CIGNA Corporation Q2 2008 Earnings Call Transcript

 |  About: Cigna Corp. (CI)
by: SA Transcripts


Thank you for standing by for CIGNA’s second quarter 2008 results review. (Operator Instructions) We’ll begin by turning the conference over to Mr. Ted Detrick.

Ted Detrick

I am Ted Detrick, Vice President of Investor Relations. With me this morning are Ed Hanway, CIGNA's Chairman and CEO, David Cordani, President and Chief Operating Officer, Mike Bell, CIGNA's Chief Financial Officer, and Marcia Dall, Financial Officer for CIGNA Health Care business.

In our remarks today, Ed will begin by discussing highlights of CIGNA's second quarter results. Mike will then review the financial details of the quarter, and provide the financial outlook for full year 2008, he will also comment on our current view regarding 2009. David will discuss a number of topics including the actions we are taking to increase Health Care results in the second half of 2008. He will also comment on the integration status of our recent acquisition of the Great-West HealthCare business. Ed will make some concluding remarks and then we will open the lines for your questions.

As noted in our earnings release, CIGNA uses certain financial measures, which are not determined in accordance with Generally Accepted Accounting Principles, or GAAP, when describing its financial results. Specifically, we use the term labeled "adjusted income from operations" as the principal measure of performance for CIGNA in our operating segments.

Adjusted income from operations is defined as income from continuing operations, excluding realized investment results, special items, and the results of our guaranteed minimum income benefits business. A reconciliation of adjusted income from operations to income from continuing operations, which is the most directly comparable GAAP measure, is contained in today's earnings release which was filed this morning on Form 8-K with the Securities and Exchange Commission, and is also posted in the Investor Relations section of

In our remarks today we will be making some forward looking comments. We would remind you that there are risk factors that could cause actual results to differ materially from our current expectations and those risk factors are discussed in today's earnings release.

Before I turn the call over to Ed, I will cover a few items pertaining to our second quarter results and disclosures. First, our second quarter results include the results of the Great-West Health Care business which we acquired on April 1, this year. In our second quarter 10-Q we will provide expanded disclosures regarding the acquisition of Great-West including pro-forma supplemental financial information as if the acquisition had closed on January 1, 2007.

In addition, CIGNA’s second quarter net income included an after-tax charge of $52 million related to a litigation matter concerning our pension plan. This charge is reported as a special item and therefore is excluded from adjusted income from operations in today’s discussion of both our second quarter results and our full year 2008 outlook.

Lastly, CIGNA’s second quarter net income included after tax gains of $34 million or $0.12 per share related to the guaranteed minimum income benefits business otherwise known as GMIB which is reported in the run off re-insurance segment. Remember that CIGNA adopted financial accounting Standard 157 in the first quarter this year which impacts the measurement of fair value for the assets and liabilities of the GMIB business.

I would also remind you that the impact of Statement 157 reporting for our GMIB results if for GAAP accounting purposes only and does not represent the actual economics or cash flows of that business. Accordingly, the year to date after tax losses of $161 million from that business are non-cash charges and have no affect on our estimate for 2008 subsidiary dividends. Finally, as a reminder CIGNA’s future results for the GMIB business will become more volatile as any future change in the exit value of the assets and liabilities of that business will be recorded in net income.

CIGNA’s 2008 earnings outlook which Mike Bell will discuss in a few moment, excludes the results of the GMIB business and therefore any potential volatility related to the perspective applications of that Statement 157.

I would like to remind you that CIGNA will be hosting its Annual Investor Day this year on November 1st in New York City. With that I’ll turn it over to Ed.

Ed Hanway

Our second quarter adjusted income from operations was $303 million or $1.08 per share. Our second quarter earnings improved from first quarter reflecting higher Health Care results and continued strong results from our Group Disability and Life and International businesses. These results demonstrate the strength of our diversified earnings streams which provide us with unique opportunities to grow profitably despite challenging economic conditions.

On a year to date basis Health Care earnings were $319 million, with earnings improving by approximately $40 million in the second quarter relative to the first quarter. Second quarter Health Care results were impacted by a number of factors including favorable operating expenses, increased contributions from our specialty businesses and strong earnings from the recently acquired Great-West business.

Conversely the guaranteed cost book experienced lower membership driven by pricing discipline and lower new business sales and a higher medical cost ratio. We expect to see meaningfully improved Health Care earnings through the remainder of 2008, although the extent of the improvement will be less than previously expected. David will describe the actions we are taking to drive that improvement.

Related to the Great-West acquisition our integration efforts to date are progressing well and consistent with our expectations. We continue to expect the acquisition to be accretive to earnings in 2008 and significantly accretive in 2009 and 2010.

I will now comment briefly our Group Disability and Life and International businesses. Our Group and International businesses delivered another strong quarter with competitively strong top line growth and profit margins. The first half of 2008 our Group business reported earnings of $141 million with premiums and fees growing year over year at an attractive rate of 10%. Our after tax margins in this business continued to be industry leading.

Our International business has reported year to date earnings of $100 million an increase of 22% compared to the first half of 2007, a growth in premium and fees of 12%. Overall, both our Group and International operations have good growth opportunities and strong market positions which we expect will enable them to continue to deliver good top line and bottom line growth over the next several years.

Turning to capital management, we resumed our share buy back program during the second quarter and repurchased 6.7 million shares or $264 million through July 31st.

Regarding the full year 2008 outlook, we expect that earnings per share will be in the range of $4.05 to $4.25 per share which is consistent with our prior guidance. The outlook reflects higher second half Health Care earnings although the level of growth is less than previously expected, related to both the experience rated and guaranteed cost book. The outlook also reflects the positive impact of our year to date share repurchase.

Mike is now going to cover the specifics of the second quarter results and our 2008 outlook.

Mike Bell

In my remarks today I’ll review CIGNA’s second quarter 2008 results also provide an update on our full year outlook and I’ll comment briefly on our early thinking for 2009. In my review of consolidated segment result I’ll comment on adjusted income from operations, this is income from continuing operations excluding realized investment results, GMIB results and special items.

Our second quarter earnings were $303 million or $1.08 per share compared to $284 million or $0.98 per share in 2007. Our consolidated second quarter 2008 earnings improved relative to first quarter reflecting increased Health Care earnings and continued strong results in Group Disability and Life and International.

Now I’ll review each of the segment results beginning with Health Care. Second quarter Health Care earnings were $181 million relative to first quarter this result reflected the benefit of lower operating expenses and an increased contribution from our specialty businesses. In addition, Great-West contributed $16 million of after tax earnings in second quarter excluding financing costs which are reflected in the corporate segment.

Now I’ll discuss our Health Care results by major component. Guaranteed cost earnings declined sequentially mainly reflecting a higher than expected MLR and lower membership. Our guaranteed cost MLR the first half of 2008 was 84.8% excluding our voluntary business. This included approximately 50 basis points for flu related upper respiratory claims in the first quarter and higher than expected year to date catastrophic claims.

We currently expect our guaranteed cost MLR to improve to a range of 83% to 83.5% for the full year. This range is slightly higher than our previous estimate of 83% it reflects modestly higher expectations for medical trends due to the higher upper respiratory and catastrophic claims in the first half of the year. We expect the improvement in the MLR during the second half of the year to be driven primarily by renewal price increases that are higher than trend and the impact of additional underwriting actions.

Excluding the non-medical account loss in first quarter our experience rated results improved sequentially but were below our expectations. The sequential improvement reflected a better medical loss ratio and more favorable operating expenses. Relative to our expectations we experienced a higher dollar amount of account level deficits in the second quarter than we had anticipated.

Our ASO results were strong in the quarter driven by lower operating expenses and continued increase in the earnings contribution from our specialty products. Relative to operating expenses our second quarter earnings benefited by $16 million after tax due to lower expenses compared to the first quarter. Approximately half of the sequential improvement was due to items which we do not expect to repeat in the second half of the year.

With respect to medical costs there is no change in the full year medical trend outlook for our total book of business. We continue to expect medical cost trend for our total book to be in the range of 6.5% to 7.5% for full year 2008.

Our medical membership was 12.1 million members as of June 30. This includes the impact of the acquisition of Great-West Health Care on April 1st. Excluding Great-West membership was 1% higher than at year end 2007. During the quarter our guaranteed cost membership declined by 2% and our ASO membership decreased by 1%. Our membership result reflects our continued focus on maintaining pricing discipline as well as the impact of higher dis-enrollment.

Health Care premiums and fees increased 13% relative to second quarter 2007 primarily due the acquisition of Great-West HealthCare. Excluding Great-West premiums and fees were flat reflecting rate increases in our guaranteed cost and experience rated businesses and higher specialty revenue offset primarily by a decline in guaranteed cost membership.

Now I’ll discuss the results of our other segments. Second quarter 2008 earnings in our Group Disability and Life were $73 million. This result includes an $8 million favorable impact from a disability reserve study. Earnings in the quarter primarily reflected attractive margins, revenue growth and continued strong disability management results partly offset by a less favorable life claims experience.

In our International segment, second quarter 2008 earnings of $48 million reflected continued growth and competitively strong margins in our Life Accident Supplemental Health and expatriate benefits businesses. Our Group and International businesses continue to be important contributors to our consolidated results.

Earnings for our remaining operations including run off re-insurance, other operations and Corporate were $1 million for the quarter. Second quarter results for the run off re-insurance segment included the net favorable impact of settlement activity.

I’ll now comment briefly on our investment portfolio and results. As we discussed before our investment strategy is to maintain a higher quality, well diversified portfolio. Our investment portfolio performance continues to be very strong competitively. We continue to have no direct exposure to sub-prime loans and no material direct exposure to residential mortgages.

Our current commercial mortgage portfolio results are strong, reflecting our consistent disciplined approach to underwriting. All of our loans in this portfolio are fully performing and said differently, none of our loans is currently 30 days delinquent.

Future realized capital gains and losses cannot be reasonably estimated. Based on the current strength of our portfolio and our consistent record of investment management discipline we currently do not expect our net capital gain or loss results to be material to full year 2008 net income for the enterprise or have any material impact on our outlook for our full year subsidiary dividends. Overall we continue to be pleased with our investment management results.

I’ll now comment briefly on our capital outlook. Our parent company Capital Position continues to be strong and our subsidiaries remain well capitalized. We ended second quarter 2008 with cash in short term investments at the parent of approximately $100 million. During second quarter we resumed our share repurchase program and repurchased approximately 6.7 million shares or $264 million through July 31st, including $44 million in the month on July.

Through the balance of the year we expect subsidiary dividends to be approximately $200 to $250 million. As a result our full year estimate for subsidiary dividends is now $500 to $550 million; the upper end of this range is modestly higher than our previous estimate. At this point, excluding any additional M&A activity or any additional share repurchase we expect other sources and uses of parent company cash in the balance of the year and net to approximately zero.

Over the balance of the year we expect to continue to increase our parent company cash balance at a modest pace, with the expectation that we would be at our long term target of $250 million by the end of 2009. Our capital management priorities remain consistent with our prior communications. We intend to continue effectively deploying capital for the benefit of our shareholders. In summary, we continue to have a strong capital position and good financial flexibility.

Now I’ll review the earnings outlook for full year 2008. For full year 2008 we currently expect consolidated adjusted income from operations of $1.135 to $1.185 billion. While we continue to expect earnings improvement in the second half of the year this updated full year range is lower than the estimates we provided in May. I’ll discuss the components starting with Health Care.

We currently expect our medical membership excluding Great-West to end the year approximately 1% higher than year end 2007. This outlook is lower than our previous estimate and takes into account our current assessment of the weaker economic outlook and of the competitive pricing environment. In addition, we currently expect Great-West membership to decrease by approximately 100,000 over the balance of the year.

We continue to expect medical cost trend for our total book of business to be in the range of 6.5% to 7.5% for the full year. We expect guaranteed cost pricing yields to exceed trend in the balance of the year. We estimate the full year guaranteed cost MLR excluding the voluntary business will be approximately 83% to 83.5%. For the full year we expect guaranteed cost pricing yields to be in the range of 8% to 8.5% and we expect medical trend for this book to be approximately 7% to 7.5%.

Our estimate for full year 2008 Health Care earnings is a range of $700 to $730 million. This range includes approximately $50 million of earnings contribution from the Great-West book. Our updated range is approximately $40 million lower than the full year range we had communicated in May, mainly reflecting lower expectations to our guaranteed cost and experience rated businesses.

Our guaranteed cost outlook reflects a modestly higher estimated MLR and lower membership expectations. The updated outlook for experience rated earnings reflects lower full year margin expectations as a result of the lower than expected second quarter results.

We expect Health Care earnings to increase in the second half of the year relative to the first half as we execute additional pricing and on driving actions. We also expect to generate increased earnings from the Great-West book. Our updated outlook reflects approximately a $60 to $90 million after tax earnings increase in the second half of the year compared to the first half.

I’ll now discuss the key drivers of that increase. We expect Great-West to contribute approximately $50 million of earnings for the full year. This implies second half earnings of approximately $38 million compared to $12 million in the first half. These amounts exclude financing costs of approximately $5 million per quarter which are included in the corporate segment.

We estimate that guaranteed cost earnings will be approximately $30 million higher in the second half of the year relative to the first half. This increase is due to an improvement in the MLR as a result of strong renewal pricing and underwriting actions partly offset by lower membership. Specifically we expect the guaranteed cost MLR to be approximately 82% for the second half of the year.

We estimate that ASO earnings will essentially be flat in the second half of the year as increased specialty earnings are approximately offset by higher operating expenses. We expect experienced rated earnings to be $5 to $10 million higher in the second half of the year excluding the first quarter charge of $7 million after tax related to the non-medical account. This implies a very modest deterioration relative to second quarter actual results.

We expect Medicare Part D to move from a break even position for six months to positive earnings of $10 million for the full year. With respect to operating expenses we expect to increase our investments in information technology capabilities in the second half of the year. Our investments will be focused on capabilities which we believe will be key to winning in the market over the next several years.

We also expect increased investments in the second half of the year to support our segment expansions particularly the individual and small group segments. At the same time we intend to identify additional expense reductions in other areas which we expect to benefit our second half results and have a larger favorable impact on 2009. All in, our current estimate is that operating expenses will be higher in the second half of the year compared to the first. In total we estimate that Health Care earnings will improve in the second half of the year yielding full year earnings at a range of $700 to $730 million.

Now I’ll discuss the balance of our segments. We expect our remaining operations to contribute approximately $435 to $455 million of earnings for the full year. We expect our group disability and life and International businesses to continue to grow revenue while maintaining strong margins. Specifically, we expect mid-single digit earnings growth in Group and double digit earnings growth in International for the full year 2008.

Earnings for the balance of our operations which include run-off businesses and the parent are expected to be lower in the second half of the year than in the first, mainly reflecting higher debt financing costs and the impact of lower cash balances on parent company investment income. In addition, we do not expect year to date favorable settlement activity and re-insurance to repeat in the second half.

Relative to our consolidated outlook, as is customary our estimates for earnings and EPS assume no additional share repurchase. On this basis we estimate that our full year 2008 consolidated adjusted income from operations will be in a range of $1.135 to $1.185 billion and that EPS will be in a range of $4.05 to $4.25 a share. Our estimated range of EPS is equal to our previous range. This reflects the benefit of stock repurchase completed to date which we expect to offset lower Health Care earnings.

Looking ahead to 2009 we expect to achieve attractive earnings growth despite pressure on several fronts. We expect that the economy will remain weak and that the pricing environment will continue to be very competitive. We also anticipate upward pressure on operating expenses as we continue to invest more in enhancing our information technology capabilities.

On the other hand, there are a number of positive factors. First we currently expect Great-West 2009 earnings to be in a range of $150 to $175 million after tax excluding financing costs. This would represent meaningful earnings growth relative to the expect $50 million contribution in 2008. This updated range for 2009 is lower than our May estimates primarily reflecting higher IT related integration expenses and greater uncertainty around market pricing conditions we had previously forecast.

We also expect to improve experience related margins in 2009 as we continue to execute stronger pricing and underwriting actions. In addition, we expect the operating expense reduction opportunities that we identify in the balance of this year to have a greater impact in 2009. We expect to continue growing earnings in our Group Disability and Life and International businesses. All in we currently expect to achieve attractive earnings growth in 2009. Consistent with past practices we expect to provide specific guidance about our 2009 outlook on next quarters call.

To recap our consolidated second quarter 2008 earnings improve relative to first quarter reflecting increased Health Care earnings and continued strong results in Group Disability and Life and International. We expect to further increase earnings in the balance of the year and we expect full year EPS assuming no further repurchase to be in a range of $4.05 to $4.25 a share. With that I’ll turn it over to David.

David Cordani

Today I’m going to share some additional perspective on second quarter Health Care results, the outlook including key actions for the balance of 2008 and some thoughts on our Group and International businesses. Let’s get started with Health Care.

As Ed mentioned the economy continues to have an impact on our customers. We were seeing some significant marketplace challenges that are having an impact on all businesses and in all industries. Our Health service focus drives improved health which drives improved productivity and ultimately cost savings from both employers and the individuals we serve.

In this environment our business remains strong and our strategy positions us to effectively help our customers. In addition, our acquisition of Great-West Health on April 1st expands our reach geographically in the West and within buyer segments, specifically select employer segments representing employers with less than 250 employees.

Today I’m going to share with you first, some thoughts on our 2008 membership outlook and medical cost trends. Second, additional insights on our second quarter 2008 results including actions we’re taking to further expand profitability. Third, an update on integration on Great-West Health Care and finally, an update on our strategy.

From a membership perspective a total medical membership a the end of June is 12.1 million members including the addition of approximately 1.8 million Great-West Health Care members on April 1st. We are working to stabilize the Great-West client base in 2009 for improved total medical costs position, access to barter specialty programs and our focus on health improvement.

Our total medical membership has grown 1% excluding Great-West since the end of 2007, with higher membership in our service products, partially offset by lower membership and guaranteed cost products. As Mike discussed decline in guaranteed cost membership was higher than expected reflecting our pricing discipline in a very competitive environment.

Additionally, we have seen higher dis-enrollment as employer workforces decline. We expect our membership at the end of the year to be approximately 1% higher than at the end of last year. From a medical cost perspective we continue to expect trend to be in the 6.5% to 7.5% range for 2008 consistent with our previous estimates. This is primarily achieved from effective execution by our contracting team along with strong execution from our medical management and health efficacy programs.

Turning to earnings, as Mike discussed our second quarter earning improved from first quarter 2008 as a result of increased contributions from lower operating expenses, our specialty businesses and earnings from the Great-West acquisition. Looking forward, our earning projection for the full year is now $700 to $730 million. We expect to achieve meaningful improvement in our second half earnings from four key actions.

First, Great-West earning will contribute higher earnings in the second half of the year. Our focus on preserving and growing the existing membership driving total medical cost improvement and integrating the operations will also provide a strong catalyst for 2009 earnings growth.

Second, we expect the guaranteed costs earnings to increase in the second half of 2008 reflecting the impact of strong pricing execution and underwriting actions. We expect additional margin expansion in the second half of 2008 from renewal pricing yields that are approximately 200 to 250 basis points higher than our medical cost trend. We’re seeing these pricing results in the July 1st renewals.

Third, our experience rated earnings are expected to stabilize in the second half of 2008, as a result of aggregate rate actions being greater than expected medical cost trends which will enhance margins on our second half business. Additionally, we’ll seek to expand margins with our January 2009 renewals as we balance membership growth objectives.

Fourth, regarding expenses we will create additional operating efficiencies and organization to partially offset the increased expenses from two areas. Our expansion in the individual and small group segments and from technology investments to support our growth and position us for further expense synergies in 2009 and beyond.

As a final note, as Mike mentioned our Medicare book of business will have higher earning in the second half of 2008 from the seasonal nature of the Part D product. Looking forward we remain committed to maintaining our pricing and underwriting discipline and improving our medical cost results for a combination of pricing actions and ongoing medical costs management.

Turning to acquisition of the Great-West Health Care business we are four months into the integration and are making good progress with minimal disruption. We remain focused on preserving and ultimately growing the existing Great-West Health Care book of business. On integrating provider networks and clinical programs as well as key aspects of the infrastructure and as we’ve noted in the past we expect to attain and build on the strength of the Great-West organization. To that end we are pleased that we have been able to retain almost all of the Great-West employees.

I’ll now turn to my final Health Care topic, our health service strategy. More and more employers are interested in our focus on the individual because at the end of the day that’s where you can make the real difference. As a health service company we’ll focus on being the best at listening to, understanding and helping individuals improve their health and providing the best customer service experience.

This approach is relevant for all individuals keeping the healthy, healthy, reducing the risk levels for the healthy at risk, ensuring the most affective course of treatment for those with chronic conditions and addressing the needs of those with acute medical conditions. As we look forward, we recognize the system needs further simplification. To that end last week we announced our integrated personal health team.

This team combines behavioral health care, lifestyle management programs, case management, disease management, health care change and employee assistance programs with a single point of contact for the individual customer. One call, one phone number gets our customer to a personal health advocate who will be their guide to whatever type of help is needed. It could be nutrition advice, help to manage stress, resources to cope with all aspects of a major illness or just answer a question about a claim. The goal is to personalize and simplify the experience for our customers.

We recognize it is important for these programs to be built on a strong foundation and a track record of service and clinical program delivery. From a service standpoint we’re ranked as the number one national health plan in customer satisfaction and all our call centers have been certified again this year by JD Power Associates. From a clinical standpoint we’ve also been recognized again as having the best clinical quality outcomes as measured through NCQA and HEDIS again this year.

In June we launched a new corporate branding customer advertising campaign. We’re sending a different message of what we think a health service company is and needs to be. It starts with recognizing the issues that everyone faces. We’ll do everything in our power to simplify and improve for our customers benefit. Our objective to be clear is to make your path to health and well being as easy as possible.

Now I’d like to shift gears and spend a few minutes on our Group insurance and International businesses. Both businesses will deliver top line and bottom line growth again in 2008. Each business has a strong leadership team and benefits from a good competitive position whether that’s in disability, life and accident or expatriate benefits in individual health and life products for individuals and global employers.

In our Group business we delivered best in class results with our disability claim management model. We help people return to work sooner than the competition. Like our Health Care business our Group business is steeped in clinical excellence. One of the differentiators for us is our ability to integrate our programs. People with our disability and health plan have lower rates of disability and return to work more quickly. That’s real value for the individual customer and for the employer.

Results from our International business remain competitively strong with robust growth in targeted markets around the world. Most notably in the individual direct marketed health, life and accident insurance businesses in Asia and in the international expatriate benefit business.

Today many corporations are employer customers are seeing significant growth outside the United States. The idea of multi-national borderless solutions is increasing. Employers and individuals are looking for solutions that offer access to quality providers, affordable care and have dimensions of portability. At CIGNA we’re well positioned to integrate our services and leverage the depth of understanding and experience we have in these global markets.

I’ll end my formal remarks with a reiteration that we’re taking appropriate actions to further improve profitability of our Health Care book of business. First, we will effectively integrate the Great-West business and realize the added earnings power it brings to CIGNA. Second, we will expand our operating margins of our Health Care book of business for a combination of pricing and underwriting actions on our guaranteed cost and experience rated book. Effective total medical cost management and ongoing improvements operating effectiveness and efficiency.

Third, we will ensure effective client and individual service delivery from our existing programs while we innovate our health service offerings for 2009 and beyond. We are committed to further improving our results in 2008 and ensuring we are well positioned as we look toward 2009. With that I’ll turn the call back to Ed for his closing remarks.

Ed Hanway

Before we take your questions I want to underscore several points. It is our diverse mix of businesses that has enabled us to profitably grow earnings for our ongoing businesses in 2008. We are committed to improving our Health Care results over the balance of 2008 by maintaining a strong focus on pricing and underwriting discipline and continued effective medical cost management, particularly with regard to our guaranteed cost and experience rated businesses as David has noted.

In the second half of 2008 we will continue to make investments in targeted market expansions for our Health Care business. We believe this will lead to good growth opportunities in the long term. Regarding our 2008 outlook, I remain confident that we can achieve our full year earnings per share range of $4.05 to $4.25 per share.

Looking to 2009 it is important to note that CIGNA has very good prospects to grow earnings in our ongoing businesses. We expect to leverage the Great-West acquisition and the strong competitive position we have built in the Health Care marketplace to produce significant earnings growth for Health Care in 2009.

In addition, our value proposition in both our Group Disability and Life and International operations will enable us to continue to profitably grow these businesses in 2009 while maintaining their competitively superior margins. Our ability to grow earnings in each of our ongoing businesses coupled with continued effective capital management will enable us to deliver significant EPS growth in 2009.

In closing, I believe that CIGNA has strong market position in each of our ongoing businesses and that we will leverage these positions to continue to create value for the benefit of our customers and our shareholders. This concludes our prepared remarks and now we’d be glad to take your questions.

Question-and-Answer Session


(Operator Instructions) Your first question comes from Matthew Borsch - Goldman Sachs.

Matthew Borsch - Goldman Sachs

I’m trying to understand with your renewal rate increases does that reflect the rate increases were adequate to some degree coming into this year and into the second quarter? If that’s the case just help us understand has it been trend higher than expected or to what extent has it been a dynamic of the pricing pressure in the market?

Mike Bell

Regarding the guaranteed cost book I would not characterize our renewal rate increase thus far in 2008 as inadequate. In fact, to put some numbers around it our pricing yields on a year to date basis for 2008 in the guaranteed cost book are 7.4% that compares to medical cost trend for the guaranteed cost book in the first half of the year of 7.1%. Admittedly we didn’t expand margins as much as we had targeted mainly reflecting the higher level of catastrophes in terms of claims as well as the higher medical costs from the flu.

The main point here is that we’ll get additional leverage in the second half of the year through even stronger pricing and underwriting actions we’re actually expecting, as I said in my prepared remarks, full year pricing yields to be 8% to 8.5% which includes pricing increases net pricing yields for the second half of 9% to 10% which is obviously higher than first half and even higher than medical costs.

I wouldn’t characterize it as inadequate rate increases but I would characterize it as we expect better pricing and underwriting actions in the second half of the year which will improve the MLR.

Matthew Borsch - Goldman Sachs

I realize you guys gave full medical enrollment guidance but can you just drill down to what you expect from the guaranteed cost business in terms of enrollment in light of those rate increases that you’re putting through?

Mike Bell

We’re down 11% on a year to date basis and we now expect full year membership to be down approximately 15% as compared to we were approximately at minus 10% at first quarter, an additional five points of membership loss.

Matthew Borsch - Goldman Sachs

What are you guys seeing in terms of the stop loss pricing? One of your competitors talked to a pricing cycle in that segment coming from of the non-managed care re-insurance companies. How do you think that may impact your ability to do some of the re-pricing that you’re looking to do on the Great-West business?

Mike Bell

Our stop loss results continue to be very strong. Our loss ratios have been stable over the last 18 months and actually significantly improved from the ’05, ’06 timeframe. In terms of competitive pricing conditions I think it’s fair to say it’s a very competitive market. There are certainly a number of specialty players, people that we think of as the second tier in the industry working hard to compete on the basis of price to maintain their membership. It is a competitive market.

As it relates to the Great-West earnings expansion the vast bulk of the earnings expansion in Great-West actually stems from delivering lower medical costs for this book as opposed to trying to somehow price higher than the medical cost trend, it’s more lowering the medical costs to take advantage of our more favorable total medical cost position and what Great-West has had historically.

David Cordani

Relative to the CIGNA team as Mike said we’ve had a very good track record there we have a dedicated business unit and it’s been a well run book of business for our shop loss for some time. The specific piece of Great-West I’ll ask you to think about is in the select segment, for employers 250 and below it’s not like our go to market strategy now is offering it as stop loss is optional.

It is an integrated sale so you’re not coming up against the same specialty carve out vendors and as Mike said, we’re increasing value by adding the additional medical costs on improvement and specialty solutions. We still feel very good about that strategy in market conditions.


Your next question comes from Joshua Raskin - Lehman Brothers.

Joshua Raskin - Lehman Brothers

A couple questions on Great-West. First, membership I think you reported 1.76 million and you were suggesting 1.4 million last quarter. I assume there’s classification issues there just curious what that was. Also the medical payables up $50 million I’m curious how much of that was Great-West. Are there any planed systems conversions for some of the Great-West systems?

Mike Bell

In terms of the Great-West membership you’re exactly right there are some classification issues in terms of what we count as members versus what Great-West has historically counted as members. Based on our membership definition which has been consistent for several years now we are including a number of PPA members that are either in PPAs at Great-West, now CIGNA obviously owns as well as PPA members that are accessing that medical network.

Based on that definition we were able to count roughly 250,000 or so members that are in those arrangements that’s why we’re reporting 1.76 million members.

In terms of the payables, at June 30, Great-West reserves on a net basis were $67 million of the overall balance of $827 million.

Joshua Raskin - Lehman Brothers

Systems conversions anything planned for Great-West?

David Cordani

As you might recall when we talked about the Great-West acquisition we suggested that one of the real attractive parts for us was to secure their infrastructure and build on that. The way I’d ask you to think about the systems conversions for the market facing systems and tools, claim payment and market support those systems for the select segment and the core Great-West members will stay in place.

Great-West was in the process and will continue that process of enhancing those systems and moving to an upgraded platform from a market standpoint. We will build on those systems and will note convert that business in mass to CIGNA systems. Behind the scenes as you might expect there’s some infrastructural support for data centers, etc. which we had planned for but the most important message is the service proposition to the individual member, the employer, and the physicians will stay off their very strong systems today.

Joshua Raskin - Lehman Brothers

Are you expecting more attrition in ’09 on the Great-West book as well?

Mike Bell

At this point we’ve not communicated specific membership projections for 2009. I think it’s fair to say that imbedded in our current earnings range for 2009 is some additional downward pressure on membership but we do expect by year end 2009 to be able to stabilize that book particularly given the access to the improved medical cost position.


Your next question comes from John Rex – JP Morgan.

John Rex – JP Morgan

First I wanted to think about medical costs could you size for us the impact of the higher level of catastrophic claims you saw in the quarter and also the negative development that was rolling through from 1Q. Maybe a little color commentary on the catastrophic claims, Coventry at least have spoken to higher acuity levels that they’re seeing and I’m wondering what you’re seeing as it relates to that?

Mike Bell

In terms of quantifying this for the first six months of the year we saw catastrophic claims including catastrophic claims related to what we believe is the flu in first quarter of approximately 50 basis points. Most of that is centered in first quarter and you’re right in terms of your assertion the first quarter did emerge worse than we had expected that’s picked up in the second quarter reported results. It would be 50 basis points all together.

In terms of specifics underneath that we did see an increase in the acuity of claims and just overall higher inpatient costs. Interestingly that has been centered in the guaranteed cost book, we did not see a material change in either the ASO or the experience rated book in the first half of the year as it relates to catastrophic claims. Therefore we do not believe this is a widespread phenomenon, our guaranteed cost experience tends to be concentrated in some under 50 accounts as well as a couple of selected geographies. I would not characterize it as an overall issue here.

The final point I would make is that remember the medical cost trend for guaranteed costs for the first six months of the year has been 7.1% versus the comparable period in 2007. For full year what’s modeled is medical cost trend for the full year guaranteed cost book of 7% to 7.5%. We’re not talking about an overall seat change in terms of trend.

John Rex – JP Morgan

There’s not a theory that this something to do with coding creep or something like that, it’s more about a relatively small book of business and some bad luck?

Mike Bell

I believe that to be the case. Particularly given that we did not see a comparable acceleration in trend or a comparable acceleration in cat claims suffer ASO.

David Cordani

Remember the guaranteed cost is 8% or 9% of our total membership. We tend to get a little more volatility there. No, we would not say that there’s a broad, we don’t see any of it until the broad sweeping different movement in your terminology code creep or up-coding or chance in profile that way. There’s always a bit of movement plus or minus but nothing unique.

John Rex – JP Morgan

A few points on Great-West I want to make sure I understand the $150 to $170 million for ’09 your guiding to compares to the $170 to $180 from last quarter is that the correct comparison?

Mike Bell

That’s correct.

John Rex – JP Morgan

In terms of the transaction costs that your bearing in ’08 I think your guidance was $45 to $50 million before I want to see if that’s still the same? How much was born in the 2Q because I think the assumption was that the vast majority of that would be born in the 2Q?

Mike Bell

That’s correct. The update, we refer to it internally as integration expense. They tend to be integration and transition costs because they’re incremental expenses that we don’t think will be part of our expense base for the long term. Our current estimate for that for 2008 is $50 million after tax. At the upper end of the previous range the main delta there is higher IT costs it’s the phenomenon David was referencing earlier.

We’ve got a little higher data center migration costs including higher labor costs. We’re also likely to incur some upgraded software costs not to do with the major change in customer facing systems or anything but behind the scenes costs. That’s the reason we’re now at the upper end of that range for 2008.

John Rex – JP Morgan

How much was born in 2Q?

Mike Bell

The rest was born in 2Q that we had anticipated it was just a shade more than a third of that $50 million. We do expect third quarter to be modestly higher and then fourth quarter to be modestly lower.

David Cordani

To bridge Mike’s comment to 2009 as well, the somewhat higher transitional costs are on technology in ’08 we expect also to see some higher transitional costs in technology in 2009 and that’s one of the primary items that affects the earnings range that you reference before and our focus here is to ensure that we’re doing everything that’s prudent to make sure we have no disruption or minimal disruption as possible for the benefit of the customers.

Knock on wood thus far there’s been minimum disruption and we’re really fixated on that to make sure the service proposition which as been strong from Great-West continues to be very strong on all fronts.

John Rex – JP Morgan

The next two thirds mostly would be born in 3Q of that $50 million is that right?

Mike Bell

That’s our current estimate.


Your next question comes from Gregory Nersessian - Credit Suisse.

Gregory Nersessian - Credit Suisse

My first question if you could touch on the catastrophic claims again, I’m curious why that doesn’t impact your stop loss results, why a higher level of inpatient acute wouldn’t be rubbing up against your stop loss threshold?

Mike Bell

Overall it’s really the same point that we talked about earlier. We don’t see it as a widespread phenomenon in terms of increased acuity in terms of inpatient claims. We did see it specifically in the guaranteed cost block which again is a relatively small part of our overall membership block. It was concentrated in a couple of specific geographies, concentrated in the under 50 group business.

I think it’s a combination of volatility we’re also anti-selection particularly with the under 50 book. We don’t see any evidence that it has spread at this point to the more stable ASO in experience books at this point. We would have seen that as higher stop loss claims on both ASO and ER if in fact that had spread to those books.

Gregory Nersessian - Credit Suisse

Is there any concern on the guaranteed cost book where you’re raising rates ahead of trend that if there is anti-selection those rate actions are only going exacerbate the problem and you’re going to lose more of your good risk?

Mike Bell

Certainly in the under 50 book in certain states that require community rates or specific filed rates that don’t vary group to group there is that risk. Remember, the 50 block is a very small proportion even of our overall guarantee cost block. We have less than 100,000 members in that book. We are re-underwriting that book market to market and certainly are cognizant of the point you are making.

David Cordani

Two points, one is the risk always exists but you should anticipate that we’re going to pass a blanket rate increase across the book of business as Mike said other than when we’re dealing with the under 50. Secondly, as we look at our July result it would suggest that the loss ratios on the business we’re retaining versus the loss ratios on the business that we are losing are in the direction we expect. The loss ratios are higher on the business we are losing then on the business we are retaining which would suggest we’re retaining the better risks and differentiating our pricing strategy.

Gregory Nersessian - Credit Suisse

Do I understand that the bulk of the repurchases for this year are complete? Could you run through what your uses and sources of cash in terms of what’s available for repurchase?

Mike Bell

We ended second quarter with $100 million of parent company cash. We expect subsidiary dividends in the second half of the year between $200 and $250 million. Remember we also repurchased $44 million in July that you need to take out of the roll forward. What that says if we use the mid-point for example that would say if we did no further repurchase, no M&A over the remainder of the year we would expect to end the year at $280 million of parent company cash.

Our policy is to be non-committal in terms of share repurchase but I think you can conclude from my prepared remarks that we would expect to end the year in terms of parent company cash balance somewhere between the $100 million that we had at June 30, and our long term target which we’d expect to gradually get to at year end 2009 $250 million. That would be a good way to think about the ranging.


Your next question comes from Scott Fidel – Deutsche Bank.

Scott Fidel – Deutsche Bank

First question, if you can give us an early read into what you’re expecting for medical costs in 2009. It looks like most of the competitors are expecting some modest upward pressure that they’re planning to price to. It seem it’s sort of 8% might be the composite expectation so far for ’09 and if you could talk about your view for med costs looking out to ’09?

Mike Bell

It is early, obviously to give definitive guidance in terms of 2009 but what I can tell you is that for cases where we’ve had to do early quotes for insured cases for 2009 we have been assuming roughly 50 basis points of higher medical cost trend in 2009 then what we’ve been seeing here in 2008. That would suggest 7% to 8% in 2009 as opposed to the 6.5% to 7.5% we’re experiencing thus far in 2008.

I would point out on the reported basis Great-West is going to add some noise to the trend numbers we’re still sorting out how they end up reporting medical cost trend. The numbers I just described are on a CIGNA basis ‘x’ Great-West but at least would be apples to apples with the 6.5% to 7.5%.

Scott Fidel – Deutsche Bank

On medical costs if you could walk through the components in 2Q and how that might have shifted from 1Q and any early thoughts on how those might move around for ’09?

Marcia Dall

As Mike mentioned earlier our medical trend is expected to be 6.5% to 7.5% consistent with our prior guidance. When you look at the components they’re essentially consistent with our prior guidance as well, with inpatient and outpatient in the high single digits and professional in the mid single digits. Related to pharmacy we are updating our trend expectations from the high single digits to the mid single digits reflecting improvements in the generic drug utilization and overall lower pharmacy utilization.

Mike Bell

To add on in terms of 2009 your question, at this point we have not seen any specific upward pressure on medical costs for ’09 for any of the categories. As an example, the hospital renewals that we’ve had to date have been in line with our targets which have been in line with our 2008 actuals. We’ll obviously give further specificity by category Marcia will likely do that at the third quarter call.

Scott Fidel – Deutsche Bank

Is it fair to say then that the 50 bp assumed increase that would just be some more cushion around utilization for ’09?

Mike Bell

Essentially that’s right.

Scott Fidel – Deutsche Bank

One last question, I know the focus on improving the medical costs in the stop loss business is a big part of the Cinergy target for Great-West maybe if you can update us on the progress so far around those initiatives and how those are tracking relative to your expectations.

David Cordani

Relative to the medical cost improvement, the nature of the product is such that you have an ASO relationship and stop loss relationship. As we are able to improve the total medical costs the beauty of it is a meaningful amount of that total medical cost accretes to the full year and ultimately to the employer individual relationship.

A portion of that accretes to us through the stop loss relationship etc. The progress we’re seeing thus far is that we’re stepping through 2008 into 2009 as we sit here today we expect to be able to achieve our total medical costs improvement by the end of 2009 and we expect to have a meaningful amount of that total medical costs improvements secured by the first quarter 2009.


Your next question comes from Justin Lake – UBS.

Justin Lake - UBS

One further question on GW you mentioned that you expect to see another 100,000 members attrition for the end of the year. Can you give us an idea of how many members are renewing over that period July 1 through the end of the year, what percentage of the book actually renews?

Mike Bell

Thirty percent of the book renews the second half of the year and 70% of the book renewed the first half of the year.

Justin Lake - UBS

If I think about 30% should I multiply that number times the 1.7 million that you reported?

Mike Bell

That’s correct.

Justin Lake - UBS

Out of 500,000 members we’re talking about 100,000 treading? Is that about right?

Mike Bell

I think it’s fair. I would point out though that the mix of business here is particularly important. We actually expect a higher rate of lapse in the membership that is part of these PPA arrangements which tend to be lower margin. At least year to date on an actual basis the persistency on the select segment which is the small group Great-West full service business has actually been higher than the overall average. That’s where the bulk of the earnings power is for 2009.

If you’re building your own earnings model for 2009 I wouldn’t try to spread that proportionally.

Justin Lake - UBS

What has been the attrition, if you think about 2008 what’s been the attrition in that select membership?

Mike Bell

The overall persistency has been in the mid 80’s for the select segment. In terms of percentages, the overall Great-West book is down 3.5% year to date. The select is a little small decrease than that I just don’t have that number committed to memory but its a couple points.

Justin Lake - UBS

On the experience rated book I know you mentioned that you’re seeing higher deficit dollars in total. Can you run us through some of the numbers you did on last quarter as far as the percentage of accounts in deficit and new business versus existing business and what those deficits were? Were they $132 million last quarter, I just doing that from memory?

Mike Bell

Sure, good memory. Let me walk through an overview of the numbers and you can tell me if you’d like to go deeper on any of the specifics. I feel compelled to remind you that this is a great product for us, remember this is our highest earning product per member and we believe there’s no real win, win. In second quarter we did see an improvement in the medical loss ratio, it improved sequentially approximately 150 basis points. If you take 150 basis points times the $493 million of medical premiums you conclude that it improved $4 to $5 million after tax.

In fairness, it did not improve as much as we expected it to and that’s the reason for the lower full year outlook for experience rated. In terms of some of the specific numbers that you’re interested in we did in fact experience an increase in deficit recoveries in second quarter versus first. We also saw an increase in the new and existing deficits. The $132 million that you recalled is right in terms of the end of first quarter that increased to $151 million at the end of second quarter.

Remember that increase that $19 million was fully charged to earnings and in fact all $151 million has been charged over time fully to earnings. Remember, today’s deficit balances are tomorrow’s opportunity for deficit recovery which is potentially a good thing. It’s fair to say now that for the full year 2008 we do expect additional deficit recoveries in the second half of the year in the pricing and underwriting actions that we’re taking.

We now expect deficits in the second half of the year on the first half of the case renewals to increase based on what we saw here in terms of second quarter actual. The net impact, the net, net impact now on second half the year earnings is that we expect second half of the year experience rated earnings to be $5 to $10 million after tax higher than the first half which is therefore modestly lower than the second quarter run rate.

The real interesting opportunity here of course is the first half of the year 2009 renewals. We have an opportunity for additional deficit recovery even greater than what we had expected before. We expect to be in a position to quantify those expectations at the end of October.

Justin Lake - UBS

What percentage of the accounts are in deficit and how does that compare to first quarter?

Mike Bell

We’re currently at June 30, at 34% and that compares to 35% at the end of first quarter.

Justin Lake - UBS

That’s actually improved so the size of the deficit is getting larger?

Mike Bell

Yes, modestly. I wouldn’t overreact but it is fair to say. One particular account that actually is a loss in the single digit after tax earnings range that is a 10% of the overall $151 million balance. That’s an account that’s renewing later this year.

Justin Lake - UBS

One more question of experience rated I know you’ve always said this business runs at a very attractive margin and I realize you don’t want to discuss the specific margin on the call. Can you give us an idea how far away are you right now if you think about your 2008 results include the higher deficit what kind of basis point difference are you from that target margin that you think you should historically run in this business ‘x’ the recoveries or increased deficit?

Mike Bell

A portion of our lower earnings expectation for 2008 roughly a third of it is driven by lower revenue expectations. We now expect membership to be down 2% for the full year for experience rated than what we had versus previous growth that we originally expected in terms of earnings for 2008 we expected growth. We’re now saying down 2% which means revenue we expect to be up 4% to 5% for the full year.

In terms of your specific question in terms of margins we expect to end 2008 with margins on this book that ball park are in $30 to $40 million after tax lower than what we historically targeted, $30 to $40 million after tax on approximately $3 billion of overall revenue you could conclude a percentage point or a shade worse than that in terms of after tax margins full year ’08 versus what we’ve historically run longer term.

Obviously we’ve got some real important decisions to make here in terms of 2009 how much of that do we try to recover and that when we’ll give additional quantification in the third quarter call.

Justin Lake - UBS

The $3 billion number does that include all the ancillary?

Mike Bell

That’s correct. That’s what I was referring to.

Justin Lake - UBS

The $30 to $40 million is without the improvement in recovery.

Mike Bell

That would include in fact getting the deficits back to our historical target of 30%. It would include some level of recovery back from where we are currently.


Your next question comes from Douglas Simpson - Merrill Lynch.

Douglas Simpson - Merrill Lynch

I was wondering if we could talk about ’09 in a general sense. I know you don’t want to get too specific in talking about Health Care segment profit if we look at the $715 million the mid-point of the range for this year directionally if we then said Great-West is going to add about $100 million incremental from ’08 to ’09 that gets us to an $815 million number that would be about 15% growth year over year. I’m trying to connect the dots. Ed had commented about the opportunity for significant segment profit growth in that area. Is that a reasonable starting point?

Mike Bell

The components that you’re talking about are in fact reasonable again just to reiterate we prefer not to give specific numbers at this point. We do expect to give specific numbers on the third quarter call. To flush out your list a bit more the list of plusses and minuses are a little longer than what you described. I think you’re right on Great-West; we’re modeling $100 to $125 million of earnings growth ’08 to ’07 for Great-West.

We do expect continued specialty earnings growth to increase ASO earnings just like we’ve seen this year. As I mentioned to Justin’s question we do expect better margins in ER than what we’ve gotten so far this year. I’d rather no try to dimension the number there but we do expect better there. Remember we are going to get the benefit of the transformation amortization rolling off and as we’ve talked about previously that’s approximately $30 million or so after tax.

The final part I would list here is the segment expansions. This year we expect a drain of $15 to $20 million of after tax we’ve invested in individual, small group and seniors. Next year we expect that to be modestly accretive so that would be a positive. Going the other way though I think it’s important to note two things. One would be that we do expect higher IT expenses. Our entire sector is investing in additional technology capabilities to capitalize on this market need for additional consumer engagement, help advocacy.

This requires additional technology than what we’ve had or the sector has had historically. In addition, the other wild card is the challenging economy and the competitive pricing environment which will particularly have an impact on guaranteed costs. We’ve got some work to do in terms of the sizing out the various plusses and minuses but that’s at a high level on our plus, minus for Health Care for ’09.

David Cordani

As Mike said in his prepared remarks if you look at ’09 we do view the marketplace is going to continue to be challenging both competitively the economy, etc. Having said that we have a wonderful growth catalyst in Great-West with the diversity of the earnings stream beyond that from the Disability and International businesses, we expect to continue to stay strong. I would reiterate Mike’s point that presents the opportunity for us to have attractive earnings growth and invest back in ourselves and technology, further segment expansion and so we’re well positioned for ’09 and beyond.

Douglas Simpson - Merrill Lynch

In the prepared remarks there was a comment that the plusses and minuses was we have the operating expense up tick for the HIT but on the other hand you expect operating expense reductions. Could you help us think out netting the two of those?

Mike Bell

At this point I prefer not to be specific there. We’ve got some very important work to do over the next 60 days. I do believe that directionally there is going to be increased pressure for us to spend more on IT. This year we would expect to spend more on the segment expansion. Next year I believe that will turn into accretive earnings.

You’re absolutely right, we do expect that we need to reduce operating expenses further. We know we need to improve our competitive operating expense position in 2009 that’s likely going to require additional reductions here in 2008. I’d rather not try to size that at this point.


Your last question comes from Charles Boorady – Citigroup.

Charles Boorady – Citigroup

On Great-West can you talk about your network re-contracting progress and what your assumptions are in your ’09 Great-West guidance that you gave for net loss ratio improvement in the degree to which that come from pricing versus re-contracting the network.

David Cordani

I’ll start with the networking contracting and medical cost improvement then I’ll ask Mike to pick up from the MOR and other points. First, as we think about the total medical cost improvement it’s important to note that we’re looking at that as the improvement of the total medical costs. Network optimization, clinical model optimization, provider service model optimization and it’s built on both Great-West and CIGNA having a very good track record of servicing the doctors and hospitals so we’re able to build off that.

Second, as we suggested in the past, it’s not going to transpire over night we we’re on a methodical path to see improvement in 2008 and 2009. Our expectations are to see some improvement in 2008 in order magnitude of the total opportunity that we expect we can improve medical costs maybe around 20% of that we’ll incur in 2008. We see line of sight to be able to achieve our total medical cost improvement goals and objectives by the end of 2009.

As we sit here today with the interactions back and forth between the doctors and hospitals we’ll have a meaningful amount of that completed for the first quarter 2009 which is important because then we’re able to see continued improvement in the value delivery back to the Great-West customers both the ASO customers who benefit directly from that as well as some of the stop loss benefits.

Mike Bell

Regarding the MLR for 2009 to give some additional background we expect that stop loss premiums next year ball park will be approximately $800 million for the full year. What we’re modeling is an improvement in earnings contribution from an improved MLR in the $50 to $65 million after tax range. That’s what’s embedded in the $150 to $175 million projection for ’09 that I gave in the prepared remarks.

We are about to embark on literally market to market plans to sort out our product strategy, our pricing strategies here for 2009 so we’ve got some very important decisions to make around the pricing and membership trade off here for ’09. We believe that the $50 to $65 million is achievable. It would improve the MLR but not to the level actually that we’ve historically run at CIGNA. Therefore, while there’s more work to come and we’ll update this again at third quarter. We do expect this to be achievable.

Charles Boorady – Citigroup

On experience rated you made some commentary on the second half versus first half is the fourth quarter still when we should expect the most noise in the ER results?

Mike Bell

I don’t expect that there’d be a tremendous amount of noise in the fourth quarter results. I do think that we’ll see additional improvement in the third quarter from the pricing and underwriting actions that we’ve targeted. We do expect net yields for the second half of the year for ER to be in the 8.5% to 9% range compared to the 6% to 7% that we achieved in the first half of the year.

The only thing I can think of off the top of my head that would specifically impact fourth quarter would be that given the increase in the percentage of the book that is now in high deductible plans. I could conceive of an up tick in medical costs sequentially third to fourth but we have modeled that in terms of the full year. We expect the full year medical costs for just he ER book to be approximately 8% and that is picked up the phenomenon I just described is included at a higher level in the fourth quarter estimates.


Ladies and gentlemen this concludes CIGNA’s second quarter 2008 results review. CIGNA Investor Relations will be available to respond to additional questions shortly.

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