aetna Download Documentation	Financial Supplement2006 4th
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    aetna Download Documentation	Financial Supplement2006 4th aetna Download Documentation Financial Supplement2006 4th Presentation Transcript

    • A 2006 Fourth Quarter Financial Supplement
    • Table of Contents Financial Highlights 1 Health Care and Group Insurance Statistics 2 Health Care and Group Insurance Membership 3 Earnings Summary 4 Consolidating Statements of Income (Loss) from Continuing Operations by Segment 5-6 Consolidated Balance Sheets 7 Combining Balance Sheets 8 Condensed Combining Statements of Cash Flows 9-10 Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure 11-13 Definitions 14 Attachment - Supplemental Information - Roll Forward of Health Care Costs Payable 15 This document is supplemental to the Company’s fourth quarter 2006 earnings press release and should be read in conjunction therewith and in conjunction with the Company's 2006 Annual Report on Form 10-K to be filed with the U.S. Securities and Exchange Commission. Please direct questions with respect to this material to David Entrekin, Vice President - Investor Relations, Aetna Inc., 151 Farmington Avenue, RT21, Hartford, Connecticut 06156. Telephone: 860-273-7830. Email: entrekind@aetna.com.
    • Financial Highlights (1) ($ in Millions, except per common share data) Three Months Ended Twelve Months Ended Change Change Dec. 31, Dec. 31, Dec. 31, 2006 - Dec. 31, Dec. 31, Dec. 31, 2006 - 2006 2005 Dec. 31, 2005 2006 2005 Dec. 31, 2005 Operating Earnings (2) Aetna Inc. $ 424.2 $ 407.3 4.1 % $ 1,647.9 $ 1,508.8 9.2 % Aetna Inc. per common share $ .78 $ .68 14.7 % $ 2.90 $ 2.49 16.5 % Health Care $ 412.2 $ 381.5 8.0 % $ 1,572.7 $ 1,427.7 10.2 % Group Insurance $ 29.9 $ 35.0 (14.6) % $ 132.7 $ 127.7 3.9 % Large Case Pensions $ 8.9 $ 12.0 (25.8) % $ 38.9 $ 33.2 17.2 % Operating Earnings - Adjusted (2) Aetna Inc. $ 395.2 $ 367.3 7.6 % $ 1,635.9 $ 1,349.8 21.2 % Aetna Inc. per common share $ .73 $ .62 17.7 % $ 2.87 $ 2.23 28.7 % Health Care $ 383.2 $ 341.5 12.2 % $ 1,560.7 $ 1,268.7 23.0 % Pretax Operating Margin (2) Aetna Inc. 11.3 % 11.7 % (.4) pts. 11.0 % 11.3 % (.3) pts. Aetna Inc. - Adjusted 10.6 % 10.7 % (.1) pts. 10.9 % 10.2 % .7 pts. After-tax Operating Margin (2) Aetna Inc. 7.3 % 7.5 % (.2) pts. 7.2 % 7.2 % - pts. Aetna Inc. - Adjusted 6.9 % 6.9 % - pts. 7.1 % 6.5 % .6 pts. Revenue by Segment (2) Health Care $ 5,621.1 $ 5,136.3 9.4 % $ 22,231.4 $ 19,605.5 13.4 % Group Insurance 529.7 551.2 (3.9) % 2,140.6 2,128.4 .6 % Large Case Pensions 198.4 166.2 19.4 % 741.5 725.7 2.2 % Total Revenue $ 6,349.2 $ 5,853.7 8.5 % $ 25,113.5 $ 22,459.6 11.8 % Operating Expenses as % of Revenue (2) Aetna Inc. 19.4 % 19.8 % (.4) pts. 18.8 % 19.8 % (1.0) pts. Health Care 20.3 % 21.2 % (.9) pts. 19.8 % 21.4 % (1.6) pts. Group Insurance 16.0 % 10.9 % 5.1 pts. 14.4 % 11.6 % 2.8 pts. Large Case Pensions 2.2 % 2.9 % (.7) pts. 2.3 % 2.5 % (.2) pts. Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, 2006 2006 2006 2006 2005 Membership (Members in Thousands) (3) Medical 15,433 15,383 15,407 15,418 14,755 Dental 13,472 13,396 13,374 13,331 13,098 Pharmacy 10,215 10,202 10,213 10,151 9,445 Group Insurance 15,087 15,309 15,265 13,089 13,618 (1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior-period financial information was adjusted to reflect the Company's stock-based compensation activity. Additionally, results per common share have been adjusted to reflect the February 17, 2006 two-for-one stock split. (2) In order to provide a comparison that the Company believes provides useful information regarding its underlying performance, all operating earnings exclude other items and net realized capital gains and losses from income from continuing operations. In addition, operating margins exclude interest expense and amortization of other acquired intangibles; furthermore, pretax operating margin also excludes income taxes. Also, revenue excludes net realized capital gains and losses. Management uses these measures to assess business performance and to make decisions regarding the Company's operations and allocation of resources among its businesses. The Company also displays certain metrics (e.g., medical cost ratios, operating earnings, operating earnings per common share and operating margins) excluding prior-period reserve development to reflect underlying current-period health care costs. For a reconciliation of financial measures calculated under U.S. generally accepted accounting principles (quot;GAAPquot;), refer to pages 11-13. (3) Refer to page 3 for more details. Refer to page 14 for definitions of terms used. 1
    • Health Care and Group Insurance Statistics ($ in Millions) Three Months Ended Twelve Months Ended Change Change Dec. 31, Dec. 31, Dec. 31, 2006 - Dec. 31, Dec. 31, Dec. 31, 2006 - 2006 2005 Dec. 31, 2005 2006 2005 Dec. 31, 2005 Health Care Premiums Health Care Risk (A) $ 4,845.2 $ 4,434.2 9.3 % $ 19,153.5 $ 16,924.7 13.2 % Commercial Risk (B) $ 4,383.9 $ 4,177.6 4.9 % $ 17,356.5 $ 15,919.6 9.0 % Medicare (C) $ 453.1 $ 256.6 76.6 % $ 1,787.7 $ 1,005.1 77.9 % Fees and Other Revenue $ 691.0 $ 625.3 10.5 % $ 2,743.7 $ 2,385.8 15.0 % Health Care Costs Health Care Risk Health care costs (GAAP measure) (D) $ 3,819.1 $ 3,424.3 11.5 % $ 15,301.0 $ 13,107.9 16.7 % Favorable development of prior-period health care cost estimates 45.0 63.0 18.0 250.0 Health care costs - Adjusted (E) $ 3,864.1 $ 3,487.3 10.8 % $ 15,319.0 $ 13,357.9 14.7 % Commercial Risk Health care costs (GAAP measure) (F) $ 3,431.9 $ 3,208.8 7.0 % $ 13,769.1 $ 12,244.1 12.5 % Favorable development of prior-period health care cost estimates 42.0 54.0 16.0 233.0 Health care costs - Adjusted (G) $ 3,473.9 $ 3,262.8 6.5 % $ 13,785.1 $ 12,477.1 10.5 % Medicare Health care costs (GAAP measure) (H) $ 379.8 $ 215.5 76.2 % $ 1,523.5 $ 863.9 76.4 % Favorable development of prior-period health care cost estimates 4.0 9.0 2.0 17.0 Health care costs - Adjusted (I) $ 383.8 $ 224.5 71.0 % $ 1,525.5 $ 880.9 73.2 % Health Care Medical Cost Ratios Health Care Risk (GAAP measure) (D)/(A) 78.8 % 77.2 % 1.6 pts. 79.9 % 77.4 % 2.5 pts. Health Care Risk - Adjusted (E)/(A) 79.8 % 78.6 % 1.2 pts. 80.0 % 78.9 % 1.1 pts. Commercial Risk (GAAP measure) (F)/(B) 78.3 % 76.8 % 1.5 pts. 79.3 % 76.9 % 2.4 pts. Commercial Risk - Adjusted (G)/(B) 79.2 % 78.1 % 1.1 pts. 79.4 % 78.4 % 1.0 pts. Medicare (GAAP measure) (H)/(C) 83.8 % 84.0 % (.2) pts. 85.2 % 86.0 % (.8) pts. Medicare - Adjusted (I)/(C) 84.7 % 87.5 % (2.8) pts. 85.3 % 87.6 % (2.3) pts. Group Insurance Total revenue, excluding net realized capital gains $ 529.7 $ 551.2 (3.9) % $ 2,140.6 $ 2,128.4 .6 % Benefit cost ratio 93.5 % 94.9 % (1.4) pts. 93.5 % 94.7 % (1.2) pts. Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Other Health Care Statistics 2006 2006 2006 2006 2005 Health care costs payable $ 1,927.5 $ 1,954.5 $ 1,921.2 $ 1,934.9 $ 1,817.0 Days claims payable (1) 45.9 46.8 44.8 46.5 48.3 (1) The decline of .9 days from September 30, 2006 was primarily due to the delayed effect of the favorable reserve development reported in the third quarter and current period reserve development. Refer to page 14 for definitions of terms used. 2
    • Health Care and Group Insurance Membership (Members in Thousands) December 31, 2006 December 31, 2005 September 30, 2006 Products Risk ASC Total Risk ASC Total Risk ASC Total Medical: Commercial 5,088 10,053 15,141 5,115 9,406 14,521 5,085 10,037 15,122 Medicare Advantage 123 - 123 101 - 101 124 - 124 Medicare Health Support Program - 17 17 - 19 19 - 18 18 Medicaid 22 130 152 - 114 114 7 112 119 Total Medical 5,233 10,200 15,433 5,216 9,539 14,755 5,216 10,167 15,383 Consumer-Directed Health Plans (1) 676 453 644 Dental 5,057 8,415 13,472 5,078 8,020 13,098 5,022 8,374 13,396 Pharmacy: Commercial 9,161 8,885 9,138 Medicare PDP (stand-alone) 314 - 319 Medicare Advantage PDP 115 - 115 Total Pharmacy Benefit Management Services 9,590 8,885 9,572 Mail Order (2) 625 560 630 Total Pharmacy 10,215 9,445 10,202 Group Insurance: Life 10,070 10,812 10,205 Disability (3) 4,801 2,571 4,882 Long-Term Care 216 235 222 Total Group Insurance 15,087 13,618 15,309 Regions Northeast 1,159 1,443 2,602 1,205 1,365 2,570 1,170 1,444 2,614 Mid-Atlantic 1,007 1,642 2,649 1,122 1,505 2,627 1,023 1,662 2,685 Southeast 906 1,681 2,587 894 1,565 2,459 932 1,678 2,610 North Central 571 2,284 2,855 542 2,173 2,715 551 2,269 2,820 Southwest 655 1,719 2,374 596 1,554 2,150 629 1,701 2,330 West 811 1,364 2,175 748 1,312 2,060 789 1,354 2,143 Other 124 67 191 109 65 174 122 59 181 Total Medical 5,233 10,200 15,433 5,216 9,539 14,755 5,216 10,167 15,383 Risk/ASC % 33.9% 66.1% 100.0% 35.4% 64.6% 100.0% 33.9% 66.1% 100.0% (1) Represents members in consumer-directed health plans included in the Company's Commercial medical membership. ® (2) Represents members who purchased medications through Aetna Rx Home Delivery , the Company's mail order pharmacy, during the quarterly period. (3) Beginning June 30, 2006 includes approximately 2.1 million members acquired from Broadspire on March 31, 2006. Refer to page 14 for definitions of terms used. 3
    • Earnings Summary (1) (in Millions, except per common share data) Three Months Ended Twelve Months Ended Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2006 2005 2006 2005 Summary of Results Health Care $ 412.2 $ 381.5 $ 1,572.7 $ 1,427.7 Group Insurance 29.9 35.0 132.7 127.7 Large Case Pensions 8.9 12.0 38.9 33.2 Corporate Interest Expense (26.8) (21.2) (96.4) (79.8) Operating earnings 424.2 407.3 1,647.9 1,508.8 Debt refinancing charge - - (8.1) - Physician class action settlement insurance-related charge - - (47.1) - Reduction of reserve for anticipated future losses on discontinued products - - 75.0 43.4 Acquisition-related software charge - - (6.2) - Net realized capital gains 9.9 9.0 24.1 21.1 Income from continuing operations (GAAP measure) 434.1 416.3 1,685.6 1,573.3 Income from discontinued operations (2) - - 16.1 - Net income (GAAP measure) $ 434.1 $ 416.3 $ 1,701.7 $ 1,573.3 Operating earnings - Adjusted $ 395.2 $ 367.3 $ 1,635.9 $ 1,349.8 Favorable development of prior-period health care cost estimates 29.0 40.0 12.0 159.0 Operating earnings $ 424.2 $ 407.3 $ 1,647.9 $ 1,508.8 Health Care operating earnings - Adjusted $ 383.2 $ 341.5 $ 1,560.7 $ 1,268.7 Favorable development of prior-period health care cost estimates 29.0 40.0 12.0 159.0 Health Care operating earnings $ 412.2 $ 381.5 $ 1,572.7 $ 1,427.7 Weighted average common shares - basic 520.5 570.8 546.2 579.0 Weighted average common shares - diluted 541.8 596.9 569.1 606.0 Summary of Results Per Common Share Operating earnings - Adjusted (3) $ .73 $ .62 $ 2.87 $ 2.23 Favorable development of prior-period health care cost estimates .05 .06 .03 .26 Operating earnings .78 .68 2.90 2.49 Debt refinancing charge - - (.01) - Physician class action settlement insurance-related charge - - (.08) - Reduction of reserve for anticipated future losses on discontinued products - - .13 .07 Acquisition-related software charge - - (.01) - Net realized capital gains .02 .02 .03 .04 Income from continuing operations (GAAP measure) .80 .70 2.96 2.60 Income from discontinued operations - - .03 - Net income (GAAP measure) $ .80 $ .70 $ 2.99 $ 2.60 (1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior-period financial information was adjusted to reflect the Company's stock-based compensation activity. Additionally, results per common share and weighted average common shares have been adjusted to reflect the February 17, 2006 two-for-one stock split. (2) Income from discontinued operations of approximately $16 million for the twelve months ended December 31, 2006 reflects the Company's receipt in February 2006 of an approximately $50 million refund, including interest, from the completion of certain Internal Revenue Service audits associated with businesses previously sold by the Company's former parent company. The Company recorded $735 million of this refund in prior years. The $50 million refund in 2006 resulted in an additional $16 million in income from discontinued operations in 2006. (3) The three and twelve months ended December 31, 2006 includes $.03 per share ($18 million after tax) related to a previously announced fourth quarter severance charge. Operating earnings, excluding favorable development and the severance charge, for the three months ended December 31, 2006 is $.76 per share. Refer to page 14 for definitions of terms used. 4
    • Consolidating Statements of Income (Loss) from Continuing Operations by Segment (1) ($ in Millions) Health Group Large Case Corporate Three Months Ended December 31, 2006 Care Insurance Pensions Interest Consolidated Revenue: Premiums $ 4,845.2 $ 430.9 $ 42.6 $ - $ 5,318.7 Fees and other revenue 691.0 24.5 2.4 - 717.9 Net investment income 84.9 74.3 153.4 - 312.6 Total revenue, excluding net realized capital gains (losses) (2) 5,621.1 529.7 198.4 - 6,349.2 Benefits and expenses: Health care costs (3) 3,819.1 - - - 3,819.1 Current and future benefits - 403.0 182.4 - 585.4 Operating expenses: Selling expenses 216.2 21.2 - - 237.4 General and administrative expenses 923.7 63.5 4.4 - 991.6 Total operating expenses 1,139.9 84.7 4.4 - 1,229.0 Interest expense - - - 41.1 41.1 Amortization of other acquired intangible assets 20.2 1.7 - - 21.9 Total benefits and expenses 4,979.2 489.4 186.8 41.1 5,696.5 Operating earnings (loss), excluding income taxes (benefits) 641.9 40.3 11.6 (41.1) 652.7 Income taxes (benefits) 229.7 10.4 2.7 (14.3) 228.5 Operating earnings (loss) 412.2 29.9 8.9 (26.8) 424.2 Net realized capital gains (losses), net of tax 6.5 4.7 (1.3) - 9.9 Income (loss) from continuing operations $ 418.7 $ 34.6 $ 7.6 $ (26.8) $ 434.1 Three Months Ended December 31, 2005 Revenue: Premiums $ 4,434.2 $ 467.0 $ 41.6 $ - $ 4,942.8 Fees and other revenue 625.3 7.3 3.0 - 635.6 Net investment income 76.8 76.9 121.6 - 275.3 Total revenue, excluding net realized capital gains (2) 5,136.3 551.2 166.2 - 5,853.7 Benefits and expenses: Health care costs (4) 3,424.3 - - - 3,424.3 Current and future benefits - 443.2 142.9 - 586.1 Operating expenses: Selling expenses 200.8 19.7 - - 220.5 General and administrative expenses 890.4 40.5 4.8 - 935.7 Total operating expenses 1,091.2 60.2 4.8 - 1,156.2 Interest expense - - - 32.6 32.6 Amortization of other acquired intangible assets 19.3 - - - 19.3 Total benefits and expenses 4,534.8 503.4 147.7 32.6 5,218.5 Operating earnings (loss), excluding income taxes (benefits) 601.5 47.8 18.5 (32.6) 635.2 Income taxes (benefits) 220.0 12.8 6.5 (11.4) 227.9 Operating earnings (loss) 381.5 35.0 12.0 (21.2) 407.3 Net realized capital gains, net of tax 2.0 2.1 4.9 - 9.0 Income (loss) from continuing operations $ 383.5 $ 37.1 $ 16.9 $ (21.2) $ 416.3 (1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior-period financial information was adjusted to reflect the Company's stock-based compensation activity. (2) Refer to pages 11-13 for reconciliations of revenue calculated under GAAP for all periods. (3) Includes favorable development of prior-period health care cost estimates of approximately $45 million pretax (approximately $29 million after tax) in the Health Care Segment. (4) Includes favorable development of prior-period health care cost estimates of approximately $63 million pretax (approximately $40 million after tax) in the Health Care Segment. Refer to page 14 for definitions of terms used. 5
    • Consolidating Statements of Income (Loss) from Continuing Operations by Segment (Continued) (1) ($ in Millions) Health Group Large Case Corporate Twelve Months Ended December 31, 2006 Care Insurance Pensions Interest Consolidated Revenue: Premiums $ 19,153.5 $ 1,761.9 $ 194.1 $ - $ 21,109.5 Fees and other revenue 2,743.7 84.6 11.0 - 2,839.3 Net investment income 334.2 294.1 536.4 - 1,164.7 Total revenue, excluding net realized capital gains (2) 22,231.4 2,140.6 741.5 - 25,113.5 Benefits and expenses: Health care costs (3) 15,301.0 - - - 15,301.0 Current and future benefits - 1,646.8 672.2 - 2,319.0 Operating expenses: Selling expenses 867.4 85.3 - - 952.7 General and administrative expenses 3,533.8 224.0 17.0 - 3,774.8 Total operating expenses 4,401.2 309.3 17.0 - 4,727.5 Interest expense - - - 148.3 148.3 Amortization of other acquired intangible assets 80.4 5.2 - - 85.6 Total benefits and expenses 19,782.6 1,961.3 689.2 148.3 22,581.4 Operating earnings (loss), excluding income taxes (benefits) 2,448.8 179.3 52.3 (148.3) 2,532.1 Income taxes (benefits) 876.1 46.6 13.4 (51.9) 884.2 Operating earnings (loss) 1,572.7 132.7 38.9 (96.4) 1,647.9 Debt refinancing charge, net of tax (8.1) - - - (8.1) Physician class action settlement insurance-related charge, net of tax (47.1) - - - (47.1) Reduction of reserve for anticipated future losses on discontinued products, net of tax - - 75.0 - 75.0 Acquisition-related software charge, net of tax - (6.2) - - (6.2) Net realized capital gains, net of tax 8.0 7.4 8.7 - 24.1 Income (loss) from continuing operations $ 1,525.5 $ 133.9 $ 122.6 $ (96.4) $ 1,685.6 Twelve Months Ended December 31, 2005 Revenue: Premiums $ 16,924.7 $ 1,803.7 $ 199.3 $ - $ 18,927.7 Fees and other revenue 2,385.8 31.6 11.5 - 2,428.9 Net investment income 295.0 293.1 514.9 - 1,103.0 Total revenue, excluding net realized capital gains (2) 19,605.5 2,128.4 725.7 - 22,459.6 Benefits and expenses: Health care costs (4) 13,107.9 - - - 13,107.9 Current and future benefits - 1,708.0 656.5 - 2,364.5 Operating expenses: Selling expenses 763.3 80.2 - - 843.5 General and administrative expenses 3,424.9 166.2 18.1 - 3,609.2 Total operating expenses 4,188.2 246.4 18.1 - 4,452.7 Interest expense - - - 122.8 122.8 Amortization of other acquired intangible assets 57.4 - - - 57.4 Total benefits and expenses 17,353.5 1,954.4 674.6 122.8 20,105.3 Operating earnings (loss), excluding income taxes (benefits) 2,252.0 174.0 51.1 (122.8) 2,354.3 Income taxes (benefits) 824.3 46.3 17.9 (43.0) 845.5 Operating earnings (loss) 1,427.7 127.7 33.2 (79.8) 1,508.8 Reduction of reserve for anticipated future losses on discontinued products, net of tax - - 43.4 - 43.4 Net realized capital gains, net of tax 7.0 8.7 5.4 - 21.1 Income (loss) from continuing operations $ 1,434.7 $ 136.4 $ 82.0 $ (79.8) $ 1,573.3 (1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior-period financial information was adjusted to reflect the Company's stock-based compensation activity. (2) Refer to pages 11-13 for reconciliations of revenue calculated under GAAP for all periods. (3) Includes favorable development of prior-period health care cost estimates of approximately $18 million pretax (approximately $12 million after tax) in the Health Care Segment. (4) Includes favorable development of prior-period health care cost estimates of approximately $250 million pretax (approximately $159 million after tax) in the Health Care Segment. Refer to page 14 for definitions of terms used. 6
    • Consolidated Balance Sheets ($ in Millions) December 31, December 31, December 31, December 31, 2006 2005 (1) 2006 2005 (1) Assets Liabilities and shareholders' equity Current assets: Current liabilities: Cash and cash equivalents $ 880.0 $ 1,192.6 Health care costs payable $ 1,927.5 $ 1,817.0 Investment securities 13,437.2 13,366.2 Future policy benefits 786.0 806.1 Other investments 210.4 96.8 Unpaid claims 598.3 582.5 Premiums receivable, net 363.1 349.2 Unearned premiums 185.6 156.9 Other receivables, net 530.1 366.7 Policyholders' funds 567.6 757.7 Accrued investment income 183.1 184.9 Collateral payable under securities loan agreements 1,054.3 1,138.8 Collateral received under securities loan agreements 1,054.3 1,138.8 Short-term debt 45.0 - Loaned securities 1,018.1 1,115.7 Current portion of long-term debt - 450.0 Deferred income taxes 120.8 - Income taxes payable 42.6 36.7 Other current assets 506.7 423.8 Deferred income taxes - 10.4 Total current assets 18,303.8 18,234.7 Accrued expenses and other current liabilities 1,896.1 1,860.7 Total current liabilities 7,103.0 7,616.8 Long-term investments 1,840.6 1,869.3 Future policy benefits 7,463.7 7,642.1 Mortgage loans 1,380.8 1,460.8 Unpaid claims 1,174.6 1,144.9 Reinsurance recoverables 1,107.4 1,143.7 Policyholders' funds 1,296.4 1,304.2 Goodwill 4,603.6 4,523.2 Long-term debt, less current portion 2,442.3 1,155.7 Other acquired intangible assets, net 691.6 724.9 Other long-term liabilities 797.4 848.5 Property and equipment, net 283.6 272.8 Separate Accounts liabilities 18,203.9 14,532.4 Deferred income taxes 342.4 68.7 Total liabilities 38,481.3 34,244.6 Other long-term assets 868.7 1,602.8 Separate Accounts assets 18,203.9 14,532.4 Shareholders' equity Common stock and additional paid-in capital 366.2 2,414.7 Retained earnings 9,404.6 7,723.7 Accumulated other comprehensive (loss) income (2) (625.7) 50.3 Total shareholders' equity 9,145.1 10,188.7 Total assets $ 47,626.4 $ 44,433.3 Total liabilities and shareholders' equity $ 47,626.4 $ 44,433.3 (1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior-period financial information was adjusted to reflect the Company's stock-based compensation activity. Additionally, certain reclassifications have been made to the 2005 financial information to conform to the 2006 presentation. (2) Includes net unrealized capital gains related to FAS No. 115 of $66.5 million and $104.1 million at December 31, 2006 and 2005, respectively, and an adjustment to reflect the funded status of the Company's pension and other post retirement benefit plans of ($711.4) million at December 31, 2006 and a minimum pension liability adjustment of ($64.7) million at December 31, 2005. Refer to page 14 for definitions of terms used. 7
    • Combining Balance Sheets ($ in Millions) December 31, 2006 December 31, 2005 (1) Health Care Health Care and Group Large Case and Group Large Case Insurance Pensions Total Insurance Pensions Total Assets Current assets: Cash and cash equivalents $ 790.3 $ 89.7 $ 880.0 $ 1,036.1 $ 156.5 $ 1,192.6 Investment securities 8,217.4 5,219.8 13,437.2 7,845.6 5,520.6 13,366.2 Other investments 51.2 159.2 210.4 17.8 79.0 96.8 Premiums receivable, net 363.1 - 363.1 349.2 - 349.2 Other receivables, net 468.1 62.0 530.1 349.0 17.7 366.7 Accrued investment income 106.2 76.9 183.1 102.6 82.3 184.9 Collateral received under securities loan agreements 687.0 367.3 1,054.3 632.5 506.3 1,138.8 Loaned securities 663.4 354.7 1,018.1 619.8 495.9 1,115.7 Deferred income taxes 115.4 5.4 120.8 - - - Other current assets 469.5 37.2 506.7 396.1 27.7 423.8 Total current assets 11,931.6 6,372.2 18,303.8 11,348.7 6,886.0 18,234.7 Long-term investments 1,156.9 683.7 1,840.6 1,209.5 659.8 1,869.3 Mortgage loans 564.6 816.2 1,380.8 538.8 922.0 1,460.8 Reinsurance recoverables 1,092.1 15.3 1,107.4 1,128.1 15.6 1,143.7 Goodwill 4,603.6 - 4,603.6 4,523.2 - 4,523.2 Other acquired intangible assets, net 691.6 - 691.6 724.9 - 724.9 Property and equipment, net 220.5 63.1 283.6 196.5 76.3 272.8 Deferred income taxes 99.5 242.9 342.4 (79.3) 148.0 68.7 Other long-term assets 868.7 - 868.7 1,602.8 - 1,602.8 Separate Accounts assets 2.8 18,201.1 18,203.9 4.3 14,528.1 14,532.4 Total assets $ 21,231.9 $ 26,394.5 $ 47,626.4 $ 21,197.5 $ 23,235.8 $ 44,433.3 Liabilities and shareholders' equity Current liabilities: Health care costs payable $ 1,927.5 $ - $ 1,927.5 $ 1,817.0 $ - $ 1,817.0 Future policy benefits 121.6 664.4 786.0 118.4 687.7 806.1 Unpaid claims 597.8 .5 598.3 581.9 .6 582.5 Unearned premiums 179.6 6.0 185.6 151.1 5.8 156.9 Policyholders' funds 441.3 126.3 567.6 415.3 342.4 757.7 Collateral payable under securities loan agreements 687.0 367.3 1,054.3 632.5 506.3 1,138.8 Short-term debt 25.1 19.9 45.0 - - - Current portion of long-term debt - - - 450.0 - 450.0 Income taxes payable 20.4 22.2 42.6 26.2 10.5 36.7 Deferred income taxes - - - 21.0 (10.6) 10.4 Accrued expenses and other current liabilities 1,664.6 231.5 1,896.1 1,551.2 309.5 1,860.7 Total current liabilities 5,664.9 1,438.1 7,103.0 5,764.6 1,852.2 7,616.8 Future policy benefits 1,942.8 5,520.9 7,463.7 1,904.1 5,738.0 7,642.1 Unpaid claims 1,174.6 - 1,174.6 1,144.9 - 1,144.9 Policyholders' funds 562.4 734.0 1,296.4 580.9 723.3 1,304.2 Long-term debt, less current portion 2,442.3 - 2,442.3 1,155.7 - 1,155.7 Other long-term liabilities 770.1 27.3 797.4 816.2 32.3 848.5 Separate Accounts liabilities 2.8 18,201.1 18,203.9 4.3 14,528.1 14,532.4 Total liabilities 12,559.9 25,921.4 38,481.3 11,370.7 22,873.9 34,244.6 Shareholders' equity Total shareholders' equity 8,672.0 473.1 9,145.1 9,826.8 361.9 10,188.7 Total liabilities and shareholders' equity $ 21,231.9 $ 26,394.5 $ 47,626.4 $ 21,197.5 $ 23,235.8 $ 44,433.3 (1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior-period financial information was adjusted to reflect the Company's stock-based compensation activity. Additionally, certain reclassifications have been made to the 2005 financial information to conform to the 2006 presentation. Refer to page 14 for definitions of terms used. 8
    • Condensed Combining Statements of Cash Flows ($ in Millions) Three Months Ended Dec. 31, 2006 Dec. 31, 2005 (1) Health Care Health Care and Group Large Case and Group Large Case Insurance Pensions Total Insurance Pensions Total Cash flows from operating activities: Net income $ 426.5 $ 7.6 $ 434.1 $ 399.4 $ 16.9 $ 416.3 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Income from discontinued operations - - - - - - Physician class action settlement insurance-related charge - - - - - - Depreciation and amortization 72.5 - 72.5 56.9 - 56.9 Amortization (accretion) of net investment premium (discount) 6.6 (1.2) 5.4 8.8 (5.7) 3.1 Non-cash investment income, net (4.4) (36.1) (40.5) .6 (12.1) (11.5) Stock-based compensation expense 11.8 - 11.8 10.3 - 10.3 Net realized capital (gains) losses (14.1) 3.8 (10.3) (6.2) (7.5) (13.7) Cash flows from operating activities before balance sheet changes 498.9 (25.9) 473.0 469.8 (8.4) 461.4 Changes in assets and liabilities: Accrued investment income (3.7) 6.8 3.1 (4.3) 6.0 1.7 Premiums due and other receivables 62.2 (.8) 61.4 15.5 (4.4) 11.1 Income taxes (37.0) (1.6) (38.6) 86.9 13.0 99.9 Other assets and other liabilities 65.7 (.7) 65.0 144.5 (13.0) 131.5 Health care and insurance liabilities (47.4) (22.3) (2) (69.7) (101.5) (61.8) (2) (163.3) Other, net .6 .5 1.1 - - - Net cash provided by (used for) operating activities of continuing operations 539.3 (44.0) 495.3 610.9 (68.6) 542.3 Discontinued operations, net - - - 68.8 - 68.8 Net cash provided by (used for) operating activities 539.3 (44.0) 495.3 679.7 (68.6) 611.1 Cash flows from investing activities: Proceeds from sales and maturities of investments 1,919.5 857.1 2,776.6 2,120.9 909.7 3,030.6 Cost of investments (2,359.9) (828.7) (3,188.6) (2,128.2) (814.7) (2,942.9) Increase in property, equipment and software (86.7) - (86.7) (88.5) - (88.5) Cash used for acquisitions, net of cash acquired (1.0) - (1.0) (86.1) - (86.1) Net cash (used for) provided by investing activities (528.1) 28.4 (499.7) (181.9) 95.0 (86.9) Cash flows from financing activities: Net issuance of short-term debt 23.6 19.9 43.5 - - - Proceeds from issuance of long-term debt, net of issuance costs - - - - - - Repayment of long-term debt - - - - - - Deposits and interest credited for investment contracts - 4.8 4.8 - 11.0 11.0 Withdrawals of investment contracts - (16.8) (16.8) - (24.3) (24.3) Common shares issued under benefit plans 34.5 - 34.5 47.8 - 47.8 Stock-based compensation tax benefits 23.1 - 23.1 35.6 - 35.6 Common shares repurchased (398.2) - (398.2) (439.3) - (439.3) Dividends paid to shareholders (20.8) - (20.8) (11.4) - (11.4) Other, net (8.8) 8.8 - 2.4 13.9 16.3 Net cash (used for) provided by financing activities (346.6) 16.7 (329.9) (364.9) .6 (364.3) Net (decrease) increase in cash and cash equivalents (335.4) 1.1 (334.3) 132.9 27.0 159.9 Cash and cash equivalents, beginning of period 1,125.7 88.6 1,214.3 903.2 129.5 1,032.7 Cash and cash equivalents, end of period $ 790.3 $ 89.7 $ 880.0 $ 1,036.1 $ 156.5 $ 1,192.6 (1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior-period financial information was adjusted to reflect the Company's stock-based compensation activity. Additionally, certain reclassifications have been made to the 2005 financial information to conform to the 2006 presentation. (2) Changes in insurance liabilities are satisfied by sales of related investment assets included in net cash provided by investment activities. Refer to page 14 for definitions of terms used. 9
    • Condensed Combining Statements of Cash Flows (Continued) ($ in Millions) Twelve Months Ended Dec. 31, 2006 Dec. 31, 2005 (1) Health Care Health Care and Group Large Case and Group Large Case Insurance Pensions Total Insurance Pensions Total Cash flows from operating activities: Net income $ 1,579.1 $ 122.6 $ 1,701.7 $ 1,491.3 $ 82.0 $ 1,573.3 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Income from discontinued operations (16.1) - (16.1) - - - Physician class action settlement insurance-related charge 72.4 - 72.4 - - - Depreciation and amortization 270.4 - 270.4 204.4 - 204.4 Amortization (accretion) of net investment premium (discount) 25.3 (6.6) 18.7 34.4 (11.8) 22.6 Non-cash investment income, net (16.0) (86.2) (102.2) (4.9) (39.3) (44.2) Stock-based compensation expense 73.7 - 73.7 94.1 - 94.1 Net realized capital gains (20.6) (11.6) (32.2) (24.0) (8.3) (32.3) Cash flows from operating activities before balance sheet changes 1,968.2 18.2 1,986.4 1,795.3 22.6 1,817.9 Changes in assets and liabilities: Accrued investment income (3.6) 5.4 1.8 .9 12.8 13.7 Premiums due and other receivables (60.0) (1.2) (61.2) (97.6) 2.0 (95.6) Income taxes 25.6 4.3 29.9 361.1 29.4 390.5 Other assets and other liabilities (196.5) (2) (9.2) (205.7) (240.7) (2) (10.9) (251.6) Health care and insurance liabilities 190.7 (296.8) (3) (106.1) 75.4 (299.1) (3) (223.7) Other, net (6.8) .3 (6.5) - .3 .3 Net cash provided by (used for) operating activities of continuing operations 1,917.6 (279.0) 1,638.6 1,894.4 (242.9) 1,651.5 Discontinued operations, net 49.7 - 49.7 68.8 - 68.8 Net cash provided by (used for) operating activities 1,967.3 (279.0) 1,688.3 1,963.2 (242.9) 1,720.3 Cash flows from investing activities: Proceeds from sales and maturities of investments 8,096.8 3,740.8 11,837.6 8,241.9 3,665.7 11,907.6 Cost of investments (8,576.7) (3,362.8) (11,939.5) (7,872.0) (3,366.5) (11,238.5) Increase in property, equipment and software (290.5) - (290.5) (271.6) - (271.6) Cash used for acquisitions, net of cash acquired (160.9) - (160.9) (1,107.6) - (1,107.6) Net cash (used for) provided by investing activities (931.3) 378.0 (553.3) (1,009.3) 299.2 (710.1) Cash flows from financing activities: Net issuance of short-term debt 25.1 19.9 45.0 - - - Proceeds from issuance of long-term debt, net of issuance costs 1,978.9 - 1,978.9 - - - Repayment of long-term debt (1,150.0) - (1,150.0) - - - Deposits and interest credited for investment contracts - 28.2 28.2 - 41.6 41.6 Withdrawals of investment contracts - (211.8) (211.8) - (54.5) (54.5) Common shares issued under benefit plans 115.8 - 115.8 271.3 - 271.3 Stock-based compensation tax benefits 89.6 - 89.6 173.1 - 173.1 Common shares repurchased (2,322.5) - (2,322.5) (1,650.0) - (1,650.0) Dividends paid to shareholders (20.8) - (20.8) (11.4) - (11.4) Other, net 2.1 (2.1) - (1.3) 17.6 16.3 Net cash (used for) provided by financing activities (1,281.8) (165.8) (1,447.6) (1,218.3) 4.7 (1,213.6) Net (decrease) increase in cash and cash equivalents (245.8) (66.8) (312.6) (264.4) 61.0 (203.4) Cash and cash equivalents, beginning of period 1,036.1 156.5 1,192.6 1,300.5 95.5 1,396.0 Cash and cash equivalents, end of period $ 790.3 $ 89.7 $ 880.0 $ 1,036.1 $ 156.5 $ 1,192.6 (1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior-period financial information was adjusted to reflect the Company's stock-based compensation activity. Additionally, certain reclassifications have been made to the 2005 financial information to conform to the 2006 presentation. (2) Includes voluntary pension plan contributions of approximately $245 million for the twelve months ended December 31, 2006 and 2005 and physician class action settlement payment of approximately $150 million for the twelve months ended December 31, 2005. (3) Includes a reduction of the reserve for anticipated future losses on discontinued products of $115 million and $67 million for the twelve months ended December 31, 2006 and 2005, respectively. Changes in insurance liabilities are satisfied by sales of related investment assets included in net cash provided by investment activities. Refer to page 14 for definitions of terms used. 10
    • Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure (1) ($ in Millions, except per common share data) Three Months Ended Twelve Months Ended Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2006 2005 2006 2005 Reconciliation to Income from continuing operations before income taxes Operating earnings before income taxes, excluding interest expense, amortization of other acquired intangible assets and favorable development (A) $ 670.7 $ 624.1 $ 2,748.0 $ 2,284.5 Favorable development of prior-period health care cost estimates 45.0 63.0 18.0 250.0 Operating earnings before income taxes, excluding interest expense and amortization of other acquired intangible assets (B) 715.7 687.1 2,766.0 2,534.5 Interest expense (41.1) (32.6) (148.3) (122.8) Amortization of other acquired intangible assets (21.9) (19.3) (85.6) (57.4) Debt refinancing charge - - (12.4) - Physician class action settlement insurance-related charge - - (72.4) - Reduction of reserve for anticipated future losses on discontinued products - - 115.4 66.7 Acquisition-related software charge - - (8.3) - Net realized capital gains 10.3 13.7 32.2 32.3 Income from continuing operations before income taxes (GAAP measure) (C) $ 663.0 $ 648.9 $ 2,586.6 $ 2,453.3 Reconciliation to Income from continuing operations Operating earnings, excluding interest expense, amortization of other acquired intangible assets and favorable development (D) $ 436.3 $ 401.0 $ 1,788.0 $ 1,466.9 Favorable development of prior-period health care cost estimates, net of tax 29.0 40.0 12.0 159.0 Operating earnings, excluding interest expense and amortization of other acquired intangible assets (E) 465.3 441.0 1,800.0 1,625.9 Interest expense, net of tax (26.8) (21.2) (96.4) (79.8) Amortization of other acquired intangible assets, net of tax (14.3) (12.5) (55.7) (37.3) Debt refinancing charge, net of tax - - (8.1) - Physician class action settlement insurance-related charge, net of tax - - (47.1) - Reduction of reserve for anticipated future losses on discontinued products, net of tax - - 75.0 43.4 Acquisition-related software charge, net of tax - - (6.2) - Net realized capita1 gains, net of tax 9.9 9.0 24.1 21.1 Income from continuing operations (GAAP measure) (F) $ 434.1 $ 416.3 $ 1,685.6 $ 1,573.3 Reconciliation of Revenue Revenue, excluding net realized capital gains (G) $ 6,349.2 $ 5,853.7 $ 25,113.5 $ 22,459.6 Net realized capital gains 10.3 13.7 32.2 32.3 Total revenue (GAAP measure) (H) $ 6,359.5 $ 5,867.4 $ 25,145.7 $ 22,491.9 Operating margin Pretax operating margin (B)/(G) 11.3 % 11.7 % 11.0 % 11.3 % Pretax operating margin - Adjusted (A)/(G) 10.6 % 10.7 % 10.9 % 10.2 % Pretax operating margin (GAAP measure) (C)/(H) 10.4 % 11.1 % 10.3 % 10.9 % After-tax operating margin (E)/(G) 7.3 % 7.5 % 7.2 % 7.2 % After-tax operating margin - Adjusted (D)/(G) 6.9 % 6.9 % 7.1 % 6.5 % After-tax operating margin (GAAP measure) (F)/(H) 6.8 % 7.1 % 6.7 % 7.0 % (1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior-period financial information was adjusted to reflect the Company's stock-based compensation activity. Refer to page 14 for definitions of terms used. 11
    • Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure (Continued) (1) ($ in Millions) Three Months Ended Twelve Months Ended Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2006 2005 2006 2005 Aetna Inc. Reconciliation of Operating Expenses Operating expenses, excluding other items (A) $ 1,229.0 $ 1,156.2 $ 4,727.5 $ 4,452.7 Debt refinancing charge - - 12.4 - Physician class action settlement insurance-related charge - - 72.4 - Acquisition-related software charge - - 8.3 - Total operating expenses (GAAP measure) (B) $ 1,229.0 $ 1,156.2 $ 4,820.6 $ 4,452.7 Reconciliation of Revenue Revenue, excluding net realized capital gains (C) $ 6,349.2 $ 5,853.7 $ 25,113.5 $ 22,459.6 Net realized capital gains 10.3 13.7 32.2 32.3 Total revenue (GAAP measure) (D) $ 6,359.5 $ 5,867.4 $ 25,145.7 $ 22,491.9 Operating expenses as a % of revenue Operating expenses as a % of revenue (2) (A)/(C) 19.4 % 19.8 % 18.8 % 19.8 % Total operating expenses as a % of total revenue (GAAP measure) (B)/(D) 19.3 % 19.7 % 19.2 % 19.8 % Health Care Reconciliation of Operating Expenses Operating expenses, excluding other items (E) $ 1,139.9 $ 1,091.2 $ 4,401.2 $ 4,188.2 Debt refinancing charge - - 12.4 - Physician class action settlement insurance-related charge - - 72.4 - Total operating expenses (GAAP measure) (F) $ 1,139.9 $ 1,091.2 $ 4,486.0 $ 4,188.2 Reconciliation of Revenue Revenue, excluding net realized capital gains (G) $ 5,621.1 $ 5,136.3 $ 22,231.4 $ 19,605.5 Net realized capital gains 6.8 2.9 9.1 10.6 Total revenue (GAAP measure) (H) $ 5,627.9 $ 5,139.2 $ 22,240.5 $ 19,616.1 Operating expenses as a % of revenue Operating expenses as a % of revenue (E)/(G) 20.3 % 21.2 % 19.8 % 21.4 % Total operating expenses as a % of total revenue (GAAP measure) (F)/(H) 20.3 % 21.2 % 20.2 % 21.4 % (1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior-period financial information was adjusted to reflect the Company's stock-based compensation activity. (2) Excluding the previously announced fourth quarter severance charge of $27 million pretax, operating expenses as a % of revenue for the three months ended December 31, 2006 is 18.9%. Refer to page 14 for definitions of terms used. 12
    • Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure (Continued) (1) ($ in Millions) Three Months Ended Twelve Months Ended Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2006 2005 2006 2005 Group Insurance Reconciliation of Operating Expenses Operating expenses, excluding other item (A) $ 84.7 $ 60.2 $ 309.3 $ 246.4 Acquisition-related software charge - - 8.3 - Total operating expenses (GAAP measure) (B) $ 84.7 $ 60.2 $ 317.6 $ 246.4 Reconciliation of Revenue Revenue, excluding net realized capital gains (C) $ 529.7 $ 551.2 $ 2,140.6 $ 2,128.4 Net realized capital gains 7.3 3.3 11.5 13.4 Total revenue (GAAP measure) (D) $ 537.0 $ 554.5 $ 2,152.1 $ 2,141.8 Operating expenses as a % of revenue Operating expenses as a % of revenue (A)/(C) 16.0 % 10.9 % 14.4 % 11.6 % Total operating expenses as a % of total revenue (GAAP measure) (B)/(D) 15.8 % 10.9 % 14.8 % 11.5 % Large Case Pensions Total operating expenses (GAAP measure) (E) $ 4.4 $ 4.8 $ 17.0 $ 18.1 Reconciliation of Revenue Revenue, excluding net realized capital (losses) gains (F) $ 198.4 $ 166.2 $ 741.5 $ 725.7 Net realized capital (losses) gains (3.8) 7.5 11.6 8.3 Total revenue (GAAP measure) (G) $ 194.6 $ 173.7 $ 753.1 $ 734.0 Operating expenses as a % of revenue Operating expenses as a % of revenue (E)/(F) 2.2 % 2.9 % 2.3 % 2.5 % Total operating expenses as a % of total revenue (GAAP measure) (E)/(G) 2.3 % 2.8 % 2.3 % 2.5 % (1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior-period financial information was adjusted to reflect the Company's stock-based compensation activity. Refer to page 14 for definitions of terms used. 13
    • Definitions Adjusted noted on a financial statistic indicates that the statistic excludes favorable development of prior-period health care cost estimates. Administrative Services Contracts (quot;ASCquot;) include all medical, dental and disability products offered on an employer-funded basis. Under employer-funded plans, the plan sponsor, not the Company, assumes all or a majority of health care cost, utilization or other risk. After-tax Operating Margins are calculated by dividing after-tax operating earnings, excluding interest expense, amortization of other acquired intangible assets and other items by revenue, excluding net realized gains (losses). Benefit Cost Ratios are calculated by dividing group insurance current and future benefits by group insurance premiums. Commercial includes HMO, POS, PPO and Indemnity products. Commercial Risk includes all health care risk products except Medicare and Medicaid. Days Claims Payable is calculated by dividing the health care costs payable at each quarter end by the health care costs per day in each respective quarter. Health care costs per day is derived by dividing health care costs by ninety-one days. Development of Prior-Period Health Care Cost Estimates reflects management's estimate of the extent by which reported health care costs in the current period are affected by changes in estimates for health care costs payable during the period which relate to prior periods. Health Care Medical Cost Ratios are calculated by dividing health care costs by health care premiums. Health Care Risk includes all medical, dental and other health care risk products. Operating Earnings exclude net realized capital gains (losses) and other items from income from continuing operations. Operating Expenses as a % of Revenue are calculated by dividing operating expenses, excluding other items, by revenue, excluding net realized capital gains (losses). Pretax Operating Margins are calculated by dividing pretax operating earnings, excluding interest expense, amortization of other acquired intangible assets and other items by revenue, excluding net realized gains (losses). Risk includes all medical, dental and other health care products for which the Company assumes all or a majority of health care cost, utilization or other risk. Selling Expenses are comprised of broker commissions, the variable component of the Company's internal sales force compensation and premium taxes. Balance Sheet Terms Health Care Costs Payable consist principally of unpaid fee-for-service claims, capitation costs and other amounts due to health care providers pursuant to risk-sharing arrangements. Future Policy Benefits consist primarily of reserves for limited payment pension and annuity contracts in the Large Case Pension business and long-duration group paid-up life and long-term care insurance contracts in the Group Insurance business. Unpaid Claims consist primarily of reserves associated with certain short-duration group disability and term life insurance contracts in the Group Insurance business. Policyholders' Funds consist primarily of reserves for pension and annuity investment contracts in the Large Case Pension business and customer funds associated with group life and health contracts in the Health Care and Group Insurance business. Separate Account assets and liabilities in the Large Case Pensions business generally represent funds maintained to meet specific objectives of contract holders who bear the investment risk. 14
    • Attachment Supplemental Information Roll Forward of Health Care Costs Payable ($ in Millions) Year Ended December 31, 2006 2005 2004 Health care costs payable at beginning of period $ 1,817.0 $ 1,927.1 $ 1,888.7 Less: reinsurance recoverables 5.5 5.6 6.5 Health care costs payable at beginning of period - net 1,811.5 1,921.5 1,882.2 Acquisition of businesses - 18.6 - Incurred health care costs: Current year 15,495.4 13,534.6 11,925.9 Prior years: (1) Included in current year results of operations (18.0) (249.7) (2) (89.5) Included in current year health care costs payable (176.4) (177.0) (198.7) Total prior years (194.4) (426.7) (288.2) Total incurred health care costs 15,301.0 13,107.9 11,637.7 Paid health care costs: Current year 13,761.9 11,745.8 10,097.2 Prior years 1,426.8 1,490.7 1,501.2 Total paid health care costs 15,188.7 13,236.5 11,598.4 Health care costs payable at end of period - net 1,923.8 1,811.5 1,921.5 Plus: reinsurance recoverables 3.7 5.5 5.6 Health care costs payable at end of period $ 1,927.5 $ 1,817.0 $ 1,927.1 Health care costs payable: Incurred but not reported claims $ 1,507.7 $ 1,437.2 $ 1,434.1 Other claims 419.8 379.8 493.0 Total Health care costs payable $ 1,927.5 $ 1,817.0 $ 1,927.1 (1) Negative amounts reported for incurred health care costs related to prior years result from claims being settled for amounts less than originally estimated. (2) Includes $103.0 million related to the release of reserves related to the New York Market Stabilization Pool. 15