Aetna 2012 Annual Report Download - page 8

Annual Report- Page 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
OVERVIEW
We are one of the nation’s leading diversified health care benefits companies, serving approximately 37.3 million
people with information and resources to help them in consultation with their health care professionals make better
informed decisions about their health care. We offer a broad range of traditional, voluntary and consumer-directed
health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life
and disability plans and medical management capabilities, Medicaid health care management services and health
information technology services. Our customers include employer groups, individuals, college students, part-time
and hourly workers, health plans, health care providers (“providers”), governmental units, government-sponsored
plans, labor groups and expatriates. Our operations are conducted in three business segments: Health Care, Group
Insurance and Large Case Pensions.
Summarized Results
(Millions) 2012 2011 2010
Revenue:
Health Care $ 33,005.5 $ 31,254.0 $ 31,604.0
Group Insurance 2,145.9 2,025.6 2,118.6
Large Case Pensions 1,444.5 500.2 523.4
Total revenue 36,595.9 33,779.8 34,246.0
Net income 1,657.9 1,985.7 1,766.8
Operating earnings: (1)
Health Care 1,752.1 1,955.7 1,650.1
Group Insurance 161.5 153.0 128.0
Large Case Pensions 17.8 20.7 27.8
Cash flows from operations 1,822.0 2,507.8 1,412.1
(1) Our discussion of operating results for our reportable business segments is based on operating earnings, which is a non-GAAP measure
of net income (the term “GAAP” refers to U.S. generally accepted accounting principles). Refer to “Segment Results and Use of Non-
GAAP Measures in this Document” beginning on page 7 for a discussion of non-GAAP measures. Refer to pages 8, 12 and 13 for a
reconciliation of operating earnings to net income for Health Care, Group Insurance and Large Case Pensions, respectively.
We analyze our operating results based on operating earnings, which excludes from net income net realized capital
gains and losses as well as other items. Operating earnings for the past three years were primarily generated from
our Health Care segment. This segment produced lower operating earnings in 2012 than 2011 but higher operating
earnings in 2011 when compared to 2010.
Operating earnings in 2012 were lower when compared to 2011 primarily due to lower Commercial underwriting
margins in our Health Care segment (calculated as premiums less health care costs). Operating earnings in 2011
were higher than 2010 primarily as a result of higher Commercial underwriting margins in our Health Care
segment. In 2012, underwriting margins in the Health Care segment were lower than 2011 primarily due to the
favorable impact of development of prior-years' health care cost estimates on 2011 underwriting margins and
consideration of our 2011 experience in 2012 pricing. In 2011, underwriting margins in the Health Care segment
were higher than 2010 primarily as a result of low medical utilization, continued pricing discipline, medical cost
management and unit cost controls. There was no significant development of prior-years' health care cost estimates
in 2012. Our underwriting margins in 2011 and 2010 included $207 million and $118 million, respectively, of
before-tax favorable development of prior-years' health care cost estimates.
Total revenue increased in 2012 when compared to 2011 primarily due to an increase in Commercial Health Care
premium and fees and other revenue as well as $941.4 million of one-time Large Case Pensions premium. Total
revenue declined during 2011 when compared to 2010 primarily due to a decline in Health Care premium as a result
of lower Commercial Insured membership due primarily to lapsed customers and in-group attrition that exceeded