信諾集團 (CI) 2008 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by for CIGNA's second quarter 2008 results review.

(OPERATOR INSTRUCTIONS).

As a reminder, ladies and gentlemen, this conference, including the Q&A session, is being recorded.

We will begin by turning the conference over to Mr.

Ted Detrick.

Please go ahead, Mr.

Detrick.

Good morning, everyone, and hank you for joining today's call.

I am Ted Detrick, Vice President of Investor Relations, and with this morning are Ed Hanway, Cigna's Chairman and CEO, David Cordani, our President and Chief Operating Officer, Mike Bell, CIGNA's Chief Financial Officer, and Marcia Dall, Financial Officer for the CIGNA HealthCare 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 HealthCare results in the second half of 2008.

He will also comment on the integration side of our recent acquisition of the Great West Health Care business.

Ed will make some concluding remarks, and then we will open the lines for your questions.

Now as noted in out 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 principle measure of performance for CIGNA and 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 is the most directly comparable GAAP measure, is contained in today's earning 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 cigna.com.

Now in our remarks today, we will be making some forward-looking comments.

We would remind you 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 Healthcare business, which we acquired on April 1st of this year.

In our second quarter 10-Q, we will provided expanded disclosures regarding the acquisition of Great-West, including proforma supplemental financial information, as if the acquisition had closed on January 1st of 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 recorded 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 Reinsurance segment.

Now remember that CIGNA adopted Financial Accounting Standard 157 in the first quarter of 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 is 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 $151 million from that business are non-cash charges and have no effect on our estimate for 2008 subsidiary dividends.

And 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 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 moments, excludes the results of the GMIB business, and therefore any potential volatility related to the prospective application of that Statement 157.

And one last item, I would like to remind you that CIGNA will be hosting its annual Investor Day this year on November 1st in New York City.

And with that, I will turn it over to Ed.

Thanks, Ted.

Good morning, everyone.

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.

Inversely, the guaranteed cost book experienced lower membership driven by pricing discipline, and a lower new business sale, 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.

Now 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 on our Group Disability and Life and International business.

Our Group and International businesses delivered another strong quarter, with competitively strong top line growth and profit margins.

For 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 continue 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 '07 on growth of 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 quarter and repurchased 6.7 million shares for $264 million through July 31st.

Now 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.

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?

Thanks, Ed.

Good morning, everyone.

In my remarks today, I will review CIGNA's second quarter 2008 results.

I will also provide an update on our full-year outlook and I will comment briefly on our early thinking for 2009.

In my review of consolidated and segment results, I will 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 today 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 the Health Care.

Second quarter Health Care earnings were $181 million.

Relative to the 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 the second quarter, excluding financing costs which are reflected in the Corporate segment.

Now I'll discuss our Health Care results by major components.

Guaranteed cost earnings declined sequentially, mainly reflecting a higher than expected MLR and (inaudible) membership.

Our guaranteed cost MLR for the first half of 2008 was 84.8% excluding our voluntary business.

This included approximately 50 basis points from 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.

And this range is slightly higher than our previous estimate of 83%.

It reflects moderately higher expectations due from 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 pricing increases that are higher than trend and the impact of additional underwriting actions.

Excluding the non-medical account loss in the first quarter, our experienced 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 (inaudible) results were strong in the quarter, driven by lower operating expenses and continued increases 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 the is second half of the year.

With respect to medical cost, 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 a range of 6.5 to 7.5% for full-year 2008.

Our medical membership was 12.1 million members as of June 30th, and 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; and 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 disenrollment.

Health Care premiums and fees increased 13% relative to second quarter 2007, primarily due the acquisition of Great-West Health Care.

Excluding Great-West, premiums and fees were flat, reflecting rate increases on our guaranteed cost and experience-rated businesses and higher specialty revenue, offset primarily by a decline in guarantee cost membership.

Now to 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 margin, revenue growth and continued strong disability management results, patly 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 and 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 Reinsurance, Other Operations and Corporate, were $1 million for the quarter.

Second quarter results for the Run-off Reinsurance segment included the net favorable impact of settlement activity.

I will now comment briefly on our investment portfolio and results.

As we have discussed before, our investment strategy is to maintain a high quality, well diversified portfolio.

Our investment portfolio performance continues to be very strong competitively.

We continue to have no direct exposure to subprime 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; but 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 or our full year subsidiary dividends.

So 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 and short term investments of the parent of approximately $100 million.

During the second quarter, we resumed our share repurchase program and repurchased approximately 6.7 million shares for $264 million through July 31st including 44 million in the month of July.

In 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, and 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 to net to approximately 0.

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.

So in summary, we continue to have a strong, and good financial flexibility.

Now to review the earnings outlook for full year 2008.

For full year 2008, we currently expected 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, and I will discuss the components starting with Health Care.

We currently expect our medical membership, excluding Great-West, to end the year approximately 1% higher than at year end 2007.

This is 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, and we estimate that 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 a range of 8 to 8.5%, and we expect medical trend for this quarter to be approximately 7 to 7.5%.

Our estimate for full year 2008 Health Care earning 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 for our guaranteed costs and experience-rated business.

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 underwriting 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, and I will 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 billion 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.

And 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 experience-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 accounts.

This implies a very modest deterioration relative to the second quarter actual results.

We expect Medicare Part D to move from a breakeven position though 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 year, and 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 to have a larger favorable impact on 2009.

So 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 in the range of 700 to $730 million.

Now I'll discuss the balance of our segments.

We expect our remaining operations to contribute approximately 425 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 the year-to-date favorable settlement activity in reinsurance 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

in the 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.

Now, 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 expected $50 million contribution in 2008.

This updated range for 2009 is lower than our May estimates, primarily reflecting higher IT related integrations expenses and greater uncertainty around market pricing conditions than we had previously forecast.

We also expect to improve experience-rated margins in 2009, as we continue to execute stronger pricing and underwriting actions; and in addition, we expect the operating expense production opportunities that we identify in the balance of this year to have a greater impact in 2009.

And we expect to continue growing earnings in our Group Disability and Life and International businesses.

So all in, we currently expect to achieve attractive earnings growth in 2009.

Now, consistent with past practice, we expect to provide specific guidance about our 2009 outlook on next quarter's call.

So to recap: 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.

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.

And with that, I will turn it over the David.

Thanks, Mike and good morning, everyone.

Today, I am 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 are 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 for 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, it's a select employer segment, representing employers with less than 250 employees.

Today, I'm going to share with you first our thoughts on our 2008 membership our and medical cost trends.

Second, additional insights on our second quarter 2008 results, including actions we are taking to further expand profitability.

Third, an update on the integration of Great-West Health Care; and finally, a brief update on our strategy.

From a membership perspective, our total medical membership at the end of June was 12.1 million members, including the addition of approximately 1.8 million Great-West Healthcare members on April 1.

We are working to stabilize the Great-West client base in 2009 to improve our medical cost position, access to broader 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 in guaranteed cost products.

As Mike discussed, the decline in guaranteed cost membership was higher than expected, reflecting our pricing discipline in a very competitive environment.

In addition, we have seen higher disenrollment 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 the 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 teams, along with strong execution from our medical management and health advocacy programs.

Turning to earnings, as Mike discussed, our second quarter earnings 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 earnings 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 earnings 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 our guaranteed cost 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 trends, and we are 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 the second half book of business.

Additionally, we will seek to expand margins with our January 2009 renewals as we balance membership growth objectives.

And fourth, regarding the expenses, we will create additional operating efficiencies in our 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 earnings in the second half of 2008 from the seasonal nature of the the Part D product.

Looking forward, we remain committed to maintaining our pricing and underwriting discipline and improving our medical cost results through a combination of improving our pricing actions and ongoing medical cost management.

Turning to our acquisition of the Great-West Healthcare business, we are four months into the integration and are making good progress with minimal disruptions.

We remain focused on preserving and ultimately growing the existing Great-West Healthcare book of business, on integrating provider networks and clinical programs, as well as key aspects of the infrastructure; and as we have noted in the past, we expect to obtain and build on the strength of the Great-West organization.

With that end, we are pleased that we have been able to retain almost all of the Great-West employees.

I will 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 a real difference.

As a health service company, we are focused 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, insuring the most effective 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 behavior, life style management programs, case management, disease management, health coaching, 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 -- could be nutrition advice, help to manage stress, resources to cope of all aspects of a major illness or just to answer a question about a claim.

The goal is to personalize and simplify the experience for our customers.

We recognize that it's 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 ranked as the number one national health plan in customer satisfaction, and all of our call centers have been certified again this year by J.D.

Power and Associates.

From a clinical standpoint, we have also been recognized again as having the best clinical quality outcomes, as measured through (inaudible) and (inaudible) again this year.

In June, we launched a new corporate brand and customer advertising campaign.

We are sending a different message of what we think a health service company is and needs to be, and it starts with recognizing the issues that everyone faces.

We will do everything in our power to simplify and improve for our customers benefit.

Our objective, to be clear, is to make the path to health and well-being as easy as possible.

Now I'd like to shift gears and spend a few minutes on 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 and Individual Health and Life products for individuals and global employers.

In our Group business we deliver best in class results with our disability claim management model.

We help people return to work sooner than the competition.

Like our HealthCare 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 plans 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 International in the industry 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, our employer customers, are seeing significant growth outside the United States.

The idea of multinational borderless solutions is increasing.

Employers and individuals are looking for solutions that offer access to quality providers, affordable care and have dimensions of portability.

As CIGNA, we are well positioned to integrate our services and leverage the depth of understanding and experience we have in these global markets.

I will end my formal remarks with the reiteration that we are taking appropriate action to further improve profitability of our Health Care bood 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 through a combination and underwriting on our guaranteed cost and experience-rated benefits effective total and clinical cost management and ongoing improvements to operating effectiveness and efficiency; and third, we will insure effective client and individual service delivery from our existing programs while we integrate our health service for 2009 and beyond.

We are committed to further improving our results in 2008, and insuring we can are well positioned as we look forward 2009.

With that, I will turn the call back to Ed for his closing remarks.

Thanks, David.

Now, before we the 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.

Now, in the second half of 2008, we will continue to make investments in targeted market expansion 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 positions 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.

(OPERATOR INSTRUCTIONS).

Our first question comes from Matthew Borsch of Goldman Sachs.

Yes, good morning.

So the question -- I am trying to understand with your renewal rate increases, does that reflect that the rate increase were inadequate to some degree coming into this year and into the second quarter?

And is if that's the case, just to help us understand, you know, has it been -- trend higher than expected or to what extent has it been the dynamic of the pricing pressure in the market?

Matthew, it is Mike.

Regarding the guaranteed cost book, I would not characterize our renewal rate increases 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 guaranteed cost book in the first half of the year of 7.1%.

So 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 cost from the flu; but 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 are actually expecting now, 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 year, which will improve the MLR.

Yes, and 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 are putting through?

Sure, Matthew.

We are 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.

So an additional five points of membership loss.

That makes sense.

And last question here, on the -- you know, 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 some of the non-managed care reinsurance companies.

And how do you think that may impact your ability to do some of the repricing that you are looking to do on the Great-West business?

Sure.

Matthew, it is Mike.

I will start, and I will ask David if he wants to add.

First of all, our stop loss results continue to be very strong.

I mean, our loss ratios have been stable over the last 18 months and actually significantly improved from the '05, '06 timeframe.

Now in terms of competitive pricing conditions, I think it is fair to say it is a very competitive market.

There's certainly a number of specialty players, you know, with 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.

So 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 to this book as opposed to trying to somehow price higher than the medical cost trend.

It is more lowering the medical cost the take advantage of our more favorable total medical cost position than what Great-West has had historically.

David, do you want to add?

Good morning, Matthew.

Just two points.

First, 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 stop loss for some time.

The specific piece of Great-West, I would also ask you to think about is, in the select segment -- so for employers 250 and below, it is not like their go-to market strategy or our go-to market strategy, as you know, is (inaudible) so its stop loss is optional.

It is an integrated sale.

So you are not coming up against the same kind of specialty carve out vendors; and then, as Mike said, we are increasing value by adding the additional medical cost improvement in specialty solutions.

So we feel very good about that strategy in the market conditions.

Great.

Thank you.

Thank you, Mr.

Borsch.

Our next question comes from Josh Raskin of Lehman Brothers.

Thanks, good morning.

A couple of questions just on Great-West.

First is, as you think about -- well, first the membership, I think you reported now 1.76 million and you were suggesting 1.4 million last quarter.

I assume there's a classification issue there.

Just curious what that was.

Also, the medical payables up 50 million.

I'm curious how much of that was Great-West?

And then are there any planned systems conversions for some of the Great-West systems?

Okay, Josh, it is Mike.

I'll start and I'll ask David if he wants to add.

In terms of the Great-West membership, again, you are exactly right.

There are some classification issues in terms of what we count as members versus what Great-West has historically counted as its members.

Based on our membership definition, which has been consistent for several years now, we are including a number of TPA members that are either in TPAs that Great-West -- or now CIGNA -- obviously owns, as well as TPA members that are accessing that medical network.

So based on that definition, we were able to count roughly 250,000 or so members that are in those arrangements, and that's why we are reporting 1.76 million members.

In terms of the payables, let's see, at June 30th -- let me look this up here.

Great-West reserves on a net basis were 67 million of the overall balance of 827 million.

And I am sorry, I'm drawing a blank on your last question.

It's conversions -- anything planned for Great-West?

Josh, good morning.

It is David.

I will take the systems component.

So 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.

So the way I would ask you to think about the systems conversions, for the market facing systems and tools, claim payments and markets for those systems or the select segment in core Great-West members will stay in place.

Great-West is in the process -- was in the process and will continue that process of enhancing those systems and moving to an upgraded platform from a market standpoint; but we will build on those systems and will not convert that business in mass to CIGNA systems.

Behind the scenes, as you might expect, there's some infrastructural support for data centers, et cetera, which we have planned for.

But the most important message is the service proposition to the individual members, the employer, the physicians will stay off their very, very strong systems today.

Got you.

That's helpful.

And then just last follow-up -- I'm sorry -- on the membership -- are you expecting more attrition in '09 on the Great-West book as well?

At this point, Josh, we have not communicated specific membership projections for 2009.

I think it is fair to say that embedded 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 condition.

Great.

Thanks.

Thank you, Mr.

Raskin.

Our next question comes from John Rex of J.P.

Morgan.

Thanks.

I just first wanted to think about medical costs here.

Could you size for us the impact of the kind of higher level of catastrophic claims you saw the quarter?

And also the negative development that was rolling through from 1Q?

And I guess just maybe a little color commentary on the catastrophic claims.

Your commentary at least has spoken to higher acuity levels that they're seeing, and I'm wondering kind of what you are seeing as it relates to that?

John, it's Mike.

In terms of quantifying this, for the first six months of the year, we saw catastrophic claims, including catastrophic claims related to the -- what we believe is the flu in first quarter of approximately 50 basis points.

Now, most of that is centered in first quarter; and you are right in terms of your assertion -- the first quarter did emerge worse than we had expected.

And that's picked up in the second quarter reported results, obviously; but it would be 50 basis points all together.

In terms of kind of specifics underneath that, we did see an increase in the acuity of claims -- and again, just overall higher inpatient costs.

Interestingly, that has been centered in the guaranteed cost book.

We did not see a material change in either ASO the experience-rated book in the first half of the year as it relates to the catastrophic claims.

So therefore, we do not believe this is a widespread phenomenon.

But actually, 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.

And final point I would make is that remember the medical cost trend for guaranteed cost for the first six months of the year has been 7.1% versus the comparable period here in 2007.

Now full year -- our model is a medical cost trend for the full year for the guaranteed cost book of 7 to 7.5%.

But again, we are not talking about an overall fee change in terms of trend.

So there's not a theory this is something to do with coding creep or something like that?

This is more about a relatively small book of business and some bad luck?

Is that --

John, I believe that to be the case.

Again, particularly given that we did not see a comparable acceleration in trend or comparable acceleration in cat claims, so for ASO and (inaudible).

David, do you want to add anything?

John, good morning.

I'd just reinforce -- remember, the guaranteed cost is 8 or 9% of our total membership, so we tend to get a little bit more volatility there.

And no, we would not say that there's a broad -- we don't see any evidence of a broad sweeping different movement -- in your terminology, "code creep" or upcoding or change in profile that way.

There's always a bit of movement, plus or minus, but nothing unique.

Okay.

And I just want to make sure a few points on Great-West, I want to make sure I understand.

So the 150 to 170 for '09 that you are guiding to compares to the 170 to 180 from last quarter?

Is that the correct comparison, so I have the numbers?

That's correct, John.

Okay.

And then in terms of the transaction costs that you are bearing in '08, I think your guidance was 45 to 50 million before.

I want to see if that's the same.

And then 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.

That's correct, John.

The update -- and we refer to it, at least internally, as integration expense.

So it's going to be integration and in transition costs, because they're incremental expenses that we don't think will be part of our expense based on the long term.

Our current estimate for that for 2008 is 50 million after tax, so 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 included, a little higher labor costs there; we also are likely to incur some upgrade software costs -- again, not to do with the major change in customer facing systems or anything, but a kind of behind the scenes cost.

And that's the reason we are now at the upper end of that range for 2008.

How much was born in 2Q?

Oh, I'm sorry.

And so the west was born in 2Q that we had anticipated -- it was just a shade more than 1/3 of that 50 million.

We do expect third quarter to be modestly higher and then fourth quarter to be modestly lower.

David, did you want to add?

John, just to point to -- bridge Mike's comment to 2009 as well.

So the somewhat higher transitional costs around technology in '08; we expect also to see some higher transitional cost in technology in 2009, and that is one of the primary items that affects the earnings range that you referenced before.

And our focus here is to insure that we are doing everything that's prudent to make sure we have no disruption -- or as minimal disruption as possible -- for the benefit of the customers.

Knock on wood, thus far there's been a de minimus disruption, and we're really fixated on that to make sure the service proposition, which has been strong from Great-West, continues to be very strong on all fronts.

Okay.

And then just to make sure I understand the progression here.

So the next 2/3 mostly would be born in 3Q of that 50 million, is that right?

That's our current estimate, John.

Okay, great.

Thank you.

Thank you, Mr.

Rex.

Our next question comes from Greg Nersessian of Credit Suisse.

Hi, good morning.

I guess my first question, just if you could touch on the catastrophic claims again.

Just curious why that doesn't impact your stop loss results -- why a higher level of inpatient acuity wouldn't be rubbing off against your stop loss thresholds?

Greg, it's Mike.

Overall, it is 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 -- and it was concentrated in a couple of specific geographies, concentrated in the under-50 group business.

So again, I think it is a combination of volatility.

We are also looking at was there any kind of antiselection, particularly with the under-50 book.

But we don't see any evidence that it has spread at this point to the more stable ASO and experience-rated blocks at this point.

And we would have seen that as higher stop loss claims on both ASO and ER, if in fact that had spread to those books.

Is there any concern -- I mean on the guaranteed cost book, where you're raising rates ahead of trend, that if there is antiselection it is only -- you know, those rate actions are only going to exacerbate that problem and you are going to lose more of your good risk?

Greg, it is Mike.

Certainly in the under-50 book in certain states, for example, that are require community rates or a specific filed rate that don't vary from group to group, there is that risk.

Now remember, the under-50 block is a very small portion even of our overall guaranteed cost block.

We have less than 100,000 members in that book.

We are rewriting, reunderwriting that book market to market and certainly are cognizant of the point you are making.

David do you want to add?

Good morning, Greg.

Two points.

One is, clearly the risk always exists, but you shouldn't anticipate that we are 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.

And secondly, as we look at our July results, it would suggest that the loss ratios on the business we are retaining versus the loss ratio on the business we are losing are in the direction we expect.

So the loss ratios are higher on the business we're losing than on the business we are retaining -- which we'd suggest we're retaining the better risks and differentiating our pricing strategy.

Okay.

Great.

That's encouraging.

And then just last question, do I understand that, you know, the bulk of the repurchases for this year are complete?

Could you just run through what your uses and sources of cash in terms of what's available for repurchase?

Sure.

No problem, Greg.

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.

Now remember, we also repurchased 44 million in July that you need to take out of the roll for it.

So basically, what that says, if we use the midpoint 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.

Now, again, 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 30th and our long-term target, which we would expect to gradually get to at year end 2009 of 250 million.

So that would be, I think, a good way to think about the ranging.

Okay.

Great.

That helps.

Thank you.

Thank you, Mr.

Nersessian.

Our next question comes from the Scott Fidel of Deutsche Bank.

Thanks, good morning.

First question, just if you can give us an early read as to what you're expecting for medical costs for 2009.

Looks like most of the competitors are expecting modest upward pressure that they're planning to price to and it seems that sort of 8% might be composite expectation so far for '09, and if you could talk about your views for med costs looking out to 2009.

Sure, Scott.

It is Mike.

First, it is early, obviously, to give definitive guidance in terms of 2009; but what I can tell you is that for cases where we have 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 than what we have been seeing here in 2008.

So that would suggest you know, 7 to 8% in 2009 as opposed to the 6.5 to 7% that we are experiencing thus far in 2008.

Now, I would point out on a reported basis, Great-West is going to add noise to the trend numbers, and we are still sorting how we are going to end up reporting medical cost trends.

So the numbers that I just described are on a CIGNA basis ex-Great-West, but at least we'd be apples to apples with the 6.5 to 7.5%.

Okay.

And then just thinking on medical costs, if you can walk through the component -- the components in 2Q and how that might have shifted from 1Q, and any early thoughts on how those might move around for '09?

Sure.

Macia, you want to take that?

As Mike mentioned, our overall medical trend is actually 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 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.

Scott, just 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 category.

So as an example, you know, 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.

Now again, we will obviously give further specificity by category.

Marcia will likely do that at the third quarter call.

So Mike, is it fair to say then that the 50 (inaudible) assumed increase, that would be just some more cushion around the utilization for '09?

Essentially that's right, Scott.

And then just one last question, just I know the focus on improving the medical cost to the stop loss is a big part of the synergy targets 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?

Scott, good morning.

It is David.

So relative to the medical cost improvement, first just to box it, the nature of the product is such that you have an ASO relationship and stop loss relationship.

So as we are able to improve the total medical cost, the beauty of it is a meaningful amount of that total medical cost accretes to the employer and ultimately to the employer individual relationship, and a portion of that accretes to us through the stop loss relationship, et cetera.

The progress we are seeing thus far is that we are stepping through 2008 and into 2009.

As we sit here today, we expect to be able to achieve our total medical cost improvement by the end of 2009, and we expect to have a meaningful amount of that total medical cost improvement secured by the first quarter of 2009.

Okay.

Thank you.

Thank you, Mr.

Fidel.

Our next question comes from Justin Lake of UBS.

Thanks, good morning.

Just one further question on GW.

You mentioned that you expect to see another 100,000 members attrition before the end of the year.

Can you give us an idea of how many members are renewing over that period -- so July 1st through the end of the year, what percentage of the book actually renews?

Sure, Justin, it is Mike.

Good morning.

30% of the book renews the second half of the year and 70% of the book renewed the first half of the year.

So if I think about 30%, should I multiply that number times the 1.7 you reported?

That's correct.

Okay.

So maybe, out of 500,000-ish members, we are talking about 100,000 trading?

Is that about right?

I think that'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 are part of these TPA arrangements, which tend to be lower margin; and 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 and that's really where the bulk of the earnings power is for 2009.

So I wouldn't -- if you are building your own earnings model here for 2009, I wouldn't try to spread that proportionally.

Okay, so what has been the interest -- if you think about 2008, what has been the attrition in that select membership?

Let's see.

The overall persistency has been in the mid-80s for the select segment.

Let's see.

In terms of the percentages, the overall Great-West book is down 3.5% year-to-date.

The Select is a little smaller decrease in that.

I just don't have that number committed to memory, but it is a couple of points.

Got it, that's helpful.

And then on the experience-rated book, I know you mentioned that you're seeing higher deficit dollars in total.

Can you run just 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, what those deficits were last -- were they 132 last quarter?

I'm just going off of memory.

Sure.

Justin, good memory.

Yes, let me walk through maybe 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, Justin, that this is a great product for us.

Remember, this is our highest earnings product per member and we believe it is a real win-win.

In second quarter, we did see an improvement in the medical loss ratio.

It improved sequentially approximately 150 basis points.

So if you take 150 basis points times the 493 million of medical premium, you would 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 lower full year full year outlook for experience-rated.

And in terms of some of the specific numbers that you are interested in, we did in fact experience an increase in deficit recoveries in second quarter versus first.

But we also saw an increase in the new and existing deficit.

So 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 the second quarter.

Now 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.

So remember, today's deficit balances are tomorrow's opportunity for deficit recovery, which is a potentially a good thing.

But it is fair to say now that for the full year 2008, we do expect additional lifts of recoveries in the second half of the year due to the pricing (inaudible) actions that we're taking, but 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 at -- in terms of second quarter actuals.

So the net impact -- the net-net impact now on second half of 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.

Now, the real interesting opportunity here, of course, is the first half of the year 2009 renewals.

We have an opportunity obviously for additional deficit recovery even greater than what we had expected before.

And we expect to be in a position to quantify those expectations at the end of October.

What percentage of the accounts are in deficit, and how did that compare last quarter?

Let's see.

We are currently -- at June 30th, Justin, at 34%, and that compares to 35% at the end of the first quarter.

Okay.

So that is actually improves -- the size of the deficit is getting larger?

Yes, modestly.

Again, I wouldn't -- I wouldn't over react there, but it is fair so to say -- and in fact, there's one particular account that actually has a single of -- loss in the single digit after-tax earnings range that is a -- call it 10% of the overall $151 million balance.

That is an account that's renewing later this year.

And just one more question on experience-rated.

I know you have always said this business runs at a very attractive margin.

And I realize you don't want to discuss that specific margin on the call, but can you give us an idea -- how far away are you right now if you kind of think about your 2009 -- or 2008 results -- that include the higher deficit, what kind of basis point difference are you from kind of that target margin that you think you should -- you've historically run in this business, ex the recoveries or increased deficit?

Sure.

Well, first, I would remind you, Justin, that a portion of our lower earnings expectation here for 2008, roughly 1/3 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 previously -- versus previous growth that we originally expected in terms of earnings for 2008.

We expected growth.

We are now saying down 2%, which means revenue we expect to be up 4 to 5% for the full year.

So in terms of your specific question, though, in terms of margins, we expect to end 2008 with margins on this book that ballpark are in the 30 to $40 million after-tax lower than what we've historically targeted.

So, 30 to $40 million after-tax on approximately $3 billion of our overall revenue.

You can conclude a percentage point or a shade better than that -- or a shade -- I should say a shade worse than that -- in terms of after-tax margins full-year 2008 versus what we have historically run longer term.

Now 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's where we will give additional clarification on the third quarter call.

And that 3 billion number is not a little -- does that include all of the ancillary?

That's correct, Justin.

That's what I was referring to.

Okay, and the 30 to 40 million is specifically the -- is without any improvement in recovery?

Well, that would include, in fact, getting the deficits back to our historical target of 30%, and so it would include some level of recovery back from where we are currently.

Okay.

Thanks.

Thank you, Mr.

Lake.

Our next question comes from Doug Simpson of Merrill Lynch.

Hi.

Good morning.

Mike, I was wondering if we could just sort of talk about '09 in general -- in a general sense.

I know you don't want to get too specific, but if we look at -- and talking about the Health Care segment profit.

If we look at the 715, the midpoint of the range for this year, directionally if we said then said, well, Great-West is going to add about 100 million incremental from '08 to '09, that gets us to kind of an 815 number, which would be -- that would be about 15% growth year-over-year.

And I'm just trying to connect the dots.

I think Ed had commented about the opportunity for significant segment profit growth in that area.

Is that kind of a reasonable starting point?

Well, Doug, I think the components that you are talking about are, in fact, reasonable; and again, just to reiterate, we'd prefer not to give specific numbers at this point -- we do expect to give specific numbers on the third quarter call.

Maybe just to flush out your list a little more, because I think your list of pluses and minuses are a little longer than what you described.

I think you are right on Great-West.

We are modeling 100 to 125 million of earnings growth '08 to '07 for Great-West.

We do expect continued specialty earnings specialty growth to increase ASO or (inaudible) just like we have seen this year.

As I mentioned to Justin's question, we do expect better margins in ER than what we have gotten so far this year.

I had rather not try to mention 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 have talked about previously, I that's approximately $30 million or so after-tax.

And then, final positive I would here is the segment expansions.

This year, we expect a drain of 15 to 20 million of after-tax, as 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 is important to note two things.

One would be that we do expect higher IT expenses -- again, our entire sector is investing in additional technology capabilities to in effect capitalize on this market need for additional consumer engagement, health advocacy.

This really requires additional technology than what we have had or the sector has had historically.

And in addition, the other wild card, of course, is the challenging economy and the competitive pricing environment, which will particularly have an impact on guaranteed costs.

So again, we have got some work to do in terms of sizing out the various pluses and minus, but that's at a high level what's on our plus minus list here for Health Care for '09.

David, do you want to add?

Good morning, Doug.

Just to recap, as Mike said in his prepared remarks, as we look at '09, we do view that the marketplace is going to continue to be challenging, from both competitively -- the economy -- we have said that we have a wonderful growth catalyst in Great-West.

We have the diversity of the earnings streams beyond that from the disability and international businesses, and we expect to continue to stay strong.

And I would just reiterate Mike's point, that presents the opportunity for us to have attractive earnings growth and invest back in ourselves in technology and further segment expansion.

So we are well positioned for '09 and beyond.

Okay.

And then I think in the prepared remarks there was a comment that -- again, pluses or minuses -- was sort of (inaudible) of the operating expense uptick for the HIT; but in the other hand, you expect operating expense reductions.

Can you just help us think about netting the two of those?

Doug, at this point, I would prefer not to the be specific there.

We've got some very important work to do the next 60 days.

I do believe that directionally there is going be increased pressure for us to spend more on IT.

Again, this year we would expect to spend more in the segment expansions and next year that will turn into accretive earnings -- and your absolutely right.

We do expect that the 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.

But I'd rather not try to size that at this point.

Okay.

Okay.

Thank you.

Thank you, Mr.

Simpson.

And our last question comes from Charles Boorady of Citigroup.

Thanks, good morning.

On-Wreat west, can you talk about your network recontracting progress and what your assumption are in your '09 Great-West guidance that you gave for med loss ratio improvement, and the degree to which that would come from pricing versus recontracting the network?

Morning, Charles.

It is David.

I will start with the networking contracting and medical cost improvement and I will ask Mike to pick up on the MLR and other points.

First, as we think about the total medical cost improvement, it is important to note that we are are looking at that as the improvement of the total medical cost.

So network optimization, clinical model optimization, provider service model optimization, and it is built on both Great-West and CIGNA having a very good track record of servicing big doctors and hospitals, so we are able to build off of that.

Second, as we've suggested in the past, it is not going to transpire overnight.

So we are on a methodical path to see improvement in 2008 and 2009.

Our expectations are to see some improvement in 2008 in order of magnitude of the total opportunity that we expect we can improve medical costs.

Maybe around 20% of that will occur if 2008.

We see line of site to be able to achieve our total medical cost improvement goals and objectives by the end of 2009; and as we sit here today with interactions back and forth between the doctors and hospitals, we will have a meaningful amount of that completed for the first quarter of 2009; which is important, because then we are able to see continued improvement in the value delivery pack to the Great-West customers, both the ASO customers who benefit directly from that as well as some of the stop loss benefits.

Mike, do you want to comment on the MLR?

Sure.

Good morning, Charles.

Regarding MLR for 2009, just to give some additional background here, we expect that stop loss premiums next year ballpark will be approximately $800 million for the full year.

What we are modeling is an improvement in earnings contribution from an improved MLR in the 50 to $65 million after-tax range.

And that's what's embedded in the 150 to 175 million projection for 2009 that I gave in the prepared remarks.

Now, 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 have got some very important decisions to make around the pricing and membership trade off here for '09.

But we believe that the 50 to 65 million is achievable.

Again, it would improve the MLR, but not to the level actually that we have historically run at CIGNA; and therefore, you know, while there's more work to come and we will update this again at third quarter, we do expect this to be achievable.

Okay.

Great, and just last question 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 the ER results?

I don't expect, Charles, that the -- that there would be a tremendous amount of noise in the fourth quarter results.

I do think that we will see additional improvement in the third quarter from the pricing and underwriting actions that we have 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 uptick in medical cost sequentially third to fourth, but we have modeled that in term of the full year.

We expect the full year medical costs for just the ER book to be approximately 8%, and that is picked up -- the phenomenon I just described is included at a high level in the fourth quarter estimates.

Okay.

Great.

Thanks.

Thank you, Mr.

Booray.

Ladies and gentlemen, this concludes CIGNA's second quarter 2008 results review.

CIGNA investors, Investor Relations will be available to respond to additional questions shortly.

A recording of this conference will be available for ten business days following this call.

You may access this recorded conference by dialing 888-203-1112, or 719-457-0820.

The pass code for the replay is 4732501.

Thank you for participating.

We will now disconnect.