信諾集團 (CI) 2010 Q1 法說會逐字稿

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  • Operator

  • Ladies and gentlemen, thank you for standing by for CIGNA's first-quarter 2010 results review.

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

  • We will conduct a question-and-session later during the conference.

  • (Operator Instructions).

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

  • We will begin by turning conference over to Mr.

  • Ted Detrick.

  • Please go ahead, Mr.

  • Detrick.

  • Ted Detrick - VP - IR

  • 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 David Cordani, our President and CEO, and Annmarie Hagan, CIGNA's Chief Financial Officer.

  • In our remarks today David will begin by briefly commenting on CIGNA's first quarter results and discussing the progress we have made to date with our growth strategy.

  • He will also provide his perspective on healthcare reform and the opportunities we expect to pursue in the post-reform environment.

  • Annmarie will provide a detailed review of the financial results of the quarter and will discuss the full-year 2010 financial outlook.

  • She will also provide an update on our achievements and expectations related to our expense reduction and capital management goals, as well as our growth strategy.

  • We will then open up the lines for your call -- for your questions.

  • Now as noted in our earnings release CIGNA uses certain non-GAAP financial measures when describing its financial results.

  • A reconciliation of these measures to the most directly comparable GAAP measure is contained in today's earnings release, which was filed today on the Form 8-K with the Securities and Exchange Commission and is posted in 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 that there are risk factors that could cause actual results to differ materially from our current expectation and those risk factors are discussed in today's earnings release.

  • Now, before turning the call over to David, I will turn cover a few items pertaining to our first quarter results and disclosures.

  • Relative to our run-off reinsurance operations, our first quarter shareholders net income included after-tax income of $5 million, or $0.02 per share related to the guaranteed minimum income benefits business, otherwise known as GMIB.

  • I would remind you that the impact of the Financial Accounting Standards Board's fair value disclosure and measurement guidance one GMIB result is for GAAP accounting purposes only.

  • We believe that 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 GMIB's assets and liabilities will be recorded in shareholders net income.

  • CIGNA's 2010 earnings outlook, which we will discuss in a few moments, excludes the results of the GMIB business and, therefore, any potential volatility related to the perspective application of this accounting guidance.

  • Now regarding our disclosures, beginning with the first quarter of 2010 we have expanded our quarterly statistical supplement to provide additional information in two important areas; that is the medical operating expenses for our Healthcare segment, and premium membership detail for our International segment.

  • For medical operating expenses we now provide a breakdown of the expenses by major functional categories that is consistent with how our management team and Board of Directors analyze our expenses and measure our progress in executing on our cost reduction strategy.

  • For the International segment, we now provide a breakdown of premium revenue by line of business, as well as an analysis of premiums by geographic concentration for our health, life, and accident operations.

  • We also now disclose medical membership for our expatriot and International healthcare businesses by funding type.

  • We believe these expanded disclosures are beneficial in providing investors and analysts with enhanced transparency into our diversified portfolio of global health services businesses.

  • With that I'll turn it over to David.

  • David Cordani - President & CEO

  • Thanks, Ted, and good morning, everyone.

  • Before Annmarie reviews our first quarter results and full-year outlook, I'll briefly comment on our progress to date with our growth strategy supported by our strong first quarter results, and I'll provide a perspective on reform and the opportunities we expect to pursue.

  • So let's get started.

  • As I reflect on the strategy work that our management team undertook last year, I could say today that overall I'm pleased with the progress we have made in a short period of time.

  • I asked our business leaders take a hard look at each of our businesses and we made some tough fundamental choices, all with the goal of creating a portfolio of strategically-aligned businesses that have the potential to deliver meaningful earnings growth on a sustained basis.

  • As a reminder, our enterprise strategy has three major components.

  • They are to reposition our portfolio, to improve strategic and financial flexibility, and to pursue additional growth opportunities.

  • The how part of the equation is to drive profitable growth by going deep, going global, and going individual.

  • We will do this with laser focus on those geographies, market segments, and products that play to our strengths and have meaningful growth prospects over the long term.

  • These segments are the Middle Market segment.

  • This is our largest segment with over 6.5 million medical members today.

  • The Select segment, as we build momentum post the successful integration of the Great West acquisition.

  • Our Disability product line, where our return-to-work program leads the industry and improves employee productivity.

  • The National segment, where we retain a very sharp focus on clients who are seeking incentive-based programs, as well as integrated programs, both focused on improving health and productivity.

  • Outside the US, our health, life and accident products, particularly in Asia.

  • And finally, our expatriot business for both US domiciled corporations and non-US domiciled corporations.

  • I view our first quarter results as a first step toward successful execution of our long-term strategy.

  • We reported first quarter earnings of $1.01 per share, which exceeds our expectations and represents meaningful year-over-year earnings growth.

  • These results reflect the collective strength of our diversified ongoing businesses; Healthcare, Group Disability and Life and International.

  • The diversification of our global portfolio is especially valuable during these unique market conditions.

  • We've generated attractive earnings growth in each of our ongoing businesses and strong revenue growth in our targeted market segments.

  • For Healthcare, we had better than expected membership growth in the quarter.

  • Importantly, we achieved that growth in our targeted market segments.

  • Our first quarter results also support our goal of attaining strategic and financial flexibility.

  • Our subsidiaries remain well capitalized and our results generated strong operating cash flows.

  • We made progress in reducing our medical operating expenses and remain committed to achieving ongoing operating expense reductions.

  • Overall, our first quarter results represent a solid start to achieving our full-year strategic operating and financial objectives.

  • Now, as we've described in the past, two macro challenges have affected everyone; the global economic turbulence, as well as US healthcare reform.

  • Today, I'll spend a few minutes on the second item, reform, and our go-forward position, post reform.

  • We have a team of individuals dedicated to understanding and evaluating the legislation that was passed.

  • With those learnings, we are focused on three areas.

  • First, compliance with the current legislation, and further determining the potential impact to our existing businesses based on potential regulatory scenarios.

  • Second, proactively assisting regulators with the conversion of legislation to regulation.

  • And third, identifying and seizing opportunities that this disruption in the market will cause.

  • The legislation that was passed increased access for Americans, which is a very good thing.

  • However, the reform effort is incomplete and not sustainable as currently constructed.

  • Now we must focus on the cost and quality aspects, two more critical legs of the stool.

  • Success here is key to making our healthcare system complete and sustainable.

  • The estimated cost to employers and individuals are staggering and so are the cost of unhealthy and less productive people.

  • In this challenging environment, we've been able to deliver real value for our customers and clients.

  • We've already seen the benefit of individual involvement within our own Company and with many of our customers through our incentive and engagement-based programs.

  • In fact, our four-year track record now demonstrates that medical costs for individuals that are engaged and supported by incentives and information were 26% lower than traditional programs over four-year period.

  • This was achieved while levels of engagement, health compliance, and healthcare actually improved.

  • These powerful results demonstrate that when plans are properly designed with incentives, information and assistance individuals get involved and take additional responsibility for their own health.

  • The outcome, while prevention goes up, compliance with drug programs goes up, compliance with chronic care management goes up, and costs go down.

  • That's right, costs go down.

  • 14% in the first year and 26% lower over a four-year period.

  • So how do we shape the American healthcare system is that it delivers high-quality clinical outcomes while remaining financially solvent for future generations?

  • We need to transform our system from focusing on sick care to healthy care, as well.

  • From passive customers to active customers.

  • From opaque and confusing information to highly transparent and actionable information.

  • And from doctors being paid for volume of service to payment for quality outcomes.

  • In this environment our mission, which is to help the people we serve improve their health, well-being and sense of security, is more important than ever.

  • Not just in the US, but around the world.

  • The path forward is to design and implement programs that engage individuals and drive quality improvement; as a result, delivering cost reduction.

  • The successful recipe here has four critical components.

  • First, we must create awareness of health issues, health risks, and what individuals can do about them.

  • Second, we must align financial incentives for individuals, their employers, as well as for physicians and other healthcare professionals to encourage healthy life-styles and quality outcomes.

  • Third, we need to provide straightforward, easy-to-understand information to individuals about the cost of care, treatment options, and alternatives, as well as expected quality outcomes.

  • And fourth, we must provide assistance through trained healthcare professionals who can give people resources to make better decisions, support their efforts to become healthier, and help them navigate our complex healthcare system.

  • Getting people more involved and tightly linked with their physician makes sense from a well-being standpoint, but also from a cost standpoint.

  • So in this highly dynamic environment, what can you expect from CIGNA?

  • You could expect CIGNA to continue to develop innovative health and wellness programs that help individuals and employers to effectively manage healthcare costs, while improving health and the productivity of individuals.

  • You could also expect CIGNA to take innovative actions by partnering with physicians and hospitals to enhance the current healthcare system by incenting them on quality of outcomes rather than just the quantity of activities.

  • An example of using incentives and information is our collaborative accountable medical home program.

  • This patient-centered model is an approach that supports the shift from fragmented costly healthcare to coordinated care, anchored by the patient/physician relationship.

  • The goal is to improve quality and lower medical costs by expanding access and improving care coordination for patients.

  • The primary care physician has overall responsibility to provide first contact, continuous and comprehensive care, and care coordination across the healthcare system.

  • The physicians in this model receive additional compensation for care coordination services and may receive additional compensation beyond that based on improving the quality of health outcomes.

  • They are also supported with additional information on their patients, all focused on reducing risks and improving health.

  • This is just one example of paying for quality rather than solely based on quantity.

  • The second example of using awareness and incentives is our work site and retail care delivery, biometric screening, and health coaching capability, all designed to provide convenience and quality outcomes for our CIGNA customers.

  • Outside the US, you could expect to see CIGNA further accelerate our growth profile, as we continue to see very attractive segments and geographies to leverage our programs.

  • One example relative to individuals is the tremendous opportunity we have to broaden our products and services, as the middle class grows around the world.

  • Another example relates to employer coverage for non-expats.

  • Take China, for an example.

  • Here employers are seeking access and accessibility to high-quality physicians and hospitals, along with some health service coordination.

  • I firmly believe we need to continue to engage individuals, employers, and healthcare professionals to lower costs, improve productivity, and increase competitiveness.

  • This is key to sustainability for any person, any corporation, or for any country.

  • In wrapping up my comments on where we go post the US healthcare reform, our early assessment is that we believe CIGNA is well positioned in this environment.

  • Our diversified product portfolio and global geographic footprint provides us with new and attractive opportunities for expansion and overall, we believe the time of disruption like this presents good opportunities for CIGNA to expand our business.

  • In conclusion, I want to again emphasize the strength of our reported first quarter results, which reflects effective execution of our growth strategy, strong aggregate earnings from our diversified ongoing business, and a strong capital position.

  • Our team is excited about the progress we're making and I'm confident in our growth strategy and in meeting our 2010 operational and financial goals.

  • With that, I'll turn the call over to Annmarie.

  • Annmarie Hagan - CFO

  • Thanks, David.

  • Good morning, everyone.

  • In my remarks today, I will review CIGNA's first-quarter 2010 results and highlight the progress we are making on our global growth strategy.

  • I will also provide an update to our full-year 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 provide our earnings outlook.

  • Our first quarter consolidated earnings were $281 million, or $1.01 per share, compared to $188 million, or $0.69 per share in the first quarter of 2009.

  • This reflects the strength of our global portfolio, with each of our ongoing businesses reporting year-over-year earnings growth.

  • I will now review each of the segment results, beginning with Healthcare.

  • First quarter 2010 Healthcare earnings were $167 million.

  • This result primarily reflects commercial medical membership growth, which brings strong specialty contributions, and a guaranteed cost/loss ratio that was in line with our expectations.

  • Medical operating expenses are reflective of our continued commitment to service excellence and investment in our strategic growth areas.

  • We remain on track to deliver full-year medical operating expense reductions of $55 million pretax.

  • I'll now discuss the specific drivers of the Healthcare results.

  • Healthcare membership increased 2.8% in the quarter.

  • Excluding growth in our Medicare Advantage Private Fee for Service business, membership was up 2%.

  • This result reflects focused execution of our strategy, with membership growth coming primarily in our Middle Market and Select segments.

  • In addition, the membership result reflects better-than-expected disenrollment levels due to stabilization in the employment markets.

  • As a result of this membership growth in the quarter, Healthcare premiums grew 18% on a year-over-year basis, including growth in our Medicare Advantage Private Fee for Service, and Medicare Part D products.

  • I'll now provide an update on our medical cost results.

  • Specifically, I will review our guaranteed cost results, our total risk results, and provide some commentary on our medical claims payable reserve.

  • Overall, medical costs in the first quarter were in line with our expectations.

  • Our first quarter guaranteed cost medical care ratio, or MCR, was 82.9%, including favorable prior year claim development of approximately $7 million after tax.

  • Excluding this favorability, our guaranteed cost MCR was approximately 84%, which is in line with our full-year expectations of 83.5% to 84.5%.

  • Regarding our flu-related claims, the level of paid claims were lower than expected in the quarter.

  • However, given the uncertainty associated with flu-related claims, we have maintained our expectation for a 60-basis point flu impact in our full-year 2010 outlook for the guaranteed cost book of business.

  • In our core guaranteed cost book of business, we experienced an increase in medical membership of 82,000 compared to year-end 2009, driven by improved retention rates and new sales.

  • We are pleased that we secured this level of growth while maintaining our pricing and underwriting discipline.

  • Regarding our consolidated risk results, we saw significant membership and revenue growth in both Medicare-related and commercial risk products in the quarter.

  • This change in business mix, as well as the seasonally high loss ratios associated with the Medicare product, contributed to a total MCR that is higher than we have historically seen.

  • Specifically the total risk MCR for the quarter was 84.9% compared to 81.4% in the first quarter of 2009.

  • Considering this new mix of business, results were in line with what we would have expected.

  • This 350-basis point increase in the total risk MCR is primarily driven by two main pieces.

  • First, a higher mix of Medicare Advantage Privaate Fee for Service and Part D products contributed approximately two-thirds of the increase.

  • And second, a higher mix of new business growth in our core guaranteed cost contributed much of the remaining increase.

  • As is customary, first-year business is typically reserved, assuming a higher MCR given the relative uncertainties.

  • Regarding our claim reserve, medical claims payable on a gross basis at March 31st were $1.34 billion, which is approximately $420 million higher than our year-end 2009.

  • Approximately 75% of this increase is due to membership growth and mix of business changes, with the remainder mainly due to seasonality and medical cost trends.

  • Overall, we believe our reserve levels are appropriate and reflect the slower paid claim reporting typically associated with new business growth.

  • Regarding our experience rated book of business, results in the quarter were generally in line with expectations, with good member growth reflecting strong retention and new sales.

  • ASO earnings were favorable overall, driven primarily by strong contributions from our specialty businesses.

  • I will now discuss the results of our other segments.

  • First quarter earnings in our Group Disability and Life segment were $70 million, including a net favorable impact of $10 million after tax related to a reserve study on our life book of business.

  • Results also reflect favorable accident claims experience and higher-than-expected net investment income.

  • In addition, we achieved solid premium growth in this segment, with particularly attractive sales in Disability, a key area of focus in our global growth strategy.

  • Results in the quarter were strong overall, and this segment continues to deliver attractive margins.

  • First quarter earnings in our International segment were $72 million.

  • This is a very strong result and a record quarter for this business.

  • Results reflect competitively-strong margins due to favorable persistency, and solid new sales within our health, life, and accident business.

  • We also saw strong renewal rate execution and improved claims experience in our expatriot claims business.

  • Our International results also include a favorable $5 million after-tax impact of implementing a capital management strategy for our Hong Kong business, which reduces our effective tax rate for current and future periods.

  • The International business continues to provide attractive growth opportunities, as we execute on the go-deep and go global components of our strategy.

  • Overall, the diversification of earnings from our Healthcare group and International businesses continues to be key to our go-forward global growth strategy.

  • Results in the first quarter reflect the benefit of this diversification.

  • Earnings for our remaining operations, including run-off reinsurance, other operations in corporate totaled to a loss of $28 million for the quarter.

  • VADB results were essentially a break-even for the first quarter compared to an after-tax loss of $47 million in 2009.

  • I would note that no VADB reserve strengthening has been required since the first quarter of 2009.

  • Our corporate results include $5 million after-tax charge related to the recent healthcare legislation, which limits the future tax deductibility of certain retiree benefit programs and compensation.

  • Now I would like to highlight the progress we're making on our enterprise growth strategy.

  • First quarter results demonstrate solid growth in each of the business areas of focus; specifically in our Middle Market, our Select segment, Disability, and our global product offerings.

  • Our medical membership growth in the Middle Market segment was strong, reflecting good case persistency and new sales.

  • These new customers purchased medical and specialty coverages, which will allow us to more holistically manage the health and wellness of our customers.

  • Member growth in the Select segment reflects stronger retention rates and good sales, due in part to the success of the benefit programs that we rolled out in the second half of 2009.

  • In the Select segment, we have also seen membership stabilization in our ASO customers who also purchased stop loss, which we believe is driven by continued improvement in the economy.

  • Our national account business performed as expected and we continue to focus on those employers who value engagement and incentive-based products offered on an integrated basis.

  • And while it is still early in the selling season, we are seeing good volume for the 2011 pipeline in national accounts.

  • Regarding our Disability business, we saw solid premium growth in the quarter, which further supports our position as an industry leader in this space.

  • And finally, relative to the go-deep and go global elements of our business strategy, we continued to see strong health, life and accident sales in targeted countries, as well as improved persistency relative to 2009.

  • Overall, we are pleased with the progress we have made to date in executing on our strategic, operational, and financial goals.

  • Now I'd like to provide a brief update on our efforts to reduce our medical operating expense base, which is a top priority and a very critical component of our business strategy.

  • We remain committed to reducing our medical operating expense base and to making meaningful progress, in closing our competitive gap, while maintaining service excellence and making prudent investments to fuel growth in our strategic areas of focus.

  • Total Healthcare operating expenses were flat quarter over quarter and were approximately $1 billion on revenue growth in excess of 10%.

  • Medical operating expenses, which is the area we focus on for cost reduction, were down 4% versus the first quarter of 2009, while membership was flat.

  • Specifically, medical operating expenses were $678 million in the quarter, which is lower than the first quarter of 2009 by $31 million.

  • This quarter-over-quarter improvement is largely due to cost reduction actions initiated in the second half of 2009.

  • Again, we remain on track to achieve full-year 2010 medical operating expense savings of $55 million pretax.

  • Beyond these 2010 expense actions, we remain committed to achieving additional medical operating expense savings of $150 million to $200 million pretax over 2011 and 2012, while ensuring continued service excellence and strong clinical delivery.

  • We will also make appropriate trade-off decisions regarding our strategic investments and the potential impact of healthcare reform.

  • As we move forward, we continue to identify opportunities for medical expense savings in five key areas; procurement, real estate, efficient use of technology, targeted outsourcing, and employment-related costs.

  • Turning now to our investment portfolio, results continue to be strong relative to the challenging market conditions.

  • Our first quarter net realized investment losses totaled $3 million after tax.

  • Overall, we continue to be quite pleased with the high quality and diversification of our investment portfolio, and we believe our problem investment exposure continues to be manageable.

  • I will now discuss our capital management position and our 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.

  • Our subsidiaries remain well capitalized, with statutory surplus well in excess of our regulatory minimums.

  • As evidence of our improved financial profile, Moody's recently upgraded our outlook from negative to stable.

  • They specifically cites strong regulatory capital, reduced financial leverage, and greater parent company liquidity.

  • Moody's also noted that our business profile helps to mitigate the potential adverse impacts of healthcare reform.

  • Regarding parent company liquidity, we ended the quarter with cash and short-term investments at the parent of approximately $700 million.

  • This includes outstanding commercial paper borrowing of approximately $100 million.

  • Turning now to our full-year 2010 capital management outlook, we started the year with $475 million of cash at the parent.

  • We continue to expect full-year subsidiary dividends of $1 billion, we continue to expect the full-year net after-tax impact of the pension plan funding to be a net use of $150 million, and we expect full-year other net uses of $275 million.

  • Putting all the pieces together, we expect to end 2010 with parent company cash of approximately $1.05 billion.

  • This is $100 million higher than our previous expectations, reflecting our decision to maintain the outstanding commercial paper balance, which provides us with additional flexibility at a low cost.

  • Considering our parent company cash target of $300 million and the commitment of $100 million for commercial paper maturities, our outlook implies that we would have approximately $650 million available for capital deployment in 2010, which is consistent with our previous expectations.

  • Our capital deployment strategy has not changed.

  • This strategy prioritizes the use of capital resources to first provide capital necessary to support growth and maintain or improve the financial strength ratings of our subsidiaries.

  • This includes evaluating potential solutions for our run-off reinsurance businesses and our pension funding obligations.

  • Second in our capital deployment strategy, we would consider M&A activity, with a focus on acquiring capabilities or scale that would compliment our existing portfolio and that would be in line with our global growth strategy.

  • And finally, absent these two items we would return capital to our investors through share repurchase.

  • I would remind you that we do have outstanding share repurchase authority and we will continue to evaluate repurchase activity subject to market and industry conditions, and other management -- capital management priorities.

  • Overall, our capital outlook for 2010 remains quite positive.

  • I will now review our earnings outlook.

  • Our consolidated full-year 2010 earnings outlook has not changed from our previous expectation; however, the components have been updated.

  • We now expect higher earnings from our International and Group Disability and Life businesses offset by higher losses incorporate.

  • For full-year 2010, we continue to expect consolidated adjusted income from operations of $1.05 billion to $1.15 billion.

  • With respect to our VADB book of business we expect results to be break-even for the remainder of the year, as we believe our reserves, as of the first quarter, are appropriate.

  • We also continue to expect full-year EPS in a range of $3.75 to $4.15 per share.

  • Our earnings per share outlook does not include any potential impact from share repurchase.

  • Regarding the impact of the recently passed healthcare reform legislation, our consolidated earnings and EPS outlook now assume an unfavorable after-tax impact of $10 million, primarily related to new limitations on the future tax deductibility of certain retiree benefit programs and other compensation.

  • We do not expect the tax implications of healthcare reform to have a material impact on our overall effective tax rate for the year.

  • Aside from these two tax-related items that I just noted, our consolidated earnings outlook assumes no further impact relative to healthcare reform.

  • I'll now discuss the components of our 2010 outlook, starting with Healthcare.

  • We continue to expect full-year Healthcare earnings in a range of $720 million to $790 million.

  • Relative to medical membership, we now expect full-year 2010 membership growth of approximately 2% to 3%, including growth in our individual Private Fee for Service business.

  • This is an increase versus our previous outlook of minus 1% to plus 2%.

  • Excluding the growth in PFFS, we expect medical membership growth of 1% to 2%.

  • Relative to our guaranteed cost book of business, we continue to expect our full-year MCR to be in the range of 83.5% to 84.5%, which is comparable with the 2009 result.

  • For our total book of business, we continue to expect full-year medical cost trend in the 8% to 9% range.

  • I would also reinforce our commitment to maintaining pricing and underwriting discipline across our product offerings.

  • As I highlighted earlier, we continue to expect to achieve medical operating expense reductions of $55 million pretax for the full year.

  • Regarding our Medicare Advantage Private Fee for Service business we continue to assume a break-even result for the business in our full-year outlook.

  • Now moving to our Group Disability and Life and our International operation, we now expect these businesses to contribute full-year 2010 earnings of $475 million to $505 million.

  • This is a $10 million improvement over our previous expectations, primarily reflecting the strength of the first-quarter results.

  • These two businesses consistently deliver competitively strong margins, and we continue to see good demand for the products and services.

  • Regarding our remaining operations, including run-off reinsurance, other operations, and corporate, we now expect a loss of $145 million for the full-year 2010.

  • This loss is $10 million higher than our previous expectations, primarily reflecting the earnings impact of the recently-passed healthcare reform legislation.

  • So all in, we continue to expect consolidated EPS to be in a range of $3.75 to $4.15 per share.

  • Now to recap, our first-quarter 2010 consolidated results reflect strong contribution from our ongoing businesses, demonstrating the value of our global portfolio.

  • Results in the first quarter demonstrate very good progress to date in executing on our growth strategy.

  • We saw meaningful membership and revenue growth in our areas of focus, specifically our Middle Market, the Select segment, Disability, and our global product offerings.

  • We remain on track to achieve meaningful reductions in our medical operating expenses over the next three years.

  • Our current capital outlook is quite strong and our investment portfolio is of high quality.

  • And finally, we are confident in our ability to achieve our full-year 2010 earnings outlook, which represents competitively attractive earnings growth.

  • With that, we'll now take your questions.

  • Operator

  • (Operator Instructions).

  • And we'll take our first question from Matthew Borsch with Goldman Sachs.

  • Matthew Borsch - Analyst

  • Yes, could you -- sorry if I missed something here, but could you comment on your views on the not-yet-published medical cost ratio regulations and how you think those might or might not impact a number of areas -- stop loss, expatriot health, voluntary limited benefits, dental, and finally, the retrospectively experience-rated products?

  • Ted Detrick - VP - IR

  • Matthew, good morning, it's David.

  • You said a mouthful in the question so -- in terms of a laundry list of products.

  • First, as you know, the implimentation of the legislation so the conversion of it from a legislative framework to regulation is fluid, and as we noted in our prepared remarks, we're working collaboratively with the regulators.

  • As you might suspect, we're looking at a variety of scenarios and as of even this week, the most recent external view of CIGNA's loss ratio performance suggests that we are compliant with, or in line with the regulations.

  • But we continue to work through a variety of scenarios right now, but today we feel like we're -- the mix of our portfolio is in reasonably good sted relative to the way the regulations are intended to outcome.

  • Matthew Borsch - Analyst

  • Okay.

  • And on a different topic, can you give us some sense of where your results on the big growth you had in Private Fee for Service are coming in and how you're monitoring those relative to your targets?

  • Annmarie Hagan - CFO

  • Sure, Matthew, it's Annmarie.

  • Good morning.

  • Relative to our Private Fee for Service business, there's been no change really since we discussed this product last time.

  • As you remember, we had significant growth and we had talked before about the risk profile of the business being in that kind of 0.86%, which, as you'll recall, anything less than 1% is on the better side of the risk profile.

  • The demographics are coming in as we expected, and as you probably know, the actual reporting of claims on this type of business comes in rather slowly.

  • So to date, we have seen nothing that would make us change our expectation relative to the full-year break-even.

  • Matthew Borsch - Analyst

  • Okay, thank you.

  • Operator

  • We will go next to Josh Raskin with Barclays Capital.

  • Josh Raskin - Analyst

  • Just first question.

  • I just want to make sure I understand all the moving parts on the International segment because that was, obviously, a big driver.

  • It sounded like there was -- that $5 million was the Hong Kong capital management tax change or something I think was what you said.

  • And then there was -- in the press release you talked about $7 million of FX impact, but you also said that that was as expected, so should we assume that FX changes are actually in the guidance?

  • And then the third part of it, in the press release there was some discussion around the favorable claims experience for the expat business and I was wondering if you could quantify what that was?

  • Annmarie Hagan - CFO

  • Sure, Josh, it's Annmarie.

  • First, our International operations, as I noted in my prepared remarks, had a very strong quarter and we're very pleased with the execution against the growth strategy.

  • If you'll recall, when we rolled forward, our International results from 2009 to 2010 we did expect to have favorable foreign exchange, so that $7 million worth of FX was contemplated in our outlook and we will continue to see -- expect to see some of that as we go through the balance of the year.

  • The Hong Kong item is a one timer, $5 million.

  • Having said that, if you recall, we did some of this with Korea last year, so we continue to effectively manage our capital to get the most effective tax rates that we can on this International book of business.

  • That will have go-forward reduction in the effective tax rate.

  • And then finally, relative to the claims experience, the expat business has had some volatility.

  • As you know, that business bounces around from quarter to quarter.

  • You might recall that the fourth quarter had some adverse experience, the first quarter had some strength.

  • So while you might be encouraged to take the International number and run rate that for the year I would recommend that from a prudent perspective we would consider that there will be some further claim volatility as we move through the year.

  • And as a result, as I indicated in our opening and prepared remarks, we took the combined earnings in those two businesses up by $10 million.

  • Josh Raskin - Analyst

  • So what was the actual favorable experience in the expat in the quarter?

  • Annmarie Hagan - CFO

  • Order of magnitude, $5 million.

  • Josh Raskin - Analyst

  • Okay, so you're suggesting maybe you take out $5 million for that, $5 million for Hong Kong, and it sounds like FX may continue, but maybe not to the same degree or something, so maybe International's closer to $60 million or so as a run rate, is that fair?

  • Annmarie Hagan - CFO

  • Order of magnitude, that's not far off, considering also that there could be some normal claims volatility in addition to the $5 million.

  • Josh Raskin - Analyst

  • Right, of course.

  • And then just a quick follow up on the earlier questions.

  • Do you guys have an expectation for your Medicare medical loss ratio and what the impact from a mix perspective is on that full-year 83.5% to 84.5%?

  • Annmarie Hagan - CFO

  • Josh, it's -- the 83.5% to 84.5% is our core guaranteed cost loss ratio only, and as I indicated in my prepared remarks, excluding prior-year development, that number contin -- it was reported at 84%, which is right in the middle of the range, so it wouldn't impact that number at all.

  • What I also indicated in our prepared remarks was that the total medical care ratio was up in the quarter because of the higher mix of the Part D and the Private Fee for Service order of magnitude.

  • The PFFS is in the high 90s range and the Part D, as reported in our stat supplement, is slightly over 100%.

  • That has some seasonal nature to it, as well.

  • Through the first quarter it's about 250-basis points on the total MCR, which is not the 83.5% to 84.5% number.

  • Josh Raskin - Analyst

  • Okay.

  • And I'm sorry, the high 90s, there's seasonality in Private Fee for Service.

  • as well?

  • Annmarie Hagan - CFO

  • Yes, there is.

  • Many companies -- we would expect some type of a risk adjustor as we go forward in the year.

  • Understand that many companies might accrue for that, but given that we're new in that business we've taken a prudent approach and during the first quarter have not contemplated the amount of risk adjustor we'll get as we go through the year on Private Fee for Service.

  • So that business improves from a loss in the first quarter to profits through the next three quarters, bringing us to the break-even number that we have announced we expect.

  • Josh Raskin - Analyst

  • Okay, that makes sense.

  • Thank you.

  • Operator

  • Thank you, Mr.

  • Raskin.

  • We will go next to John Rex with JPMorgan.

  • John Rex - Analyst

  • Thanks.

  • Just wanted to focus on the commercial book here for a second and the gains are -- I guess the last many years have always taught to us be a little afraid when a company's booking outsized gains in commercial risk versus the rest of the industry and you gave some good commentary there in terms of what you're doing with reserves.

  • Can you quantify for us a little bit an order of magnitude in terms of the more conservative posture that you're taking on the new business there versus the renewing business?

  • Just help us understand how you're approaching that at that outset here.

  • Annmarie Hagan - CFO

  • Sure, John, it's Annmarie.

  • Relative to the new business, understand your concerns, but we are quite pleased with the growth we got in both the Middle Market and Select segments.

  • They're our targeted geographies -- they're our targeted segments and the growth is in the geographies, which are most beneficial to us so I think that's important to keep in mind.

  • Relative to the conservetism, in the normal renewal block for our core guaranteed cost, we ended last year in the around 84% range.

  • So embedded in the estimates for new business, new business is typically, say, two-to-three points higher from an MCR perspective than your renewal block, and then as you go on, you get more insight as to the experience and would adjust that accordingly.

  • John Rex - Analyst

  • Okay, and was that biased?

  • Were the gains biased in a few geographies?

  • If you just think about the success there and, again, these are from the context of no one else in the industry is showing risk gains this year, maybe help us describe a little more where it's coming from?

  • David Cordani - President & CEO

  • John, good morning, it's David.

  • To your point bias in a few geographies, I would take the word bias out and say focus.

  • So our Select segment, which is the guaranteed driver of the guaranteed cost book is highly focused in a finite number of geographies; think 10 to 15 major markets.

  • Secondly, if we step back think about those markets as the key geographies we wanted to focus on post the Great West acquisition.

  • And third, think about the challenge we had to re-start the distribution engine post the acquisition and in the recession.

  • So we are very targeted on a finite number of geographies, think ten to 15, specific go-to-market products.

  • And very importantly, one of the things we were able to learn and leverage from the Great West acquisition was their orientation around going deep on key brokers.

  • So it's highly focused on cohorts of brokers in individual markets.

  • So as Annmarie referenced, we're quite pleased with the focus we've had and moving the business in the key geographies.

  • From a pricing standpoint, as well, if you think about those brokers, there's typically a lot of transparency with the Great West brokers because of the ASO business and the ASO stop loss business and now we've been able to bring a different funding mechanism to have two alternatives to work with those targeted brokers.

  • So the key is focus geographically, products, and on brokers.

  • John Rex - Analyst

  • Okay, and then just one follow up on the mid MCR impact question.

  • Regardless of where your position on the loss ratio is at the moment right now, is your understanding that books like the Great West book, the voluntary benefits book, and the expat book will even be subject to these -- to the minimum MCRs?

  • David Cordani - President & CEO

  • John, we're continuing to work through a variety of scenarios.

  • What is most clear is what is included, starting with the, call it, traditional guaranteed cost framework.

  • As a reference before, we view the processes as quite fluid and we're coordinating in a very detailed fashion with the NEIC, with the regulators, et cetera, and we're working through a variety of scenarios.

  • As we currently understand the picture today, and as I referenced earlier, the external view is in line with our internal view and that is that our current loss ratio profile is, generally speaking, in line with the directions the regulations are heading.

  • But I would just stress it's fluid at this point in time and we continue to work very closely with the regulators and the NEIC on it.

  • John Rex - Analyst

  • And you include the voluntary book in that in terms of the loss ratios being in line with the regulations?

  • David Cordani - President & CEO

  • Under a variety of our scenarios, John, you would expect we would be looking at it with and without a variety of product lines.

  • So, again, looking at a variety of scenarios here.

  • John Rex - Analyst

  • Okay, thank you.

  • Operator

  • Thank you, Mr.

  • Rex.

  • We will go next to Christine Arnold with Cowen and company.

  • Christine Arnold - Analyst

  • Hey, there, just to follow up on the -- and I don't mean to be a pest, but I kind of can't help it.

  • If we think about the MLR floors, are you saying that the guaranteed cost MLR is in line with expectations, but everything is fluid, or that everything is in line with expec -- in line with the MLR floor?

  • David Cordani - President & CEO

  • Christine, good morning, it's David.

  • Again, my general statement was there was an external view snapshot of the industry and it commented that CIGNA's current performance and loss ratio is in line with the regulations.

  • Second, as I referenced before, it's still a fluid and dynamic process.

  • And third, I think very importantly, we don't believe you should look at any product line in a vacuum.

  • There's interdependencies on product lines and as we're working with the regulators and NAIC, we have a ton of transparency in terms of the makeup of our portfolio.

  • The conclusion we hold today is that, as currently configured with our broad portfolio of businesses, directionally we're in line with the expectation of the regulations, but we're going to still work very closely with the regulators and the NAIC until disclosure.

  • Christine Arnold - Analyst

  • Okay.

  • And then the commercial yield looked like it was under 5% in the quarter and I know now that you're pursuing some of the Great West membership you'll see mix issues, we've seen increased deductibles.

  • Can you speak to how you look at that yield versus being down last year?

  • And how do you manage the selection issue if you're going to Great West members and saying, gee, you can be self-insured with stop loss or fully insured, can you just speak through those issues, please?

  • Annmarie Hagan - CFO

  • Sure, Christina, I'll start on the yield and then hand it over to David to provide color on on the selection issues.

  • As it relates to the yield, you're right.

  • In our stat supplement, we have yields in the 2% to 3% quarter over quarter, et cetera, and you're also correct in noting that it is a business mix issue.

  • So we look at it in a couple of components.

  • If you look at the fundamental core guaranteed cost, which would include the lower end of the market, the Select segment, with the new products that we've introduced over the past year-and-a-half, those numbers would exclude the ASO side of the house.

  • But the core guaranteed cost, that yields in the neighborhood of 5% to 6%.

  • And then as you introduce the individual, where we've been growing more significantly and the voluntary, that mix change bring it is down to that two-ish -- 2% to 2.5% yield and that is in line with our expectations and our pricing and underwriting metrics.

  • David Cordani - President & CEO

  • Christine, from a selection standpoint, as I referenced before, what's working for us right now, what's key to us going forward is the focus, both geographically, as well as on a subset of brokers to be able to work with, and our go-to-market approach for the Select segment, be it ASO or guaranteed cost, is to be highly consultative so to look at alternatives.

  • In some markets our lead product is the ASO stop loss, in other markets our lead product is guaranteed cost and yet in other markets they're actually cohabiting side by side.

  • But the key there is working with the brokers, high transparency, and as Annmarie's made reference before, as well, very important to us is consistency of pricing and underwriting execution so you don't have large ebbs and flows year over year or on renewal cycle.

  • And thus far, that approach is working for us.

  • Christine Arnold - Analyst

  • Okay, thank you.

  • Operator

  • Thank you, Ms.

  • Arnold.

  • We will go next Justin Lake with UBS.

  • Justin Lake - Analyst

  • Thanks, good morning.

  • First question just a follow up on Private Fee for Service.

  • You mentioned the -- you put out release talking about your cooperation with Humana on an employer-based product.

  • I'm curious if you can talk a little bit about that and how you're viewing the Private Fee for Service product in general on the individual side?

  • As well from a bidding standpoint, are you setting up networks?

  • Do you expect to be in that segment in 2011?

  • David Cordani - President & CEO

  • Justin, good morning, it's David.

  • So two parts to question.

  • First, relative to the Humana relationship, I would put a framework over the top of it and that is CIGNA has long since viewed that the ability to partner with key players is critical to us.

  • So whether you look at the Humana relationship -- which I'll come back to in a moment -- or various other alliances in the United States or partnerships we have outside of the United States, we feel quite strongly about the importance of that framework and the ability to do so for the benefit of our customers.

  • In the case of the Humana alliance for Medicare Advantage group programs we're delighted, because we've been able to secure a best-in-class solution for the benefit of our clients to be coordinated with our distribution model.

  • And then ultimately, one of the benefits beyond the single point of contact for an employer is, as individuals approach Medicare eligibility you have a lot of continuity and coordination of care program preparation, et cetera.

  • So we're delighted about bringing the two organizations together from an alliance standpoint.

  • Now, separating that to the other part of your question on Private Fee for Service, that alliance does not address the individual Private Fee for Service block.

  • And as you probably know, inferred in your question, our posture with CMS will need to be closed in the approximate June timeframe and we're currently going through a finite number of alternatives with CMS and would expect to have closure and clarity and closure on that in June and obviously update on you our expectations for 2011 and beyond in the second quarter call.

  • Justin Lake - Analyst

  • Okay, that's helpful.

  • And then just a quick question on the commercial mortgage book.

  • That number continues to tick up even though it was barely modest in the first quarter here.

  • I'm just curious from from a capital standpoint, can you run us through, again, the impact there as far as when you need to recognize that and when that might start affecting your RBC ratio?

  • Annmarie Hagan - CFO

  • Justin, it's Annmarie.

  • From a capital perspective, we cover that in our Connecticut General Life statutory surplus and as I've noted many times before, we're well capitalized there, well in excess of regulatory minimums, et cetera.

  • Given the relatively minor movement that we've had in the problem loan portfolio over time, I'm not worried at all about the statutory surplus impact of those mortgage loans.

  • When we recognize that is when it has become clear to us that we will not receive the cash flows that are expected on those businesses.

  • So as you and I've talked before, I believe that we identify things as potential problems as soon as there is any indication.

  • Having said that, there are many times where the potential problems actually get settled and resolved with no impairment analysis.

  • So that, in effect, would -- the statutory surplus in Connecticut General I think is now in the $4.4 billion, $4.3 billion number and these movements from mortgage loans have been in the $20 million to $30 million aggregating up to $300 million or so.

  • So that is not necessarily on my worry lists, Justin.

  • Justin Lake - Analyst

  • Okay, so you don't expect that to be an issue for parent company cash at all this year?

  • Annmarie Hagan - CFO

  • No.

  • Justin Lake - Analyst

  • Great, thank you.

  • Operator

  • Thank you, Mr.

  • Lake.

  • (Operator Instructions).

  • We will go Doug Simpson with Morgan Stanley.

  • Doug Simpson - Analyst

  • Hi.

  • Could you just update us on the pension funding outlook, just remind us how that would factor into thinking around deployment, looking out a couple of years?

  • Annmarie Hagan - CFO

  • Sure, Doug, it's Annmarie.

  • As you know, we are required to fully fund the pension under the Pension Protection Act over the next five years or so.

  • In 2010, we consistently indicated that we'll be contributing $150 million after tax.

  • On a before tax basis, that's $210 million, and I would note that that is in excess of what is required.

  • So we are making voluntary contributions to the pension plan, and if you factor that through given our unfunded liability of in the $1.5 billion range, assuming all other assumptions around returns and interest rates work out -- as you know there are a lot of moving parts -- we'd have that fully funded in accordance with the Pension Protection Act requirement, so you could guess that around before tax, $250 million a year.

  • Doug Simpson - Analyst

  • Okay.

  • And --

  • Annmarie Hagan - CFO

  • Consist went this year.

  • Doug Simpson - Analyst

  • Okay.

  • Is there anything -- what should we be watching for on those other factors?

  • Obviously, if rates move that would help you out in terms of the funding levels, anything else we should be watching?

  • Annmarie Hagan - CFO

  • The only other very important is the interest rate -- the discount rate that we would use.

  • Doug Simpson - Analyst

  • Okay.

  • Can you just remind us how that's -- has that changed in the last three years?

  • What drives -- how does that get determined?

  • Annmarie Hagan - CFO

  • Yes, we actually rela -- and I just want to clarify.

  • When you said rates move, I'm guessing you meant the investment returns?

  • Doug Simpson - Analyst

  • Yes.

  • Annmarie Hagan - CFO

  • Yes.

  • So we have an investment return about 8%.

  • As you know, by the end of the year, we experienced significantly higher than that 8%, which helps out the unfunded position.

  • The other thing is the discount rate.

  • So as interest rates move, you would have to adjust your interest rate up or down, your discount rate, and you might recall at the fourth quarter we had to adjust it downward, which actually cost us couple hundred million -- $150 million to $200 million on the unfunded liability.

  • As those rates improve, there will be opportunity there to close the gap as well.

  • And the final thing I'll note is that, you are aware we did freeze the pension plan so from an accumulation of benefits perspective, that's no longer a risk.

  • Doug Simpson - Analyst

  • Okay, thank you.

  • Operator

  • Thank you, Mr.

  • Simpson.

  • We will go next to Kevin Fischbeck with Banc of America-Merrill Lynch.

  • Kevin Fischbeck - Analyst

  • Okay, thanks.

  • Good morning.

  • Can you just remind us what your individual membership is in your small group, defined less than 100 membership is?

  • David Cordani - President & CEO

  • Sure.

  • Kevin, good morning, it's David.

  • Combined, you should think about both of those combined as slightly less than 1% of our total membership, so think about round numbers, just shy of 50 for -- just shy of 50,000 for the under 50 and over 50,000 for the individual business.

  • So think about total, about 110 million -- or 110,000 members in both those lines.

  • Kevin Fischbeck - Analyst

  • Okay, great.

  • And the -- you talked a little bit about the cash and the uses of cash.

  • Is there something that you're waiting for in particular when you think about deploying that capital?

  • Is there some timeframe where we should think we'll see that, more likely before second half?

  • Or are you waiting -- should we be expecting you to wait for M&A opportunities to shake out, which might take a longer timeframe?

  • I guess any thoughts on timing of that capital deployment.

  • David Cordani - President & CEO

  • Kevin, it's David.

  • So Annmarie walked through our capital deployment priorities and we talked through the strategic priority of the financial strength and financial flexibility.

  • So headline number one, and inferred in your question, we're quite pleased with the position we were able to end 2009 in, as well as building momentum as we step into 2010 from a capital efficiency, subsidiary cash, capital level and free cash flow level.

  • And we will continue to use the guide post that we laid out in terms of our capital deployment strategy to making sure we have the right internal funding and then evaluating M&A alternatives.

  • And then finally, evaluating repurchase.

  • So I appreciate your question.

  • We recognize that we're in a strong, stronger position than we had been in the past, which we like, and we're continuing to evaluate the alternatives.

  • Kevin Fischbeck - Analyst

  • Okay, thanks.

  • Operator

  • Thank you, Mr.

  • Fischbeck.

  • We will go to Ana Gupte with Sanford Bernstein.

  • Ana Gupte - Analyst

  • Yes, thanks, good morning.

  • Two questions on cost reduction.

  • You mentioned, Annmarie, you G&A, you're successful in the $55 million this year.

  • It Appears you're moving more to a retail mix that's possibly slow for this year.

  • Are you seeing any upward pressure just from your selling cost ratio in 2010?

  • And then can you comment on your multi-year strategy to bring your G&A down?

  • Annmarie Hagan - CFO

  • Good morning, Ana.

  • Yes, as you indicated, we are on track for our $55 million, continuing to identify those cost reduction initiatives are key.

  • Could you just clarify for me, on the retail side?

  • I wasn't sure --

  • Ana Gupte - Analyst

  • So the growth in commercial individual, the growth in individual private fee, I would expect is putting pressure on through broker commissions, which may change given reform and all of that, but in light of reform and ex-reform, are you seeing pressure upward?

  • Annmarie Hagan - CFO

  • Sure.

  • Yes.

  • As a matter of fact, as you know, when the individual business is written, their commissions are higher in the first year, but then are reduced as we move ahead.

  • And relative to Private Fee for Service, while commissions are typically higher we did get a significant portion of our members that had been in other plans in previous years, so the commission structure was a little less than kind of a normal brand-new Private Fee for Service member.

  • Having said both of those things, if you look at the new disclosures we have in our staff supplement, the main area where we have opportunity to reduce our expenses is excluding those type of segment expansion and specialty lines.

  • We would contemplate our Private Fee for Service more in a specialty type of coverage.

  • Where our opportunity is, is in the routine medical guaranteed cost ASO book of business.

  • That's the number that we look at to evaluate our competitive position and our competitive gap, and that kind of sub total there -- not to be technical on you here, but that's where we focus on saving the dollars.

  • And the other thing's, as the commission expense goes up, so does the revenue and as you know, the earnings on that is -- on the individual book, et cetera, would be attractive.

  • We look at those more on an earnings perspective basis as contributing.

  • And then the medical operating expenses was where we're focused on reducing to improve the competitive gap.

  • Is that helpful?

  • Ana Gupte - Analyst

  • Yes, that's helpful.

  • Thanks.

  • A follow up on the cost side again, because that's the crux of getting affordability, others are reporting 10% in patient, 12% out patient and most of it is unit cost.

  • Is your go-deep strategy getting you to more competitive hospital discounts, or are you also looking to get into more narrow networks and dropping hospitals, which seems to be playing out in the media lately?

  • David Cordani - President & CEO

  • Ana, it's David.

  • The go-deep strategy is quite important to us, as you made reference to.

  • So the markets we've chosen to focus on are a compilation of either those markets that we are currently most competitive in on an all-in medical cost basis and/or we have a line of sight over the next couple of years to be fully competitive relative to the best-in-class benchmark competitor.

  • A part of that process, is, as I referenced in the prepared remarks, making sure we're actually working a little differently with key delivery partners, be it large physician groups and/or the hospitals, to try to align our incentives -- our information, with their programs and services.

  • To the last part of your comment, we have not, generally speaking, embarked upon a strategy to have nero networks.

  • Rather our market strategies are a strategy of transparency and choice by providing visibility to our employer customers and our individual customers relative to cost quality differences, where possible and allowing for choice to drive the utilization patterns.

  • Ana Gupte - Analyst

  • Okay, thank you.

  • Operator

  • Thank you, Ms.

  • Gupte.

  • Our last question for the conference today will come from Carl McDonald with Oppenheimer.

  • Please go ahead, sir.

  • Carl McDonald - Analyst

  • Great, thank you.

  • How do you think about the future of the limited benefit product?

  • Is that something we should anticipate goes away in 2014 with the insurance requirements, or are there certain products within that business that kind of stick around?

  • David Cordani - President & CEO

  • Carl, good morning, it's David.

  • So I think by your statement of limited medical product, you're excluding what the industry knows as voluntary life disability, et cetera, and I think inferred under your statement, we should assume that that product evolves pretty significantly over a short period of time, making sure that there are some solutions that work for the individuals that currently utilize those products and then it probably takes a step function post 2014 as additional alternatives and subsidies are available to individuals.

  • So we view that that product portfolio and solution portfolio will evolve at a pretty accelerated rate over the next several years.

  • Carl McDonald - Analyst

  • Okay.

  • And then on the loss ratio, using your commercial loss ratio and putting MA at high 90s and using the PDP loss ratio, David, it looks like something in either specialty or experience rated book was higher.

  • Anything worth spiking out there?

  • Annmarie Hagan - CFO

  • It's Annmarie, Carl.

  • The only thing -- there's nothing really worth spiking out there.

  • I would just note that we did have new business growth in both the guaranteed cost and the shared returns business.

  • So as I indicated earlier typically we would reserve at a little bit of a higher -- two-to-three points higher loss ratio on that new business growth until there's more clarity and certainty around the ultimate loss ratio.

  • But I think all in, as I mentioned, two-thirds is the mix and then the balance of the increase in the ratio was new business, both guaranteed cost and shared returns.

  • David Cordani - President & CEO

  • And, Carl, I would just reinforce, as Annmarie made both in her prepared remarks and her prior comments, for the core commercial guaranteed cost business, the overall loss ratio on an operating basis going forward is directly in line with our expectations, so we feel good about it stepping into the year.

  • Carl McDonald - Analyst

  • Great, thank you.

  • Operator

  • Thank you, Mr.

  • McDonald.

  • And that being our final question, I'd like to turn the call back to David Cordani for any additional or closing comments.

  • David Cordani - President & CEO

  • First, thank you for joining us today and I simply want to emphasize four key points from our conversation.

  • First is that our first-quarter 2010 results are strong due to the result of our strategic focus.

  • They demonstrate the strength of our diversified portfolio of business and very importantly provide a strong and solid start to achieving our full-year 2010 goals.

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

  • Third, we believe that we are well positioned as global health service company.

  • We will continue to execute our growth strategy, which leverages the strength of our very diverse global portfolio of businesses, which include a well-established operation and portfolio outside the US that currently serves employers and a growing middle class of individuals; our Disability business, with return to work programs that lead the industry, and improve employee productivity; and our US Healthcare business, which focuses on health improvement and is heavily weighted towards service offerings.

  • Finally, as outlined earlier, we're using this time of disruption to identify and leverage additional growth opportunities as we look to the future.

  • Again, thanks for joining today's call.

  • Operator

  • And that does conclude today's call.

  • Again, thank you for your participation.