in saying at this point is that we will be
profitable in 2001, and that performance is projected to
improve over the level experienced in the second half of
2000.
Now Alan Weber will provide an earnings overview in the
fourth quarter outlook. Alan?
Alan Weber: Thank you, Jack. As expected, our third quarter commercial
health operating earnings for Aetna US Healthcare,
excluding Pru, reflected a 10-percent medical cost trend
similar to what we experienced in the second quarter. We
saw some improvement in Aetna US Healthcare's base
commercial HMO business, however, there was some weakening
in the Prudential Healthcare results. Let me turn to
Prudential Healthcare.
The Pru commercial HMO MLR rose to 93.9 percent in the
third quarter from 88.9 percent in the second quarter. This
resulted in an overall Pru MLR of 89.4 percent, excluding
the net MLR reinsurance benefit and compared to 86.6 in the
second quarter. The rise in medical costs for the quarter
for Pru commercial HMO was also due to additional costs
related to prior periods in 2000, and a higher trend
assumption for the third quarter. We have identified the
root causes that represent the bulk of the worsening
experience, and we're taking a number of corrective actions
that are expected to improve performance.
A concentration of markets and customers has driven our
performance year-to-date for Pru commercial HMO. About 10
markets comprising approximately half the peak Pru
commercial book have experienced medical cost trends 600
basis points in excess of the premium yields in those
markets. In the remaining Pru markets, the medical cost
trend has been approximately 100 basis points above premium
increases, largely resulting from higher-than-anticipated
utilization. In the core performing Pru markets,
utilization issues, as well as the effects arising from
certain terminated risk deals have been the key drivers of
the higher medical costs.
To address this utilization, we have reallocated resources
to on-site concurrent review and case management. We also
do not anticipate any further medical cost trend increase
from the termination of any remaining provider risk deals.
Also contributing to the results are 30 large customers
that account for 20 percent of the total Pru membership and
have an MLR of approximately 105 percent. Lapses will
eliminate nine of these 30 cases. These lapsing cases
represent 27 percent of these members and 110 percent MLR.
We believe pricing actions with the remainder of the large
cases will further improve the performance. Pru results
before goodwill, interest, severance, and the benefit of
the MLR reinsurance and ASO supplemental fees, were
approximately 19 million negative for the third quarter
compared to breakeven results in the second quarter.
Including the MLR reinsurance and ASO supplemental fees,
severance, goodwill, and interest, Pru lost the
penny-per-share for the third quarter compared to earning
approximately 13 cents per share in the second quarter.
We are continuing to move customers to the Aetna US
Healthcare products as they renew. To date, we've moved
approximately 400,000 members to the Aetna products.
Operationally, we are ready to convert an additional 1.2
million members to Aetna products by January 1, 2001. The
benefit of moving the Pru members to the Aetna products and
Aetna infrastructure, is generally to experience a more
consistent medical cost structure and will improve the
overall results.
We expect the Pru commercial HMO business to improve in
2001, as roughly one-third of this business lapses,
one-third of this business converts to Aetna products, and
as a residual Pru product reprices, we expect an average
yield in excess of 15 percent.
As a note, beginning in the fourth quarter, combined
results will be directly comparable on a
quarter-over-quarter basis. So, accordingly, we will only
report and discuss results and statistics for all of our
health business, and we'll no longer report Pru results or
statistics separately.
Let's talk about the fourth quarter. Upon the finalization
of the sale of AFS and international to ING, we expect to
record non-recurring after-tax charges relating to the
transaction of between 200 million and 250 million.
Additionally, assuming the ING transaction closes in early
December, the results for AFS and international would be
reflected as discontinued operations for the fourth
quarter. Accordingly, Aetna US Healthcare and large-case
pensions would be presented as the new stand-alone entity,
similar to the financial statements reflected in the proxy
and Form 10.
We are conducting a comprehensive review of the health
business model, and we are in the process of considering
and implementing a number of strategic initiatives as just
discussed by Jack Rowe and Bill Donaldson. Once the
initiatives are decided, this could result in a significant
severance and/or other charges in the fourth quarter. In
addition, we will exit a significant number of Medicare
service areas. We will evaluate the need to establish
liabilities related to this exit. Also, there is
approximately $270 million of goodwill that is identified
with these service areas. The Medicare exits could result
in severance charges, goodwill write-offs, or other charges
for the fourth quarter.
For the remainder of 2000, we anticipate that our premium
yields will continue to show improvement, and that our
medical cost trends will be consistent with those
experienced in the second and third quarter. Due to the
normalcies and ramp up of activities related to January 1
renewals and the increased costs related to the January 1st
Pru conversion, we expect a sequential increase in SG&A.
For large-case pensions, we project income in the fourth
quarter to be about half what it was in the third quarter,
reflecting the lack of anticipated partnership income. We
project Aetna's combined interest and corporate other
expenses to be approximately 20 percent less than the
amount recorded currently in the third quarter.
Now I'll turn the call back to Robyn.
R. Walsh: Thank you, Alan. Today Aetna reported third quarter
operating earnings, excluding other items, of 158 million,
compared to earnings of 184 million in third quarter of
1999. Aetna's operating earnings per share of $1.10 is 9
percent below the $1.21 per share reported for the third
quarter of '99. Third quarter 2000 operating earnings
include the following after tax: approximately 15 million
in partnership distribution, 12 million of severance costs,
and 6 million of net favorable contract development in
Aetna US Healthcare, approximately 5 million of favorable
non-recurring tax items international, and approximately 9
million of partnership income in large-case pensions. Cash
earnings for the quarter defined as operating earnings plus
goodwill amortization, were $1.77 per share compared to the
$1.82 per share for the prior-year quarter. Third quarter
2000 operating earnings do not include a $5.2 million
after-tax charge related to a shareholder litigation
settlement agreement.
Aetna US Healthcare -- since third quarter 1999, only
reflects a partial quarter of PHC results, the Aetna US
Healthcare discussions will be based upon sequential
comparison as opposed to the quarter-over-quarter
comparison. Aetna US Healthcare reported after-tax
operating earnings before goodwill of $163.7 million for
the quarter, essentially level with the second quarter's
results. Health risk business earnings before goodwill for
the quarter, which include Prudential Health Care results
were 81.3 million after tax, a 2-percent decrease over the
second quarter 2000. Due to the lower PHC results and
higher Medicare and medical costs partially offset by
improved results in Aetna US Healthcare's commercial base
book and greater investment income.
Third quarter results for PHC's commercial HMO business
reflected significantly higher medical costs, which Alan
addressed earlier. Health risk earnings were adversely
affected by significantly higher Medicare medical costs
driven by some deterioration in markets we announced our
intention to exit, and the unfavorable impact of the
resolution or termination of certain provider contracts. In
addition, health risk earnings also reflected the favorable
development of a government plan arrangement related to
prior years. Aetna US Healthcare's commercial base book
showed improvement as a higher level of rate increases for
the quarter exceeded the sequential increase in medical
costs. This was evident in the 80 basis-point sequential
decline in the commercial MLR. Third quarter earnings in
group insurance and other health business were 3 percent
higher sequentially, due primarily to greater partnership
income distributions, partially offset by higher expenses.
Aetna US Healthcare's commercial HMO quarter-over-quarter
medical cost trend for the third quarter, excluding
Prudential, was approximately 10 percent. Aetna US
Healthcare's Medicare HMO trend is in the 11-percent to
13-percent range, and the PPO trend is in the 11-percent to
13-percent range also. Total Aetna US Healthcare pharmacy
costs on a per-member, per-month basis have risen
approximately 7 percent quarter-over-quarter, reflecting
the effect of benefit plan changes, the move to triple
co-pay options, and our medical cost initiative. The number
of Aetna US Healthcare members with the triple co-pay
option continues to grow and has gone from 25 percent as of
December 1999 to approximately 56 percent as of September
30th. SG&A for the third quarter 2000 included 12.3 million
of after-tax severance costs related to Prudential Health
Care. Second quarter after-tax severance costs were 16.2
million.
I will now review the operating statistics of the business.
Pricing -- for premiums reported during the third quarter
we have achieved an 8 percent to 9 percent
quarter-over-quarter yield on the Aetna US Healthcare
commercial HMO business excluding Prudential, and a 12-plus
percent quarter-over-quarter yield on the Prudential
commercial HMO business including benefit changes and
geographic mix.
Investment income -- Aetna US Healthcare recorded a 23
million sequential improvement in investment income
reflecting higher-than-average partnership income. Aetna US
Healthcare's investment portfolio includes a certain amount
of equity partnership. Income is reported on these
partnerships when a distribution is received from the
general partner. Over the last six quarters, partnership
income averaged approximately $9 million per quarter.
Membership -- total health membership served now stands at
19.2 million members, down approximately 1.3 million
members from year-end '99. Excluding Prudential Healthcare,
total health membership was up 1.3 percent compared to
year-end '99. We continue to project that the US Healthcare
commercial HMO risk membership growth for 2000, excluding
Prudential, and to be in the mid single-digits with overall
membership slightly up. The total Prudential membership
decline year-to-date is approximately 30 percent. HMO risk
membership, excluding Prudential, is now approximately
5-percent higher than year-end '99 levels. There was a
28-percent decline for Prudential HMO risk members
year-to-date. This resulted in a net decline in the
combined HMO risk membership of approximately 6 percent
compared to year-end '99. Prudential commercial HMO risk
membership is now projected to decline in the 30-percent
range while overall Prudential health membership is
expected to decline by 30 percent plus. This is a greater
decline than we had previously estimated, reflecting the
impact of significant price increases.
Our net worth -- Aetna's provider network is in excess of
450,000 providers as of October 1, 2000. We continue to
work on our network development as demonstrated by our
overall network growth, which has increased 10.3 percent
for HMO and 5.2 percent for PPO since January 1, 2000.
Bed days per 1,000 -- our bed day statistics for commercial
and Medicare show increased utilization quarter-over-quarter
of 5 percent and 6 percent, respectively. Commercial bed
days in the third quarter 2000 were about level,
sequentially, while Medicare bed days were 5 percent lower
sequentially.
Medical loss ratios, commercial -- the combined commercial
MLR for the third quarter is 87.4 percent, a 60 basis-point
increase from the second quarter due to the higher medical
costs in Prudential. The commercial MLR for the third
quarter, excluding Pru, was 85.1 percent, an 80 basis-point
improvement over the second quarter MLR due to premium
increases on July renewals.
Medicare -- the combined Medicare MLR for the second
quarter is 99 percent, a 170 basis-point increase over
second quarter due to higher medical costs driven by some
deterioration in markets we announced our intention to
exit, and the unfavorable impact of the resolution or
termination of certain provider contracts. In late June we
announced our intent to exit those Medicare HMO markets
where plan operations are no longer feasible under current
federal reimbursement levels and market conditions. These
withdrawals will take effect on January 1st of 2001, and
would affect approximately 340,000 current Medicare HMO
members, or approximately 55 percent of our Medicare
membership.
In the third quarter, those Medicare HMO markets had a
combined MLR of approximately 103 percent. Excluding those
markets, the Medicare MLR would have been approximately
92.5 percent. Until year end, we will continue to focus on
mitigating the effects of the higher Medicare medical
costs.
Days payable -- the number of days of HMO medical expense
and medical costs payable as of September 30, 2000, for
Aetna US Healthcare and Prudential combined is 57 days
compared to 55.5 days on a combined basis in the second
quarter. Backlog is roughly level compared with the second
quarter. We believe our claim reserves, as of September 30,
are adequate.
HMO SG&A -- HMO SG&A expenses, excluding severance costs,
and the New Jersey assessment in the second quarter, were
11.1 percent of revenues, lower than the 11.4 percent in
the second quarter, reflecting continued expense
initiatives, workforce attrition, and PHC synergies. For
2000 we were on target to meet our goal for the HMO SG&A
expense ratio, including Prudential, which is to be in the
11.5-to 12.5-percent range. Overall, expenses were slightly
higher sequentially, due to greater expenses related to
group insurance.
Aetna Financial Services -- Aetna Financial Services' third
quarter earnings of 67 million after tax grew 21 percent
over the third quarter last year and 6 percent
sequentially, primarily due to business growth outpacing
expense growth. Aetna's financial services assets under
management and administration have grown to 82 billion, up
19 billion over the third quarter of '99. Despite the
market decline during 2000, AFS assets under management and
administration have grown 9 billion since year-end '99
primarily due to business growth. Sales for the year are up
13 percent compared to the nine-month period of 1999,
excluding the sale of large cases won in both periods.
Financial services annuity expense-to-asset ratio improved
one basis point over third quarter last year, to 65 basis
points. The expense-to-asset ratio was up sequentially due
to a lack of growth in assets under management as well as
previously disclosed investment to improve business system
infrastructures and to increase our distribution
capabilities. Assuming the completion of the transaction
with ING in the fourth quarter, AFS results would be
reflected as a discontinued operation.
Aetna International -- Aetna International's third quarter
operating earnings from continuing businesses of 63 million
after tax improved by 37 million over last year's quarter.
Third quarter earnings included approximately 5 million of
favorable net tax items. International's
quarter-over-quarter results were attributable to the
addition of earnings by the new life insurance company in
Japan, improved earnings in the Mexican operation, improved
results in Brazil, and revenue growth and expense
management in Taiwan. Earnings improved approximately 11
million, or 20 percent sequentially, due to the favorable
tax items and earnings growth, particularly in Japan and
Mexico. Like AFS, upon completion of the transaction with
ING, results of Aetna International will be reflected as a
discontinued operation.
Large-case pension -- large-case pension's third quarter
operating earnings of 20 million after tax were 6-percent
lower than the third quarter of '99 and was 37-percent
higher sequentially. The third quarter earnings were lower
than the prior year, reflecting lower investment income due
to the redeployment of capital supporting this business.
Third quarter earnings were higher sequentially due to a
greater level of partnership income. We expect LCP's fourth
quarter to reflect a lower-level investment income,
resulting from the continuing runoff of this business, as
well as lower partnership income.
Corporate -- corporate expenses were about 2 million higher
quarter-over-quarter due to higher interest expense related
to the funding of the Prudential Healthcare acquisition,
partially offset by lower corporate operating expenses.
Corporate expenses were approximately 2 million lower
sequentially, as higher interest expenses were more than
offset by lower corporate operating expenses.
***********************************************************
Aetna has filed a proxy statement and other relevant documents concerning the
merger with the United States Securities and Exchange Commission (the "SEC").
WE URGE INVESTORS TO READ THE PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS
FILED OR TO BE FILED WITH THE SEC, BECAUSE THEY CONTAIN IMPORTANT INFORMATION.
Investors will be able to obtain the documents free of charge at the SEC's Web
site, http://www.sec.gov. In addition, documents filed with the SEC by Aetna
will be available free of charge by calling 1-800-237-4273. Documents filed
with the SEC by ING will be available free of charge from the Investor
Relations Department, Strawinskylaan 2631.1077 ZZ Amsterdam, P.O. Box 810, 1000
AV. Amsterdam, The Netherlands 31-20-541-5462.
PLEASE READ THE PROXY STATEMENT CAREFULLY BEFORE
MAKING A DECISION CONCERNING THE MERGER.
This document does not constitute a solicitation by Aetna or its board of
directors of any approval or action of its shareholders.
Aetna and its board of directors will be soliciting proxies from Aetna
stockholders in favor of the merger. You can obtain more information about
Aetna's directors and officers and their beneficial interests in Aetna's common
stock from the SEC's Web site, http://www.sec.gov, and Aetna's Web site,
http://www.aetna.com. Updated information with respect to the security holdings
of these individuals will be included in the final proxy statement to be filed
with the SEC.
CAUTIONARY STATEMENT -- Certain information in this document concerning the
transaction with ING is forward-looking, including statements regarding the
amount of cash per share that Aetna's shareholders are projected to receive
from the transaction, the tax-efficient nature of the transaction, and Aetna's
expectation as to the closing date of the ING transaction. Certain information
in this document concerning Aetna's health business is also forward-looking,
including the future business prospects for Aetna's health business and Aetna's
expectations as to the future impact of certain actions and plans Aetna intends
to implement in its health business. Forward-looking information is based on
management's estimates, assumptions and projections, and is subject to
significant uncertainties, many of which are beyond Aetna's control. Important
risk factors could cause the actual future results to differ materially from
those currently estimated by management. Risk factors that could materially
affect statements made concerning the ING transaction include, but are not
limited to: the capitalization of Aetna on the closing date, including the
number of shares outstanding at that time; the timely receipt of necessary
shareholder, regulatory and other consents and approvals needed to complete the
transaction, which could be delayed for a variety of reasons related or not
related to the transaction itself; the fulfillment of all of the closing
conditions specified in the transaction documents; and the results of, and
credit ratings assigned to, Aetna's health business at and prior to the closing
of the ING transaction. Risk factors that could materially affect statements
made concerning the results of Aetna's health business include, but are not
limited to: continued or further unanticipated increases in medical costs
(including increased medical utilization, increased pharmacy costs, increases
resulting from unfavorable changes in contracting or recontracting with
providers, changes in membership mix to lower premium or higher cost products
or membership adverse selection); the ability to successfully integrate the
Prudential HealthCare transaction on a timely basis and in a cost-efficient
manner and to achieve projected operating earnings targets for that acquisition
(which also is affected by the ability to retain acquired membership and the
ability to eliminate duplicative administrative functions and integrate
management information systems); adverse government regulation (including
legislative proposals to eliminate or reduce ERISA pre-emption of state laws
that would increase potential litigation exposure, other proposals that would
increase potential litigation exposure or proposals that would mandate coverage
of certain health benefits); and the outcome of litigation and regulatory
matters, including numerous purported health care actions and ongoing reviews
of business practices by various regulatory agencies. For further discussion of
important risk factors that may materially affect management's estimates,
Aetna's results and the forward-looking statements herein, please see the risk
factors contained in Aetna's Securities and Exchange Commission filings, which
risk factors are incorporated herein by reference. You also should read those
filings, particularly Aetna's 1999 Report on Form 10-K and Report on Form 10-Q
for the period ended March 31, 2000 filed with the SEC, for a discussion of
Aetna's results of operations and financial condition.
