信諾集團 (CI) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by for CIGNA's third quarter 2009 results review.

At this time, all callers are in a listen-only mode.

We will conduct a question and answer session later during the conference and review procedures on how to enter the queue to ask questions at that time.

(Operator Instructions).

As a reminder, ladies and gentlemen, this conference including the question and answer session is being recorded.

We'll begin by turning the conference over to Mr.

Ted Detrick.

Please go ahead, Mr.

Detrick.

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

I am Ted Detrick, Vice President of Investor Relations, and with me this morning are Ed Hanway, CIGNA's Chairman and CEO; David Cordani, our President and Chief Operating Officer; and Annmarie Hagan, CIGNA's Chief Financial Officer.

In our remarks today, Ed Hanway will begin by briefly commenting on CIGNA's third quarter results.

David Cordani will provide his perspective on the third quarter and full year outlook for CIGNA's ongoing business and will also provide an update on our cost reduction initiatives and how we are positioning ourselves for 2010 and beyond.

Annmarie Hagan will then review the financial details for the quarter and provide the financial outlook for full year 2009.

She will also provide high level commentary regarding our 2010 outlook.

Ed will then conclude with an update on the topic of healthcare reform before we open the lines for your questions.

Now as noted in our earnings release, CIGNA uses certain financial measures which is are not determined in accordance with Generally Accepted Accounting Principles or GAAP when describing its financial results.

Specifically we use the term labeled Adjusted Income From Operations as the principal measure of performance for CIGNA and our operating segments.

Adjusted income from operations is defined as shareholders 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 shareholders income from continuing operations, which is the most directly comparable GAAP measure, is contained in today's earnings release filed this morning on Form 8-K with the Securities & Exchange Commission and is also posted in the Investor Relations section of CIGNA.com.

In our remarks today, we will be making 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 turning the call over to Ed, I will cover a few items pertaining to our third quarter results.

Regarding results, I note that in the quarter we recorded a charge of $7 million after tax related to CIGNA's previously announced cost reduction plan which we reported as a special item.

I would remind you that special items are excluded from adjusted income from operations in today's discussion of both our third quarter results and full year 2009 and 2010 outlooks.

Relative to our run-off reinsurance operations, our third quarter shareholders net income included after tax income of $16 million or $0.06 per share related to the guaranteed minimum income benefits business, otherwise known as GMIB.

I would remind you that the impact of FASB's fair value disclosure and measurement guidance on our GMIB results is for GAAP accounting purposes only.

We believe the application of this guidance does not represent management's expectation of the ultimate liability payout.

Because of application of this accounting guidance, CIGNA's future results for the GMIB business will be volatile, as any future change in the exit value of assets and liabilities will be recorded in shareholders net income.

CIGNA's 2009 and 2010 earnings outlooks, which we will discuss in a few moments, exclude the results of the GMIB business, and therefore any potential volatility related to the prospective application of this accounting guidance.

Then one last item, I would like to remind you CIGNA will be hosting its annual Investor Day this year on November 20th in New York City.

With that I will turn it over to Ed.

Thanks, Ted.

Good morning, everyone.

Our third quarter 2009 adjusted income from operations was $311 million or $1.13 a share.

Our third quarter consolidated results reflect solid earnings contributions from each of our ongoing operations and demonstrates the benefits of our diversified portfolio of businesses in this challenging economic environment.

For healthcare, earnings were $204 million in the third quarter, representing a $27 million increase over the second quarter 2009 result.

This result is in line with our expectation of second half healthcare earnings being meaningfully higher than the first half and is consistent with the earnings trajectory provided in our full year earnings outlook.

Our healthcare results continue to demonstrate our strong focus on managing operating expenses while maintaining our quality service and clinical program delivery.

For our group disability and life business, we reported earnings of $65 million and we continue to achieve competitively attractive margins in this business.

This earnings result is evidence that our superior disability management programs continue to create value for our customers.

Third quarter earnings in our international segment were $40 million, which were below expectations.

We continue to be pleased with both the top line growth and earnings contribution of international, where margins continue to be competitively strong.

Our investment portfolio including our commercial margin loans continues to perform well relative to market conditions.

We believe this is a direct result of our disciplined approach to investing.

In addition, our capital position remains strong, and we continue to maintain the financial flexibility to weather potential challenges in the capital markets.

Regarding our full year 2009 outlook, we continue to expect earnings per share will be in the range of $3.80 to $4 a share.

This reflects a modest change to the upper end of our healthcare outlook as well as favorable third quarter results from our run-off reinsurance business.

Overall, I remain confident in our ability to achieve our 2009 operating goals and earnings estimates in this challenging business environment.

Achievement of these goals has been and will continue to be the direct result of our disciplined focus on creating value for our customers by improving the health, well-being, and sense of security of the people we serve.

With that, I am going to turn the call over to David.

Thanks, Ed, and good morning, everyone.

Today I will review our third quarter results for ongoing operations and I will comment on our full year 2009 outlook, both against the backdrop of the current conditions in the health benefits marketplace.

I will also provide an update on our ongoing operating cost reduction initiatives and I will briefly discuss our strategy, specifically how we are positioning ourselves for 2010 and beyond.

Let's get started.

Third quarter 2009 healthcare earnings increased sequentially as expected and reflect good progress on reducing operating expenses as well as seasonal improvement in Medicare Part D results.

This was tempered by medical cost pressure in our guaranteed cost book of business.

Overall, earnings results were strong from our specialty businesses.

However, we did experience pressure in our stop-loss portfolio.

Specific to our Great West stop-loss book of business, results continue to be strong as we deliver cost improvements for our customers.

Relative to this portfolio we expect to achieve virtually all of the total medical cost improvement by the end of this year.

Turning to expenses, we continue to realize improvements as a result of our multi-phased action plan.

We balanced these actions with ongoing technology investments and strong service and clinical program delivery for our customers, clients, doctors, hospitals, and producers.

Moving to membership, our third quarter results were in line with our expectations at just over 11 million members.

Our risk membership was stable in the quarter, driven by ongoing growth in our individual membership and demand for leaner risk products.

For 2009, we continue to expect medical membership to decline by approximately 5% to 5.5%.

While our account retention rates are strong, high unemployment levels have driven higher disenrollment, which account for the majority of our membership losses.

Overall, our third quarter healthcare earnings increased sequentially as expected.

Let's turn to our third quarter results for our group disability and life business.

Earnings in the quarter were strong, driven by good margins in each line of business.

Our best in class disability management programs delivered value to our clients by returning their employees to health and helping them get back to work more quickly than the competition.

We continue to closely monitor emerging economic trends and expect the impact from the current downturn to be manageable.

For international business, earnings in the quarter were mixed with improved policy retention rates offset somewhat by unfavorable claims experience.

We continue to see good demand for our supplemental health insurance products as the growing middle class, particularly in Asia, are looking for simple, affordable products to fill gaps in the coverage levels.

Overall, our group disability and international results in the third quarter were solid, considering it is global economic recession.

Now, let's take a look at the current conditions in the health benefits marketplace.

The pricing environment remains competitive and our strategy is to maintain our underwriting discipline.

It is clear that our industry is facing medical cost pressure.

Regarding our book of business, we expect total medical cost trend to be at the upper end of our 7% to 8% range, driven by the impact of H1N1.

In today's environment, two distinct purchasing criteria have emerged -- commodity based offerings that focus on supply side programs and value based offerings that balance supply side programs with demand based programs that incent and engage individuals to improve their health and productivity.

Our message is resonating well with clients who employ value-based criteria.

Our approach of truly listening to our customers, then taking the opportunity to understand them, and then using that understanding to help them is resonating.

We help by driving active participation of our individual customers with us and their physicians to manage their health.

This leads to lower health risks, improved health, and as a result lower costs and higher productivity.

We continue to see good cost and productivity results for our innovative customers as they balance effective supply and demand based programs.

Today, winning in the marketplace clearly requires you to demonstrate value.

We do this through our service levels, our total cost management programs, and consumer engagement capabilities.

Looking to 2010, currently we expect commercial medical membership to be stable, with meaningful growth in the middle market offsetting declines in the national segment.

Now we recognize that ongoing operating expense improvements are important to drive continued progress in the market place.

This quarter we made further progress with our cost reduction program.

In total actions we have taken this year will result in annualized pretax benefits of approximately $150 million for the enterprise.

We recognize there is still more to do, and we remain committed to the execution of our multi-year expense strategy to meaningfully improve our expense position.

It is important to note that as we make progress on improving our operating expense levels, we will continue to balance our strong service levels and our commitment to clinical excellence for the benefit of our customers and the need to invest prudently in technology.

We will discuss these areas in greater detail at our Investor Day on November 20th.

That's a look at where we are to date.

Now let's discuss how we're positioning for 2010 and beyond.

We will review our strategy in depth at Investor Day later this month.

For now, let me provide a few highlights.

First and foremost, our mission remains the same.

We are committed to helping the people we serve improve their health, well-being, and sense of security.

To give you a preview, our strategy is all about driving focus and praying playing to our strengths where we can win today.

An example is the competitive strength of our middle market segment, where we have historically strong performance in our healthcare lines and our disability lines.

In addition, we will also leverage our capabilities to extend and build in high growth markets.

An example is that we are the only player with a diverse global footprint.

We will build and expand further here and to achieve this broadly, we will organize around our customers and expect to have a fully competitive cost structure.

As I noted, we're looking forward to reviewing our new strategy with you later this month.

Looking to 2010, clearly we recognize that it will be a challenging year given the state of global economy and the uncertainty of US healthcare reform.

Some of the headwinds include high unemployment levels, ongoing pressure on medical cost trends, and the need for targeted technology investments.

Despite these macro head winds, CIGNA is positioned to deliver competitively attractive earnings from our ongoing businesses and we expect our medical membership to be stable for 2010.

Before I turn the call over to Annmarie, I will reiterate a few highlights.

Our third quarter results were solid and we remain committed to our full year earnings outlook.

Our service and clinical results continue to differentiate us across the globe.

Finally, in 2010, we expect to deliver competitively attractive earnings.

At this point, I will turn it over to Annmarie.

Thank you, David.

Good morning, everyone.

In my remarks today, I will review CIGNA's third quarter 2009 results.

I will also discuss our outlook for the balance of 2009 and then provide some high level commentary regarding our 2010 outlook.

In my review of consolidated and segment results, I will comment on adjusted income from operations.

This is shareholders income from continuing operations, excluding realized investment results, GMIB results, and special items.

This is also the basis on which I will discuss our earnings outlook.

Our third quarter consolidated earnings were $311 million or $1.13 per share compared to $246 million or $0.89 per share in 2008.

Our consolidated third quarter 2009 earnings reflects solid results from all of our ongoing businesses -- that is healthcare, group disability and life, and international.

I will now review each of the segment results beginning with healthcare.

As expected, healthcare earnings increased sequentially.

Third quarter healthcare earnings were $204 million compared to $177 million in the second quarter.

The sequential increase in earnings primarily reflected reduced operating expenses and seasonal improvement in our Medicare Part D results.

While overall our specialty businesses continued to report strong results, they were tempered somewhat by pressure in our stop-loss book of business.

Overall operating expenses decreased sequentially and were lower than expected.

This result demonstrates our continued focus on effective expense management while investing prudently in technology and maintaining strong service levels.

Healthcare membership declined by 85,000 lives in the quarter.

This result was in line with our expectation and primarily reflects the continued impact of disenrollment on our ASO book of business.

It is important to note that our guaranteed cost membership was down a modest 1% in the quarter compared to a year-to-date decline of 14%.

I will now discuss our healthcare results by major component.

In the quarter we experienced some medical cost pressure on our total book, which was largely flu related.

Relative to our guaranteed cost loss ratio the third quarter was higher than expected despite showing modest sequential improvement, reflecting the impact of flu related and other facility based claims.

Our year-to-date guaranteed cost loss ratio was 85.3%, excluding our volunteer business.

On the year-to-date basis, flu related claims including H1N1 contributed 30 basis points to the MCR or approximately $5 million after tax.

In addition, as discussed last quarter, the impact of unfavorable prior year claim development through the first nine months of this year was approximately 50 basis points.

Excluding the impact of flu related claims and prior year claim development, our year-to-date guaranteed cost loss ratio would be 84.5%.

We continue to maintain good pricing and underwriting discipline for the guaranteed cost book with yields running at or slightly above our updated trend outlook.

Relative to our stop-loss book, overall earnings continue to be strong, in part reflecting strong contributions from the former Great-West stop-loss business.

In the quarter specifically, we experienced some revenue pressure, primarily due to disenrollment which resulted in lower than expected earnings.

We remain on target to achieve our total medical cost improvement initiative on the Great-West stop-loss book.

Overall, our experience rated results continue to be in line with our expectations, reflecting favorable operating expenses and solid underwriting execution on our renewal book of business.

Our ASO results increased in the second quarter, driven by favorable operating expenses and sustained contributions from our specialty businesses.

Now I will discuss the results of our other segments.

Third quarter 2009 earnings in our group disability and life segment were $65 million.

This segment continues to deliver competitively attractive margins driven by the value we provide to customers through our disability management programs.

Results in the quarter also reflected continued favorable accident claim experience.

In our international segment, third quarter 2009 earnings were $40 million, reflecting the impact of global economic pressures including unfavorable claim experience.

I would note that overall our international business continues to deliver competitively strong margins.

Earnings for our remaining operations including run-off reinsurance, other operations, and corporate, totaled to a gain of $2 million for the quarter.

Third quarter results in the run-off reinsurance segment were a net gain of $14 million and included favorable claim development in our discontinued workers' compensation and personal accident books of business.

As a result of continued stability in the equity markets, no VADBe reserve strengthening was required in the quarter.

I will now comment on our investment portfolio and results.

Overall, our investment portfolio continues to perform well.

During the third quarter we posted a net realized investment gain, which totaled $9 million after tax.

We view this as a strong result given the current market conditions.

Regarding our commercial mortgage loan portfolio of $3.6 billion, third quarter performance remained strong and problem loans continued to be manageable.

We have not taken any significant impairments on either our problem or potential problem loans as the market values of the properties continue to exceed the loan values.

Problem loans now total $100 million or less than 3% of our total loan portfolio.

Potential problem loans now total $239 million or less than 7% of our total loan portfolio.

All of these loans continue to meet their contractual cash flow obligations.

For the total portfolio, the loan to value ratio is 77%, which is generally consistent with our second quarter annual loan review.

Overall, we continue to be quite pleased with the makeup of our investment portfolio and its strong performance relative to the current market conditions.

We believe our problem investment exposure is manageable.

I will now provide a brief update on CIGNA's capital management position and outlook, including a summary of our subsidiary capital and our parent company liquidity.

Overall, we continue to have a strong balance sheet and good financial flexibility.

We ended the third quarter with cash and short-term investments at the parent of approximately $210 million, including outstanding commercial paper borrowings of approximately $100 million.

We remain on track to achieve our 2009 capital management goals.

Specifically, as of September 30th we have achieved our targeted surplus levels, which are approximately 600% of the authorized control level.

We ended the quarter with approximately $3.8 billion of statutory surplus in our domestic subsidiaries.

This is far in excess of regulatory minimums.

Year-to-date we have contributed $354 million pretax to our pension plan, and this is relative to our expected full year enterprise contribution of approximately $410 million pretax.

We now expect to build parent company cash to $350 million by year end including $100 million of outstanding commercial paper borrowings.

This projected ending balance reflects maintaining our subsidiary capital levels at or above target through year end 2009.

This is an improvement to our previous expectation of $275 million, with the increase driven primarily by modestly higher expected subsidiary dividends and other tax related adjustments.

Our expectations for pension funding remain unchanged.

I would remind you that we do not anticipate having capacity for share repurchase in 2009 and we have no long-term debt maturing until 2011.

Overall, our current capital outlook remains positive.

Based on our progress in 2009, we expect to be in a position to resume our normal capital deployment strategy in 2010.

I will now review our earnings outlook.

For full year 2009, we continue to expect consolidated adjusted income from operations of $1.04 billion to $1.1 billion.

We also continue to expect full year earnings per share in a range of $3.80 to $4 per share.

Our current outlook now reflects slight pressure in our healthcare and international businesses, offset by the favorable claim development in our third quarter run-off reinsurance results.

I would also note that our updated earnings outlook assumes that VADBe results are break even for the fourth quarter, since we believe our current reserve assumptions are appropriate.

I will now discuss the components of our 2009 outlook, starting with healthcare.

Because of medical cost pressure, we have modestly lowered the upper end of our outlook range.

We now expect healthcare earnings in a range of $700 million to $750 million for the full year.

Specifically, our outlook now reflects expected medical cost pressure in our guaranteed cost book of business, and to a lesser extent lower stop-loss earnings partially offset by lower operating expenses, reflecting continued progress on our cost reduction initiatives.

Relative to our guaranteed cost book of business, we now expect our full year loss ratio excluding voluntary to be in the range of 85% to 86%, which is 100 basis points higher than our previous estimate.

This revised outlook primarily reflects the higher than expected impact of flu related and other facility based claims experienced in the third quarter.

This also contemplates our expectation for continued H1N1 pressure in the fourth quarter.

Regarding our stop-loss book of business, we expect lower earnings, given the revenue pressure we are experiencing primarily related to disenrollment.

Our stop-loss book continues to be a strong earnings contributor to the overall healthcare result.

As a result of this medical cost pressure, we now expect full year medical cost trends for our total book of business to be towards the upper end of our 7% to 8% range.

We continue to expect medical membership to decline by approximately 5% to 5.5% for full year 2009.

Regarding our other businesses, we expect the remaining operations to contribute approximately $340 million to $350 million in earnings for the full year.

This includes continued solid earnings contributions from both the group disability and life and international operations.

These two businesses consistently deliver competitively strong margins and continue to see good demand for their products and services.

All in, we continue to expect consolidated earnings per share to be in a range of $3.80 to $4 per share, and this assumes that VADBe results are break even for the balance of the year.

I will now comment on our 2010 expectations.

We will provide additional detail on our financial outlook at our upcoming Investor Day.

Today I will walk through our expectations at a high level.

I would first acknowledge we are operating in a challenging environment.

This relates to both the current economic conditions as well as uncertainties surrounding healthcare reform.

On the latter point, note that our outlook does not reflect material changes to our business model in 2010 as a result of reform.

Overall, we expect flat to low single-digit percentage earnings growth in our 2010 consolidated adjusted income from operations.

This outlook reflects healthcare earnings growth in the low to mid-single digits, flat to low single-digit earnings growth for our combined group disability and life and international segments, and VADBe results at break even.

There are several factors we expect to impact our 2010 results.

First, relative to membership, we expect to end 2010 with medical membership that is stable with the year end 2009 results.

While overall 2010 membership results are expected to be stable, we would expect an earnings headwind in 2010 due to the full year impact of membership losses that occurred throughout 2009.

As David discussed earlier, embedded within this overall membership expectation, we anticipate strong growth in our middle market segment, which has attractive margins, offset by a net decline in the national account segment.

Second, there is the potential for further pressure on medical costs, which includes the flu and H1N1.

Third, we expect to benefit relating to operating expenses as we continue to execute on our cost reduction initiatives while maintaining prudent investment in clinical and service capabilities and related technology.

So overall, we expect flat to low single digits percentage earnings growth in our 2010 consolidated operating earnings.

This consolidated operating earnings outlook translates to an expected consolidated earnings per share that is approximately flat with the 2009 results.

This earnings per share expectation is impacted by an expected increase in the weighted average share count.

We expect our weighted average share count for 2010 to increase by approximately 3 million shares due to the following.

First, the impact of significant share appreciation on outstanding options and, second, the impact of an accounting pronouncement which requires the inclusion of certain restricted stock grants in the average share calculation.

These factors, increasing the share count, are occurring in an environment where we have not repurchased shares since the third quarter 2008.

In addition, I will remind you this earnings per share outlook does not include any potential impact for share repurchase.

Overall, we believe our outlook for fundamental operating earnings growth in 2010 will be a solid result in this challenging environment and is further evidence of the strength of our diversified portfolio of businesses.

Again, we will provide additional detail on our earnings and membership expectations for 2010 at our Investor Day on November 20th in New York City.

Now to recap, earnings in the third quarter reflect the continued value of our diversified business portfolio as well as our continued focus on effective operating expense management.

While there continues to be uncertainty around the economy and emerging medical cost pressures, we are confident in our ability to achieve our full year 2009 earnings outlook as well as our 2010 earnings per share and membership expectations.

Finally, our capital position and our investment management results remain strong relative to current market conditions.

With that, I will turn it back over to Ed.

Thanks, Annmarie.

Let me make a few brief comments on healthcare reform and I will conclude with a couple of overall observations.

Regarding healthcare reform, I would note that CIGNA continues to be quite active in the debate around the future of our healthcare system.

We remain steadfast in our belief that we need to address the three fundamental issues of access, cost, and quality if we are to effectively improve our healthcare system.

There are several reform proposals currently being considered in Congress and while some of these proposals may impact CIGNA's businesses to a lesser extent than our competitors due to our diversified portfolio of businesses and our mix of medical membership, we are nonetheless concerned with the potential impact that such proposals would introduce into the healthcare system.

Specifically, while some of the current proposals appear to facilitate and/or finance increased access to healthcare, this is just one of the goals of healthcare reform.

Unfortunately, many of these proposal do very little to address the issues of cost and quality.

In fact, most of the reform bills being discussed would actually generate additional costs, both medical and administrative, that would make healthcare even less affordable for Americans than under the current system.

To address all three goals of healthcare reform, we believe that improving upon the current employer based system is the ideal place to start.

For one, employer based system services more than 160 million Americans today.

In addition, CIGNA and other companies in our industry have effectively worked with employer groups and individuals to remove excess costs in the system through integrating products and services that focus on effective consumer engagement as well as health improvement and wellness.

At CIGNA, we believe that every American should have access to affordable quality healthcare through continued development of health advocacy programs as well as cost management and wellness initiatives.

While the ultimate outcome of reform is still very difficult to predict, we believe effective reform can be achieved through a coordinated public and private partnership of all healthcare stakeholders, and we will continue to diligently work toward that end.

Results from our ongoing businesses in the quarter were solid, and they demonstrate the value of our diversified portfolio of businesses.

Second, as Annmarie noted, our capital position is strong and our investment portfolio is of high quality and well managed.

Finally, I am confident in our ability to achieve our full year 2009 earnings targets for our ongoing businesses, and I am also confident in the ability of our management team to continue to improve our competitive position as we head into 2010 and thereby create value for the benefit of our customers and our shareholders.

We will provide more detail regard regarding our strategy and 2010 financial outlook at our upcoming Investor Day in a couple of weeks.

(Operator Instructions).

We will go first to Ana Gupte with Sanford Bernstein.

Thanks.

Good morning.

I see that your premium yields are pretty healthy and your guaranteed cost even excluding the [voluntary] is declining by 1%, whereas your competitors are seeing some pretty significant declines and projecting pretty significant declines for next year.

So can you comment on how much of that -- you said individual, how much of that is individual and are you seeing stable performance with small group?

And why might that be and why are you differentiated relative to what others are seeing?

Good morning, Ana, it is David.

I'll start.

Relative to guaranteed costs we note in our prepared remarks, we're seeing some traction in the individual lines of business.

We're focused on a limited of number of geographies, so we initially launched five geographies in 2008 and moved to five additional geographies.

Secondly, very important, we launched leaner benefits that we began selling in mid 2009 and expectations for improvement there.

We're seeing some good traction in terms of launching leaner benefits for the employer sponsored space.

Specific to small group, which the industry typically defines as under 50, it is a very small percentage of our overall book of business.

Think about it at the enterprise -- less than 0.5% of our overall membership will fall into that category.

I would not identify that as a driving force.

To recap, individual traction good, contribution to leaner benefit programs contributing to the employer sponsored space good, with a reasonable balance of improving account retention, along with new business sales and what we call our select segment and employers between 51 and 250 lives.

Thanks, David.

My follow-up is unrelated.

It is related to reform, and I believe yesterday Kaiser, [Mountain] and Geisinger are now suggesting the fee not only be extended to the fully insured books, but also ASO and wanted to know how you see that playing out?

Would that be passed on directly to the self-insured employers or are the insurers also on the hook for some of that if this does play out that way?

It is Ed.

It is a little hard to predict exactly how that is likely to play out.

I would tell you the one thing we are focused on and working on diligently is not only the fee, but all of the revenue raisers in the bill, because the concern we have is that ultimately that will -- these charges will ultimately find their way in the premium rates or into fees and will be passed on.

That will simply increase costs for everyone.

I think it is a little premature to conclude exactly how the final financing is likely to work on these bills, but I would tell you we are attempting to very aggressively make the point that all of these increased fees obviously need to be paid for and ultimately will find their way into rating structures and so forth.

I think quite frankly as I said it is going to be a little bit of time until we see exactly how that works.

Thanks, Ed.

Thank you.

We'll go next to Matthew Borsch, Goldman Sachs.

Thank you.

Good morning.

My question just on your long-term strategic thinking here, and I know you've gotten this question before, but I am wondering what your latest is on thinking about the healthcare business versus the non-healthcare piece, and the backdrop obviously being you've got two feet in healthcare and one foot in the multi-line business.

I understand there is a lot of attractive segments there, but seems to be a barrier for dedicated healthcare investors.

And what have you been -- any discussions that you can provide insight on in terms of your thinking on that as to whether you might at some point break things up and recognize shareholder value in that way?

Matthew, it is Ed.

As we said here in the prepared remarks, I think we have consistently viewed the businesses that we have as an attractive portfolio, and in fact I think you're seeing that reflected not only in third quarter results but in our expectations for the next couple of years in terms of very difficult economic environment, obviously very difficult healthcare environment.

And yet I think our expectation that we can even in spite of those factors grow earnings is reflective of the fact that we have a lot of confidence in this book of business.

The other point I would make is there is -- and I think this point is probably lost at some point with investors -- there is good synergy amongst several of these businesses.

David referenced, for example, the strength of our middle market operations, both across healthcare and disability, and the increasing integration of those we think provides us very good value.

I think as you know and we talked before, we're very strong in disability on a standalone basis, but with when you combine that then with the capabilities the healthcare side, there is very good opportunity for us there.

Secondly, on the international businesses, again what we are doing internationally is often times finding gaps in national systems where growing middle classes are looking for protection.

So there is some natural synergy there as well to take some concepts that is work well domestically here and vice versa.

So we do believe, Matthew, that the portfolio of capabilities across those three large groups provides very good revenue growth opportunities as well as very good earnings growth opportunities that in fact differentiate us from some of the competitors in our space more broadly.

Okay.

Fair point.

Maybe if I could just ask on somewhat related -- there has been some speculation that you were having discussions around seeing what value you could get for your PBM unit, but that you decided that you will retain that in-house.

Is that accurate?

Good morning, it is David.

Your conclusion is accurate.

Stepping back, what we indicated earlier this year was that we were going to take a thorough and hard look at that asset -- as you would expect us to do based on your first comment, all of the assets in our portfolio.

As we looked at our PBM specifically, we're able to validate that it is performing very well based upon both standalone as well as integrated PBM indicators, number one.

Two, it is currently critical to our integrated value proposition, so we have concluded that it is important strategically to us as we go forward.

As we said in the second quarter and we reiterate today, for that asset as well as all assets, we'll continue to revisit them.

To your broader question, to make sure we are confident that the inclusion of that business and all of our businesses make sense as part of our portfolio, but our conclusion as of today is yes.

Great.

Thank you.

Thank you, Mr.

Borsch.

We'll go next to Scott Fidel with Deutsche Bank.

Thanks.

Good morning.

First question, if you can talk about your medical cost trend expectations for 2010, how that might relate, I guess, to the 8% you're now looking for in 2009 and then talk about your views on any changes in the cost components for 2010?

Good morning, Scott.

It is Annmarie.

Relative to the 2010 medical cost trend, we're going to give you a bit more detail on that at Investor Day in a couple of weeks.

You're correct in stating that we're now at the upper end of that 7% to 8%, and we'll drill down onto specific 2010 earnings levers at large in a couple of weeks with you.

Relative to the components, the components of our trend other than pharmacy for 2009 remain unchanged.

The pharmacy is now in the high single digits, but all other components of the trend remain unchanged.

Okay.

Just follow up -- just on thinking about strategy, a strategy question just on the plans for the expansion and individual and small group.

And clearly it is still a very small piece of the business, but how are you thinking about that now just in the context of health reform, and is there any change to the pace that you're looking at expanding out until we see more clarity on reform or all systems still go in terms of the ISG rollout?

Good morning, Scott, it is David.

Relative to specifically to individual as I referenced earlier, our current approach relative to individual primary insurance in the US is to be very focused, so we're focusing on ten geographies as we sit here today and we expect to continue that on a very pinpointed basis.

Both to drive some targeted growth as well as to learn, so product innovation as you expect, monthly evolution in terms of product, different distribution models, both primary and general agent models, internet based distribution, et cetera.

So we expect to continue to feed that and learn as we closely monitor aspects of reform.

Tying it back to a prior question, as Ed referenced in terms of some of the interrelationships with our businesses, when you think about the non-US individual business, that business is primarily a supplemental business.

So we have a lot of knowledge outside the US in terms of the way to augment social programs or gaps in government or employer based programs where individuals have needs or emerging needs.

So we're also keenly focused on making sure we're sharing from abroad to the US and vice versa amongst our management teams right now.

So point one is, continue to be focused on targeted driving activity in the individual business.

As it relates to the second part of your comment, small group, typically defined as under 50 -- the majority of our expansion attention is really around the individual today.

That under 50 block of business and under 50 marketplace as it stands today is very small, historically been very small for CIGNA, currently is very small for CIGNA, and over the near term we do not see that changing meaningfully.

Thank you.

Thank you, Mr.

Fidel.

We will go next to John Rex with JPMorgan.

Thanks.

I just wanted to see if I could get a little more color on the 2010 view you provided.

So within that just at least directionally should we assume you're presuming flattish top line and then apparently just a bit of underwriting margin or favorable spread?

Is that a fair overall view or do you expect to get any favorable spread at all?

John, good morning.

It is Annmarie.

As I noted earlier we'll give you much more detail in a couple of weeks at Investor Day.

But at the highest level the top line remains flat to slightly up.

From a margin perspective, I probably wouldn't expect a lot of expansion.

As we noted before, we have some headwinds related to our membership as we're -- even though we're expecting flat in 2010, we are still paying from an earnings perspective given the 2009 declines, and then secondly we have noted continually that we are committed to continuing to focus on operating expenses.

So when you think of a tailwind there, I would focus on the operating expense piece.

Just thinking in context of the type of yields I was seeing this quarter in your guaranteed cost book.

It would seem that you should be able to get some underwriting margin improvement on that book, too, just given what you're talking to and underlying med cost trend.

And I was wondering if I was reading that incorrectly?

John, I don't think you're totally off base there.

I think there is probably modest improvement.

Having said that, there is some uncertainty relative to what 2010 looks like as the first quarter unfolds related to the flu and H1N1.

Okay.

And then can you just give us any commentary what you're seeing in your books with regard to provider behavior -- so the commentary in the marketplace some have noted in terms of seeing aggressive coding or aggressive utilization by providers, and what you're seeing maybe in the context of your risk books and your observations on your self funded books?

It is Annmarie again.

As I noted in the prepared remarks, we had flu related claims and did see a bit of uptick in the other facility based claims.

I would note we have not seen any major disrupters or changes in claims submissions across the board.

We have a small uptick in inpatient, small uptick in outpatient, and it is in more of a category that I would classify as acuity or is severity.

So there are a bit more services being rendered, and a bit more higher cost services which one could attribute to either some change in provider behavior, some change in consumer behavior given the economy, et cetera.

But there is nothing that is rampant and disruptive coming through our book to date, whether it be on guaranteed costs or the total book.

On stop-loss book, your commentary there, is that just a similar pattern there, just you're seeing more of these high dollar claims?

Not entirely, John.

In my prepared remarks I did note that the stop-loss was primarily revenue related, so revenue leverage volume.

We had noted disenrollment coming through.

As you know on our ASO book we have about 50% or so penetrated with stop-loss, and the disenrollment that we have noted on ASO also impacts the stop-loss and it was more revenue, minor modest uptick in medical cost, but more revenue driven.

So not higher volume of high dollar claims and running to the ASO books then.

Okay.

Great.

Thank you.

(Operator Instructions).

We'll go next to Josh Raskin with Barclays Capital.

Trying to figure out a run rate in the third quarter, and I think you mentioned first was the swine flu $5 million -- I guess excess flu costs I wanted to make sure that was all in the third quarter because I think you said year-to-date.

And then could you quantify the unfavorable claims in the international and conversely the favorable development I guess in the run-off reinsurance?

Sure, Josh, it is Annmarie.

Relative to the run rate from the third quarter to fourth quarter, first to your specific question, the $5 million [that hit] on the flu, yes, was all primarily in the third quarter, largely in the third quarter.

As you move into third quarter going to fourth quarter, I would remind thaw we are expecting probably an additional charge relative to the flu.

We built in probably additional $8 million to $10 million for the flu in the fourth quarter.

In addition, our fourth quarter typically has some impact of seasonality, the deductibility type on both the experience rated and guaranteed cost books.

So if you looked at our implied guidance, you probably would see a little bit of pressure going from third quarter to fourth quarter.

I am sorry, the claims in the international and the run-off reinsurance favorability, do you have numbers around those?

Sure, Josh.

The reinsurance run-off is roughly $15 million, and it relates to -- we do annual reviews of our workers comp and accident, personal accident lines of business.

This is the discontinued book.

We haven't written this stuff since around the year 2000.

On an annual basis we've done that review, and have been able to generate some good development on those lines, so that was about $15 million.

In the international book the unfavorable claim experience -- that is current year activity, just want to clarify that.

It is related to the current year, and order of magnitude in the $5 million to $10 million range.

Okay.

That's helpful.

Just on the cash flow statement, just trying to reconcile cash flow versus net income and there is that math of change in the payables I think $1.1 billion or so.

Does that include the pension changes or what exactly is driving that and how do we reconcile your cash flow generation versus your income generation?

Sure.

Relative to the cash flow, first I would like to always remind you all that we really, really focus on the parent company cash.

As you will note, we increased the parent company liquidity $75 million this quarter, $75 million a quarter ago.

So the cash flow that we're generating overall from operations and the strength of the dividend that we can bring from our subsidiaries up to the parent is most -- where I focus most and where I think the strongest evidence is of how I am feeling about cash flow.

Relative to your specific question on the cash flow statement, so we made roughly $975 million from a net income perspective through nine months.

There is a lot of moving parts in there.

Noncash items might be depreciation, a whole bunch of different noncash items.

But at the end of the day I think if you look -- and most of these are hitting the accounts payable line you're referring to -- the cash outlay that we used to settle our VADBe hedge.

So when the market goes up to we have to settle that hedge and it is a cost, so there is the offset to the market going up.

That's roughly $230 million, and then in addition in that line there is also around $355 million relative to the pension contribution.

And both of those items that I am talking about impact to a lesser extent the quarter, but the numbers I quoted also affect the full year.

I understand.

I am trying to figure out subsidiary cash flow generation on a consolidated basis because ultimately that's going to drive dividends to the parent.

That's right.

I would look at it as we always have -- just for illustrative purposes and order of magnitude, we make about $1 billion a year and generally 80% of that, 75% to 85% of that is available for dividend up to the parent, and as you will remember this year there was a slight depression as it relates to VADBe.

I think we talked about $540 million worth of dividends this year, just increased that as a result of this change in $75 million by another $20 million, and then we have articulated previously that VADBes cost us order of magnitude $350 million.

I think if you focus on the income generated from the businesses and the continued pattern of dividend that is we demonstrated, that's really why I focus on parent company cash.

Okay.

Thanks.

Thank you, Mr.

Raskin.

Next to Justin Lake with UBS.

Thanks.

Good morning.

First just want to go over some of the specific assumptions around membership.

Can you give us what you think for our -- looking forward for January 1 as far as membership there and then maybe spike out the benefit from some of the individual and small group initiatives and roll out?

And finally just what do you think on the economy and unemployment?

What's baked in there for 2010 as far as in group attrition going forward?

Justin, good morning.

It is David.

I will provide you a few of the headlines and we intend to walk through this in a good amount of detail in a couple of weeks with you at Investor Day.

Broadly speaking, number one, for 2010 as we indicated in our prepared remarks, we expect overall stable membership, and you should think about that as being in pattern throughout the course of the year, indicating a stable result for January 1 and staying in pattern throughout the course of the year.

By way of the major moving parts, we would expect overall as we indicated a strong result in our middle market, and to remind you we define that more broadly than our competition -- so commercial employers 250 to 5,000 and very importantly large single side employers.

So continued strong performance there both retention and new business adds.

Secondly, what we call the select segment, the 51 to 250 life employer segment, we expect to see significant improvement from 2009 to 2010, resulting in a stable result for that line of business offset by declines in the national account space, which we define very narrowly as commercial employers, multi-state commercial employers over 5,000.

Specifically, as it relates to contribution of individual in 2010 versus 2009, think about order of magnitude 40 basis points of net membership growth overall.

Remember we start from a small base coming into 2009.

We'll grow that in the neighborhood of 35,000 to 40,000 lives and then think about that growing another 30 or 40 basis points more going into 2010.

So we like the trajectory, but it is not the sole driver.

Lastly, on your question of disenrollment underlying our expectations is that the unemployment rate will not improve dramatically from where we will end this year, nor will it accelerate at the rate we saw through 2009.

From a disenrollment standpoint it is really that acceleration in unemployment.

So our expectation is that we will revert closer to historic disenrollment levels, not fully to specific disenrollment levels.

So the point is unemployment will not continue to erode like it did in 2009 going from 5% to 10%.

Therefore we don't expect to go from 10% to 15% in 2010.

Great.

Just on 2010 operating efficiencies, you threw out that $150 million number there.

Is that to benefit year-over-year, so that's incremental lower operating costs 2009 to 2010?

Justin, it is Annmarie.

The $150 million that we talked about was the specific result of the various actions we have taken in 2009.

So you recall we took a large action in first quarter, another in the second, and another in the third, so the aggregation of that was $150 million, which a large portion of that would have been realized in 2009 and then maybe a smaller one-third portion of it would come through in 2010.

If I think of operating expenses in 2010, you have that $50 million and then there is a benefit from the lower amortization?

That's fair.

When you say lower amortization relative to transformation, first of all, let me tell you we're going to give you a lot more information in a couple of weeks.

Relative to the lower transformation amortization, as we mentioned many times we have continued to invest in our technology portfolio.

So there is a little bit of new amortization coming in there, too,.

So wouldn't necessarily count that as a net net at the end of the day reduction to the magnitude you're thinking.

But just be sure that David and I will go through significant detail on our expectations relative to cost reduction initiatives expected in 2010 in a couple of weeks.

Great.

Thank you very much.

Thank you, Mr.

Lake.

We go next to Christine Arnold with Cowen and Company.

Hey, there.

A couple of questions.

Could you give us a sense for what you're seeing in the experience rated book?

Are you seeing disenrollment going into next year and also what's your expectation for stop-loss?

Do we have more cost savings on Great-West or do we expect this modest cost pressure and lower revenue to impact next year?

Christine, good morning.

It is David.

I will start.

On experience rated, I think your question was around are we expecting see more disenrollment going into next year.

Overall for the experience rate of book, as you very well know it is a targeted funding mechanism for a subset of the middle market.

We would expect overall our experience rated results in 2010 from a volume standpoint to be favorable versus the trajectory we had in 2009.

Point one.

Two, the disenrollment pattern specifically to that, the experience rate of portfolio has a similar disenrollment pattern in terms of in group attrition as a normal middle market ASO customer would have as well, but we would expect to see some improvement in our experience rated book of business as we have some targeted growth initiatives there.

As it relates to stop-loss, you're pointing towards the medical cost improvement.

As we indicated in our prepared remarks, we expect to achieve the vast majority of our total medical cost improvement for the Great-West portfolio of business by the end of this year.

So there is a little run rate contribution going into 2010, but we were fixated on making sure we drove the total cumulative medical cost improvement during the course of 2009, which is in part why we're seeing the improvement in the second half of 2009 in our select book of business and expect to see that in 2010, because we have been able to improve the overall price point and total medical costs for those customers as well.

And then on capital deployment, if you're going to have something like $800 million coming through at the parent next year, how do you think about immunizing some of these run-off businesses, the GMIB and VADBe, fully capitalizing them, separating them from the rest of your business versus share repurchase and other uses of capital?

Christine, it is Annmarie.

Interesting how you got right to the $800 million next year.

That's just order of magnitude.

I wouldn't take that to the bank just yet.

We'll comment on that further at I-day.

Relative to how we think about it though, we continue to go back to our normal capital deployment strategy.

First, invest in our businesses, second, look for M&A activity, and then finally if nothing there is available, we look at the repurchase, and specifically as it relates to VADBe and GMIB, rest assured that every day that we wake up in the morning, we think about how we can further insulate those from the rest of our businesses.

To date, we have not been able to find the perfect answer, but I would also note that VADBe, knock on wood, with the equity markets being stable has been a nonevent for a couple of requests.

GMIB, the same, the economics remain in line with our expectations.

I would just say that from a capital perspective, we are looking at again at all three of those items items and our capital management strategy has not changed.

Great.

Thank you.

Thank you, Ms.

Arnold.

We'll go next to Peter Costa with FTN Capital.

Two questions.

First is your Medicare advantage pricing looked a little more aggressive this year than it has in the past for 2010.

Is that intentional?

And if it is, what are you doing to train brokers or people to sell that more aggressively?

And the second question is can you comment on Senator Rockefeller's letter to you guys and what you're doing about the differences in filing?

Peter, good morning.

It is David.

I will address Medicare.

I think your question is going specifically to Part D, so I am going to address the Part D specifically.

Going into 2010, our pricing strategy was to position the book of business to balance growth and profitability, so make no doubt about it -- we were not seeking to grow the book of business at the cost of profitability.

Success for that portfolio, as you very well know is trying to thread the needle if you will in terms of getting a price point.

So you qualify at a minimum in 50% or greater of the regions that you're targeting.

Going into 2010, we achieved a good price point within the regions, qualifying in just over 20 of the regions, and on overall basis we feel good about the pricing, which reflects improving administrative efficiencies, and very important for us, leverage of our captive PBM and contribution of that into the Part D line of business through aggressive and effective leveraging of generics and other clinical programs.

So overall as we look at 2010, the pricing strategy we sought to employ to balance growth and profitability, we actually feel quite good around the position we had to step into the year.

I will look to Ed for the second question.

Peter, on Senator Rockefeller's ongoing investigation of the small group market, we continue to work very proactively with the senator.

I would remind you, as we have his committee, that the small group block of business for us never has been a focus.

It is very small.

I think it is less than 0.5% of our membership.

Having said that, we are working very closely with him.

We have furnished significant information to him, and we will be working through the questions he and his staff have about any inconsistencies between statutory state filings and information that he has seen pretty aggressively over the next several weeks.

But again this is an extremely small part of our book of business, and if there is any confusion relative to information that exists on it, we'll clear that up with the senator's committee.

Thank you.

My question at the beginning was more about Medicare advantage when you look at senior cost sharing.

It does look a little more aggressively priced than you have in the past, not just on Part D, there as well, but seemed like a more aggressive posturing for Medicare advantage as well.

Peter, it is David again.

So if you go to the non-Part D Med Advantage as you very well know there is two blocks of business, two portfolios -- there's a network based solution and there's a private fee for service solution.

If you go to the network based solution, the one item I would remind you is the single market we utilize that product in is Arizona, where we have a multi-line medical delivery infrastructure that is captive to CIGNA.

So we have a cost of goods sold we're able to manage relative to that, and overall it is small.

It is measured in tens of thousands of members and individuals in the hundreds of thousands.

Similarly on a private fee for service basis, we have a very small portfolio which seeks to target solutions on a pinpoint basis for key employers today.

So overall, the private fee for service network is very small to us and on the network based solution it only exists in Arizona where we own a captive delivery infrastructure, which is the primary medical delivery structure for that product.

Okay.

Thank you.

Thank you, Mr.

Costa.

We'll go next to Charles Boorady with Citi.

Thanks.

Good morning.

Most of have been answered.

I would like to hear your thoughts long-term on M&A.

A lot of uncertainty in health reform, but Medicaid seems very likely to be a fast growth driver.

And specifically is that a customer end market you think you can expand in or you want to expand in?

And if so, organically or through acquisition?

Any other color on long-term M&A thoughts?

Charles, it is Ed.

I don't think our view of M&A or our focus areas has really changed dramatically.

I think we have said consistently that we're open to M&A to the extent that something would be particularly strategic for us, add capability or add scale in markets that were attractive to us.

I think that was reflective with the Great-West acquisition that we viewed as being both very strategic and also hitting the second criteria we have, which is, is it going to be effective from a shareholder perspective.

I would say we are open to considering things like that.

Clearly as it relates to the individual business, I think we need to understand what reform is going to do, and what David pointed out earlier is that our investments there on an organic basis are designed to help us learn and to help us get some capability that we can deploy ourselves.

If that particular area of the business looked like a stronger opportunity post reform, I think that is an area that we would be attentive to.

I agree with your observations relative to Medicaid.

However, having said that, I think that would be less or lower on our list of things that we might ultimately consider at least at this point in time.

So really our philosophy hasn't changed, Charles, from what we talked about for years, which is if it is strategic, can add some scale, could bring some line extension in the areas that we think is important, that's what we would consider.

Thanks, Ed.

If I could I could ask a follow-on on that, as you see reform playing out, what key success factors may change in the industry and how are you positioned relative to them?

For example, high local market shares is something CIGNA has not possessed, but you have been able to do okay because you have been in the top quartile in key markets.

Is scale going to become a lot more important?

Will that increase the necessity to boost your local market share?

Any of those observations you can share with us as you think through the future of how CIGNA will look in three to five years from now?

Charles, I think those are some of the things that we're going to cover in a lot of detail at I-day in a couple of weeks.

I will let David comment on the scale and focus issue here in a minute to follow up from some of his prepared remarks.

What I would say as kind of an overview is as we look at reform, we're considering a number of things.

One, as it relates to the individual market, what will the dynamics be there and what will that mean for an area that we have targeted and are believing that we're actually seeing some good early success?

What will change there?

Will the underwriting processes and the infrastructure required change, and what will that do to our assessment of the attractiveness of that business?

I think the other area that we'll watch very carefully is seniors.

That is an area where as David just mentioned from a Medicare standpoint, we have a very modest presence today.

The demographics in that group suggest that it is going to continue to grow, and I do believe ultimately that a public private partnership is the best way to meet the needs of those folks.

But we'll have to wait and see as this plays out just how good a partner the government is likely to be or desirous of being to determine whether or not we get aggressive there.

Relative to our broader business, I think we feel very, very good about the networks that we have today and about the opportunities that we have in concentrated markets.

That's a core part of our strategy, David just referred to.

I will let him comment specifically on that piece.

Charles, good morning.

Your question relative to the basis of competition, it will always come back to value, right.

So the buyer's perception of quality and relationship to price.

Local share will indeed be important, and as you very well know you can go through some examples of legislative reform where share could either be more important or potentially commoditized going the other way from a reimbursement standpoint.

So you will hear from us at I-day.

Share and focus and geographic depth is important, and you will see that as we're driving traction within our business portfolio.

Some of the traction in the middle market is directly correlated to local share.

Second piece I would highlight is under both any form of reform as well as just emerging market conditions, the ability to use information effectively at the individual level and then in correlation with their physician is increasingly becoming more and more important by the day.

That is an important part of our business strategy, and then being able to use that in coordination with whatever health advocacy or health coordination programs that are being implemented.

So those are critical parts of our business strategy as we look forward and monitor healthcare reform.

And we're excited to walk through that in a lot of depth in a couple of weeks at I-day.

Great.

See you there.

Thank you, Mr.

Boorady.

We go next to Kevin Fischbeck with Bank of America.

Okay.

Thank you.

Just first a question on the Q4 guidance or implied Q4 guidance, [84 to 104], pretty wide range, and the healthcare income range is also pretty wide.

I want to get your thoughts on exactly what will get you towards the higher end of that range, what will get you to towards the lower end of the range, and why a broader range going into Q4 than what you would last year?

Kevin, it is Annmarie.

Relative to Q4, I think the reason the range is a bit broad is because of the uncertain time that is we're in.

We believe that we have put an appropriate relative to the healthcare number in specifically.

We believe we have put an appropriate amount in there relative to the impact of H1N1 and the flu, but it is a wild card.

There is lack of certainty as to what that really is going to play out to be, so I think less impact of flu brings us to the upper end of the range and more impact brings us more to the midpoint or [sale].

And then relative to our other businesses, I think really the range is pretty tight there and wouldn't expect any big surprises to move us one way or the other off of those ranges.

Okay.

And then I guess can you talk a little bit more about pricing environment and the ASO business, after one of your competitors talked about how people are looking at the short-term costs and some of your commentary earlier was helpful.

But would love to get a little bit more -- hear a little bit more about -- was your commentary more about how you're keeping your existing customers, or do you still find there is the same type of adoption of an acceptance of the value add that you have or is that a tougher sale in this environment?

And I wanted to reconcile the relatively positive comments earlier with the comments also about how some of your lean benefit design products are really picking up in this economy.

It seems strange you would be seeing both sides of that happening.

Kevin, good morning.

It is David.

So the pricing environment, first to frame it as I indicated in my prepared remarks, the pricing environment remains competitive.

There is no doubt there is a competitive environment, and we have demonstrated commitment to our underwriting discipline.

In that environment, one thing we're pleased about in 2009 and we'll be pleased about stepping into 2010, broadly speaking our account retention rates are strong.

That's a critical indicator of whether or not we're delivering value to our existing customers, so broadly speaking, the retention rates are strong.

As it relates to the first point you highlighted which is the difference between more price sensitive buyers versus aspect of our strategy correlating to bringing some of the value based programs to the market, where we have seen the greatest success for new business growth is either for employers who outside of the select segment -- so middle market and national -- employers who is are pursuing and purchasing health engagement consumer directed incentive based capabilities and/or a multi-product line purchase.

And when either of those play out, there is a significant number of additional programs to create value for those employers and their employees as well as profit levers for us to balance the overall portfolio.

That is our target and it's where we see the majority of our success.

As it relates to your correlation on leaner benefits, as you step downmarket and select segments specifically, so for those 250 life employers down to 50 life employers, that marketplace over the last 18 months has moved at an accelerated level to lean up the benefits, and to target benefits on a very specific basis.

A year ago, we indicated that we were a little slow relative to recognizing that.

We've accelerated our progress there.

And we've seen good traction in terms of both retention as well as emerging new business growth for that segment relative to leaner benefits.

Last piece I would highlight is, don't misconstrue lean benefits with lack of prevention, wellness, et cetera.

Core to our benefit strategy even in that segment is make sure you have the right prevention, wellness programs highly incented, because our value proposition in employers see that's a core part of any program, and then you have increasing cost sharing and decision points as you get more to preference sensitive care.

Hope that helps a bit.

That's great.

Thanks.

Thank you Mr.

Fischbeck.

Our final question will come from Carl McDonald, Oppenheimer.

Thanks.

Just wanted to clarify the response on the experience rate of enrollment.

When you say favorable to 2009, does that mean up on absolute basis or just not shrinking as much as the down 10% for this year?

Good morning.

It is David.

We'll walk through that in more detail at Investor Day, but you should conclude the pattern from 2009 improving.

I don't want to go into specific guidance for 2010 relative to the absolute performance.

Just look at it as at a minimum improving from the 2009 trajectory and we'll provide more color at I-day.

And just across the book, any metrics you can provide on January 1 account wins that you know of already?

Carl, we clearly have some pretty good insights into January 1, so let me just give you a little bit of color, but again we want to go into this in good detail stepping into I-day.

One, for the middle market, which is the largest portion of our overall portfolio, retention will be strong.

New business growth will be strong as I indicated earlier, both for what you would think of as more core middle market, 250 to 5,000 life employers, and very importantly and pinpointed some questions we had before around geographic depth, large single site employers which is are critical to our business strategy.

So we feel good about that, and we will provide a good amount of visibility.

Secondly, in the national account segment, overall our new business wins were actually quite strong this year on a relative basis, and very importantly our new business wins correlated very significantly to those employers either buying CDHB engagement incentive based programs or multiple lines of business.

And they tend to be, Carl, employers more in the 20,000 to 30,000 to 40,000 to 50,000 life range than the 150,000 to 250,000 life range, which again is a nice fit to our value proposition.

So that provides a little color to you, and again we will peel that onion back pretty significantly at I-day in a couple of weeks.

Great.

Thank you.

Thank you, Mr.

McDonald.

With no other questions I would like to turn the call back to Mr.

David Cordani for any additional or closing comments.

Thank you.

In closing, I would like to emphasize just five key points from today's call.

First, our third quarter consolidated results reflect solid earnings contribution from each of our ongoing operations.

Second, ongoing reduction to our operating costs is a key strategic priority.

We have made good progress and we remain committed to the execution of our multi-year expense strategy.

Third, our capital position and balance sheet are strong and our investment portfolio continues to produce good results.

Fourth, regarding healthcare reform, we remain active in the debate and continue to be focused on developing sustainable reform for our healthcare system -- reform that improves access and quality while reducing costs.

Finally, our 2010 earnings outlook reflects competitively attractive earnings growth in a tough economic environment, which is driven by the strength of our diversified portfolio of businesses.

We thank everybody for joining today's call and look forward to seeing you at Investor Day.

Ladies and gentlemen, this conclude's CIGNA's third quarter 2009 results review.

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

A recording of this conference will be available for 10 business days following this call.

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

The passcode for the replay is 2444699.

Thank you for participating.

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