信諾集團 (CI) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by for Cigna's second-quarter 2012 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 David Cordani, our President and Chief Executive Officer; and Ralph Nicoletti, Cigna's Chief Financial Officer.

In our remarks today, David will begin by commenting on Cigna's second-quarter results.

He will then review our approach to delivering value for our customers and clients.

He will also identify our key earnings drivers on why we believe Cigna is well positioned to deliver attractive top line and bottom line growth on a sustained basis.

David will conclude his remarks by discussing our capital deployment strategy and how we have invested in our businesses by adding differentiated capabilities that will create shareholder value over the long term.

Next, Ralph will review the financial results for the second quarter and provide an update on Cigna's financial outlook for full year 2012.

We will then open the lines for your questions.

And following our question-and-answer session, David will provide some brief closing remarks before we end the call.

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

Specifically, we use the term labeled adjusted income from operations as the principal measure of performance for Cigna and our operating segments.

A reconciliation of these measures to the most directly comparable GAAP measure is contained in today's earnings release, which is posted in the Investor Relations section of cigna.com.

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

We would remind you there are risk factors that could cause actual results to differ materially from our current expectations, and those risk factors are discussed in today's earnings release.

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

Relative to our Run-Off Reinsurance operations, our second-quarter shareholders net income included an after-tax non cash loss of $51 million, or $0.17 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 boards fair value disclosure and measurement guidance on our GMIB results is for GAAP accounting purposes only.

We believe that the application of this guidance is not reflective of the underlying economics, as it 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 2012 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.

Also, please note that when we discuss our full-year 2012 outlook, it will be on a basis which excludes any future capital deployment and includes the year-to-date results of our Run-Off guaranteed minimum death benefits business, known as VADBe, but does not include an estimate for future impacts, as these potential impacts, including the effect of changes in capital markets or periodic updates to long-term reserve assumptions are not known or reasonably estimable.

And one last item, I remind you that Cigna will be hosting our upcoming investor day on November 16 in New York City.

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

Thanks, Ted, and good morning, everyone.

Before Ralph reviews our results and outlook, I'll comment on our second-quarter performance, then I'll discuss how the focused execution of our strategy is strengthening our ability to drive sustainable growth in revenue and earnings as well as strong free cash flow.

Finally, I'll highlight how we are further investing in our business to create differentiated value for our customers and clients.

Turning to our results, we are pleased with our performance in the second quarter, specifically delivering another quarter of strong revenue and earnings contribution, making good progress on integrating HealthSpring, continuing strategic investments to ensure we are well positioned to serve our targeted markets and customer segments, and as a result, continue to deliver attractive revenue and earnings growth.

With the momentum we've continued to build in 2012, we are again increasing our full-year outlook for earnings and capital available for deployment.

More specifically for the quarter, we reported adjusted income of operations of $444 million, or $1.52 per share.

Our consolidated revenue increased by 35% to $7.5 billion.

These results demonstrate the ongoing effectiveness of our Go Deep, Go Global, and Go Individual strategy, and our commitment to consistent execution of our business fundamentals, including clinical quality, service excellence and pricing discipline.

Each of our ongoing businesses, Health Care, International, and Group Disability and Life, provided strong revenue and earnings contributions in the second quarter and year to date.

Our Health Care business results benefited from strong client retention and growth in our targeted customer segments.

Revenue grew 46% in Health Care relative to the second quarter 2011, reflecting a full quarter of contribution from HealthSpring and solid organic growth.

Our US medical customer base grew by approximately 1.1 million during the first six months of 2012, representing 10% net growth from year end 2011, including 6% organic commercial customer growth.

I would highlight that essentially all of this organic growth has been in our ASO products.

In our International business, revenue increased by 22% compared to the second quarter of 2011, driven by solid customer retention and continued new sales in our high performing businesses.

In our health, life and accident business, we leverage our expertise and customer insights to bring to market innovative solutions at attractive price points.

In our global health benefits business, our portfolio of highly specialized health programs and our global network of more than one million healthcare professionals continues to provide a competitive advantage in serving the globally mobile employee market.

In Group Disability and Life, our revenue growth was 4% over the second quarter of 2011, and we reported solid earnings, which is a competitively attractive result.

This growth demonstrates the value of our health and productivity programs for the benefit of our customers and clients.

Overall, our second-quarter results reflect the strength of our differentiated capabilities and our focused multi-year growth strategy.

In a dynamic global economy with challenges faced by health systems around the world, we continue to deliver strong client and customer retention, while broadening our existing relationships and winning new ones in our targeted segments and markets.

The consistent execution of our strategy puts us on track to deliver our third consecutive year of attractive revenue and earnings growth.

I'll now highlight how we are focused -- how the focused execution of our strategy positions us for sustained growth.

In our US commercial business, the differentiated value we offer through our customer focus, our consultative sales approach and physician engagement capabilities continues to create good demand for health and productivity programs.

Our customer focus enables us to take a highly targeted approach to employee engagement through incentive alignment.

This personalized approach allows us to move customers from passive recipients of care to active value conscious customers of their own health and wellness.

We support our customers with 24/7, 365 live phone service and online decision tools to deliver transparency of healthcare costs and quality.

More and more, employers are realizing that the way to control their medical costs is by keeping their employees healthy, by helping them lower their health risks and by making it easier for those facing chronic or acute conditions to obtain high value healthcare.

Through our consultative sales approach, we design health and wellness plans based on our client's corporate strategy and culture, their work force health status and their benefit goals.

As we have discussed before, physician engagement is key to improving our customer health outcomes and achieve sustainable costs.

In the second quarter, we further accelerated our leadership in physician engagement by adding 10 new collaborative accountable care initiatives.

We launched our first collaborative accountable care initiative back in 2008, so we've been at this for sometime now.

Today, we have 32 programs spanning 16 states.

These programs are designed to deliver improved clinical quality and medical costs, while increasing customer satisfaction.

Our approach incorporates three elements to drive physician success.

First, we provide actionable data to help physicians identify potential gaps in care, and we do this in a way that is fully aligned with their operating protocols.

Second, we align financial rewards with their performance on keeping patients healthy and delivering the highest quality care.

And third, we support their practice with clinical care coordinators who focus on improving medical compliance and identifying patients who could benefit from our health, life style and chronic care programs.

When you consider Cigna's collaborative accountable care footprint combined with HealthSpring's proven physician engagement model, we believe our breadth and depth of these programs is unmatched in the industry.

In our US seniors business, we are making solid progress, pursuing opportunities to further fuel HealthSpring's growth by deepening their presence in existing markets and extending the value of their physician engagement model to develop new commercial offerings.

Following the first quarter close of our HealthSpring acquisition, we launched sales of HealthSpring's group Medicare advantage products to Cigna's commercial clients in targeted markets, and we are beginning to generate good interest.

We also introduced a new preferred network product in Tennessee and Houston that takes advantage of HealthSpring's high performing physician network to offer our commercial clients greater access to affordable, high-quality care.

Overall, our HealthSpring integration continues to go well and we are on plan to deliver our expected synergies.

In our International business, we see continued demand for our health, life and accident products amongst the growing middle class in emerging markets who want to enhance the coverage beyond their government-sponsored programs.

Success in our International business is driven by leveraging our deep marketing insights to understand our customers' needs.

We match solutions to address their needs and we deliver them through the appropriate direct-to-consumer distribution channels.

This proven model enables us to deliver ongoing growth in our target markets and we are expanding this winning model to Turkey and India.

Additionally, we continue to see strong demand for our highly specialized global health solutions from multi-national companies and inter-governmental organizations.

Now I want to take a moment to discuss how we are effectively using capital management to invest in our business in a way that creates sustainable shareholder value.

We continue to have a strong balance sheet and good financial flexibility.

Our capital deployment strategy remains focused on three core tenants.

First, to provide the necessary capital to support our ongoing businesses.

Second, to pursue mergers, acquisitions and partnerships to accelerate our growth and create strategic competitive differentiation.

And third, to return capital to our shareholders.

I'll briefly address each of these.

We are supporting our current businesses with the capital required as a result of our ongoing growth.

In addition, we continue to make targeted capital investments to support capabilities that position us for sustained growth.

An example is our ongoing investments in our technology to better serve our existing and future customers as well as our physician partners.

We are also investing in key technology initiatives to yield operating efficiency gains.

Second, relative to strategic acquisitions, we continue to explore and pursue opportunities that align with our growth strategy.

In the US, our inorganic focus to date has been on acquiring differentiated capabilities and scale in the seniors market as well as retail capabilities.

Acquiring the best-in-class physician coordination model of HealthSpring is a clear example of our focused execution.

We are further extending our health solutions to more individuals in the US, with our recent agreement to acquire Great American Supplemental Benefits Group, one of the largest manufacturers, distributors and marketers of supplemental health insurance products in the US.

These two investments position us with ongoing growth opportunities and the ability to provide greater value to our customers across all stages of their lives.

Within our International business, we continue to seek opportunities to expand our reach in geographies with significant middle class growth potential and to drive greater scale.

To accelerate our growth in Turkey during the second quarter, we signed a joint venture with Finansbank, a large retail bank that operates the country's sixth largest life insurance company.

The joint venture strengthens our direct-to-consumer distribution capabilities by partnering with a well-established local financial institution to leverage their network of 500 retail banking branches and more than 10 million customers.

After fully considering our first two priorities for capital deployment, those are supporting the growth of our ongoing businesses and pursuing financially attractive strategic M&A activity, we evaluate opportunities to return capital to investors.

To date, that has been primarily through share repurchase.

Now before I turn the call over to Ralph, I just want to reiterate a few key points.

Our second quarter and year-to-date performance reflects the strong revenue and earnings contributions from each of our ongoing businesses, reinforcing how our key differentiators are resonating in our target markets.

We accelerated our investments in high growth customer segments in emerging markets with the announcement to acquire Great American Supplemental Benefits, and a new joint venture in Turkey, helping us to plant additional seeds for our future growth.

HealthSpring is performing well and is on track.

Our results reflect the dedication and customer-focused mindset of the more than 35,000 Cigna colleagues around the world who every day work to help improve the health, well-being and sense of security of the people we serve.

And finally, the momentum we have created through the first half of 2012 provides us the confidence to achieve our increased full-year outlook for earnings and capital available for deployment.

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

Thanks, David, good morning, everyone.

In my remarks today, I will review Cigna's second-quarter 2012 results and 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 also the basis on which I will provide our earnings outlook.

Before I get into the specifics of the quarter, I wanted to highlight that the quarter reflects continued effective execution of our strategy, revenue growth and strong earnings, operating expense ratio improvement and strong contributions from HealthSpring.

These results provide us confidence to increase our full-year outlook for earnings and parent Company cash.

Now moving to results, our second-quarter 2012 consolidated revenues grew 35% to $7.5 billion, driven by contributions from the HealthSpring acquisition and growth in our targeted markets.

Second-quarter consolidated earnings were $444 million, or $1.52 per share, excluding the after-tax loss of $0.03 per share from the results of the Run-Off VADBe business.

Turning to the segments, overall Health Care results for the second quarter of 2012 were strong and reflect continued effective execution of our growth strategy, highlighted by strong year-to-date customer growth of our ASO products, continued underwriting and pricing discipline, effective integration of HealthSpring -- of the HealthSpring franchise, while making investments in future capabilities.

Second-quarter premiums and fees for Health Care grew 52% to $5 billion, reflecting the first full quarter of HealthSpring revenues and organic growth in both our commercial and Medicare businesses.

Excluding the effect of HealthSpring, premiums and fees grew 8%.

Second quarter earnings for Health Care were $332 million and reflect revenue growth, including further specialty penetration and the impact of favorable prior year claim development.

As we highlighted last quarter, results also include strategic spending to support our business growth and service capabilities, as well as targeted investments that will deliver operating expense efficiencies beginning in the second half of this year.

We ended the second quarter 2012 with approximately 12.6 million US medical customers representing year-to-date growth of approximately 1.1 million customers.

The year-to-date increase is comprised of organic growth of approximately 750,000 commercial customers, primarily in our priority markets, and roughly 400,000 HealthSpring customers.

Essentially all of our organic growth in commercial customers for 2012 has been in ASO product offerings.

Turning now to medical costs, in the quarter, we continue to deliver quality health care for our clients and customers.

I would remind you that 85% of our commercial customers are in ASO funding arrangements where they directly benefit from these medical cost results.

Across our commercial and Medicare risk books of business, our second-quarter earnings include favorable prior year claim development of $17 million after tax, net of our rebate accrual, compared to $25 million after tax in the second quarter of 2011.

Specific to commercial guaranteed costs, our second-quarter 2012 medical care ratio, or MCR, was 80.1% on a reported basis.

Excluding prior year claim development, the commercial guarantee cost MCR for the second quarter was 81%.

When we provided our initial outlook for 2012, we planned for an increase in medical costs in our commercial book of business over the course of the year and we began to see this emerge during the second quarter, primarily in outpatient and professional services.

Importantly, these increases were contemplated in our pricing.

Our second quarter 2012 MCR for Medicare Advantage was 80.4% on a reported basis, or 80.9% excluding prior year claim development.

Overall, we are pleased with the results in our medical risk businesses and they continue to reflect good pricing and underwriting discipline, as well as sustained clinical quality for our clients and customers.

For the second quarter, the total operating expense ratio was 22.6%, which is 380 basis point reduction over second quarter of 2011's expense ratio, and primarily reflects the change in business mix associated with the HealthSpring acquisition, inclusive of strategic spending to support our business growth and service capabilities.

Now I'll discuss the results of our International business.

International continues to deliver attractive growth and profitability.

These results reflect targeted new sales, strong retention and further product penetration to existing customers.

Premiums and fees grew 22% quarter over quarter driven by strong customer retention and growth within our health, life and accident business, particularly in Korea, and increased risk membership in our global health benefits business.

Second-quarter earnings in our International business were $65 million and reflect continued strong margins in line with our long-term expectations for this business.

For Group Disability and Life, results were strong overall in a difficult environment, as this business continues to deliver value to our clients and customers through market-leading disability management and productivity management programs.

Group premiums and fees increased 4% over the second quarter of 2011.

Second-quarter earnings in our Group business were $89 million, which includes a net favorable impact of $35 million after tax related to a reserve study on our group disability business.

Results for our remaining operations, including Run-Off Reinsurance, Other Operations and Corporate, totaled to an after-tax loss of $52 million for the second quarter.

Corporate results include a charge of $10 million after tax for the termination of a vendor contract related to the previously discussed operating expense efficiency initiatives.

Additionally, these results include a reserve strengthening of $10 million after tax related to our Run-Off VADBe book of business.

The reserve strengthening relates to the impacts of changes to our long-term lapse assumptions for a segment of the business.

Overall, as a result of the continued effective execution of our strategy, our second-quarter results reflect solid revenue and earnings contributions from each of our ongoing businesses, and as a result, we continue to generate significant free cash flow.

Turning to our investment portfolio, we are pleased with the results in the second quarter.

Our commercial mortgage loan portfolio is performing well in a challenging economic environment.

During the quarter, we completed our annual review of the $3 billion loan portfolio, which indicated there has been an improvement in the average loan to value ratio to 66% compared to the previous estimate of 70%, along with improvement in our average debt service coverage ratios.

Overall, our strong investment management capabilities, diversification of the portfolio and disciplined approach to risk management continued to deliver solid results.

Now turning to our outlook, based on the strength of our second-quarter results, we are confident in our ability to achieve our increased full-year outlook.

We now expect consolidated adjusted income from operations in the range of $1.53 billion to $1.63 billion and consolidated EPS of $5.25 to $5.60 per share, reflecting continued strong underlying results in each of our ongoing businesses.

This increased outlook represents an increase of $0.05 per share over our previous expectations.

I would remind you that consistent with prior practices, our outlook excludes any contribution from additional prior year reserve development or capital deployment.

I will now discuss the components of our 2012 outlook, starting with Health Care.

We now expect full-year Health Care earnings to be in the range of $1.21 billion to $1.27 billion, which is an improvement of $15 million from our previous expectations at the midpoint.

This increased outlook for Health Care reflects the impact of favorable prior year claim development recognized in the second quarter and continued effective execution.

Regarding US medical customers, we continue to expect full-year 2012 growth of approximately 1.2 million people, of which 800,000 is in our commercial book of business.

This year's growth is essentially all in our highly transparent ASO funding arrangements and across all of our targeted customer segments, including national accounts, middle market and select size employers.

We expect to provide additional value to our larger clients by expanding our suite of solutions over time, which will drive increased revenue and earnings for these relationships.

Overall, we are pleased that employers of various sizes continue to value our consultative approach and differentiated health and productivity programs.

Turning to medical costs, our outlook continues to assume an increase in medical costs during 2012, which we began to see during the second quarter.

For our total commercial book of business, we continue to expect full-year medical cost trend to be in the range of 6% to 7%.

These expected medical costs have been reflected in our pricing for 2012.

We continue to expect the full-year MCR to be in the range of 80% to 81% for our commercial guaranteed cost book of business, and we now expect the full-year Medicare Advantage MCR to be in the range of 81% to 82%, which is an improvement of 50 basis points from our previous expectations, the majority of which is driven by favorable claim development.

We continue to expect that the operating expense ratio for the full year 2012 to be in the range of 22.5% to 23.5%.

Now moving to the other components of our outlook, for our International business, we continue strong top line growth and continue to expect earnings in the range of $265 million to $285 million, which represents earnings growth of 19% to 28% versus full year 2011.

Regarding Group Disability and Life business, we continue to expect full-year 2012 earnings in the range of $260 million to $280 million.

And regarding our remaining operations, including Run-Off Reinsurance, Other operations and Corporate, our outlook is now expected -- is now an expected loss of $205 million for 2012, reflecting second quarter Run-Off VADBe reserve strengthening, as well as the vendor contract charge recorded in the second quarter in Corporate results.

So all-in for full year 2012, we now expect consolidated adjusted income from operations of $1.53 billion to $1.63 billion, and consolidated EPS in the range of $5.25 to $5.60 per share.

As we indicated on the first quarter call, we expect our quarterly earnings pattern will be different than prior years.

Regarding our outlook for earnings per share for the second half of 2012, I would note that there are a number of moving pieces, including a meaningful step-up in Medicare Part D earnings in the fourth quarter, as well as the absence of the second quarter favorable impacts of prior year claim development and the disability reserve study.

As a result, we expect a quarterly earnings per share pattern similar to the first half of this year.

And I will now discuss our updated capital management position and outlook.

Overall, we continue to have good financial flexibility as our subsidiaries remain well capitalized and are generating significant free cash flow to the parent, reflecting strong return on capital in each of our ongoing businesses.

We ended the quarter with parent Company cash of approximately $650 million.

We now expect to have approximately $800 million in parent Company cash by the end of 2012, with approximately $350 million available for capital deployment after considering all sources and uses, including approximately $400 million for our two pending strategic acquisitions.

This represents a $200 million increase compared to our previous capital outlook, primarily reflecting the increased subsidiary dividends due to improved business fundamentals.

Overall, our capital position and updated outlook remains strong and our capital deployment strategy and priorities remain unchanged.

Now to recap, our second-quarter 2012 consolidated results reflect the strength of our global differentiated portfolio of businesses and effective execution of our focused strategy with solid growth in our targeted customer segments.

Our second-quarter results represent another strong performance, reflecting good progress on the integration of HealthSpring and strong organic revenue and customer growth, which are expected to deliver an increase in $0.05 per share for 2012, an earnings per share for 2012, and an additional $200 million in capital available for deployment.

Based on the strength of our results, we are confident in our ability to achieve our increased full-year 2012 outlook.

With that, we will turn it over to the Operator for the Q&A portion of the call.

(Operator Instructions) Matthew Borsch with Goldman Sachs.

Yes, good morning.

If I could just start off with a topic which has gotten a lot of attention this earnings season, which is if you can comment on now that we've rolled forward three months what you're seeing on the commercial risk-based side in terms of price competition and any granularity you can provide around that.

Matthew, good morning, it's David.

I'll give you a little color in terms of the overall market place and the environment.

Consistent with prior comments, we view the marketplace as competitive.

You might conclude we're a little bit boring on the topic, but we view it as competitive.

You may recall last year we flagged that we saw a little bit of intensity of competition pick up, specifically for guaranteed costs or risk-based business and we flagged wit was down market for the smaller employer size, several hundred employer size.

In the face of that, we backed off a little bit on our own guaranteed cost membership growth expectations and replaced that with further acceleration in our growth, which we've been able to post in the ASO and ASO stop loss environment.

So no meaningful change in pattern, but I would suggest we've seen an uptick in intensity dating back over the course of the last year, and we've been successful using our ASO product in the face of that environment.

Great.

And just to follow up, shifting to the self-funding side, are you seeing the smaller and middle market employers continuing to shift to self funding or have the interest in doing that at about the same level?

Is that -- has that maybe slowed a little bit, or is that maybe intensifying and would you expect it would intensify further if we move towards health reform implementation?

Well, Matthew, as you know, per Ralph's comments, 85% of our book of business today is ASO.

So part of it is environmental, part of it is our targeting and segmentation.

But we see continued increased demand for more transparent programs, and ASO is a highly transparent program.

We've been effective using them over time, as you know, in national accounts, in middle market and regional accounts.

But increasing, I would just say continued increased momentum as you go into what we call the select segment 50 to 250 life employers.

Very importantly, just to amplify through the use of those programs, we've been able to see elevation in preventive care, elevation in medication compliance, elevation in chronic care program utilization, even for employers that have below average health risks.

So it's a quite attractive tool and as a result, we're delivering very good medical cost trends.

So increasing intensity of demand is what we've seen and we expect that pattern to continue.

Thank you.

Josh Raskin with Barclays.

Just want to talk little about the loss ratios across the various segments.

The guaranteed cost ratio was up year over year in the second quarter, which was a bit of a change from the first quarter result, where it was actually down year over year.

So I'm just curious if there was sort of some seasonality or if I'm missing some development changes, things like that?

And then second quarter understanding you didn't have HealthSpring last year in the second quarter, but their reported MLR was actually 80.4%.

So it looks like the MA MLR was actually down on a year-over-year basis, which I think was surprisingly positive.

So I'm curious if that was mostly, if the $17 million of development in health care was mostly MA?

And then I'll leave it at that.

Josh, it's David.

I'm going to ask Ralph to comment on the commercial side in terms of what we've seen and then I'll amplify a little bit in terms of what we're seeing in the M&A book and the overall medical cost environment.

Josh, on the commercial side, first as we look at, as we look at the MCRs and the progression here, I'd say performing in line with our expectations.

We did come into the year with an expectation that medical costs would begin to move up.

Some of the year-on-year changes that, as you're looking at, does get mixed in with different levels of prior year development between the two quarters.

But when you kind of cut through that on an operational basis, the MCRs are really moving in line with how we plan the year and importantly, how we price the business at this point.

So on commercial, we feel good about where we are.

I mentioned in my remarks that we have begun to see some increase in costs, particularly on outpatient services and the mix of services within outpatient, and increased utilization on professional services.

Again, all in line with our expectations as we plan through the year.

But I think those are some of the things that you're seeing when you look at the progression either from year on year or sequentially from last quarter.

And Josh, picking up on that, as Ralph noted in his prepared comments, our outlook for the commercial MLR is intact and our outlook for overall medical cost trend is intact.

Specifically as it relates to Medicare Advantage, if you put it back on the context as you raise for HealthSpring, first you have to start with the book of business.

So HealthSpring has a long history of being very disciplined in terms of its benefit design and its growth story.

And if you look at the MA growth story for 2012, their MA growth was in the neighborhood of 6%.

I think the industry average was about 7%.

HealthSpring does not essentially historically hunt for group MA business, so that's a good result, given that the others are hunting for group MA business.

With that good discipline, they've had predictability to their overall medical costs and profitability outcome, why is that?

Well it's the focus on the benefit design, it's the great discipline that the HealthSpring team has.

But it's specifically also driven by the strong partnership and alignment with physicians where you have in excess of 60% of their book of business in very sophisticated physician partnership models.

As a result, a strong result through the first six months this year, and as Ralph noted in his prepared remarks, we actually improved the medical care ratio outlook by 50 basis points.

So we feel quite good about that.

Okay.

And then just a quick follow up on the $35 million favorable disability and life reserve study in the quarter, was that expected?

It doesn't look like the guidance is moving much, so was that expected?

And I guess maybe more broadly, we've seen a bunch of these over the last couple of years, how do we think about those?

Are those one-time items, or are those just sort of natural catch ups that end up getting lumped into one specific quarter but are just a part of the business?

Yes Josh, it's Ralph.

I think your latter observation is more directionally how to think about it with the reserve level on that business of a little over $2 billion these are what I would call minor adjustments that we look at annually in this quarter.

And it reflects two things, our prudent practice in reserving and our good execution in the marketplace.

So a combination of those two things on a consistent basis, and I think history has shown that and it sort of results in some minor adjustments to the reserves.

And the level this year was pretty comparable to what we saw last year.

So that was included in sort of your expectation that you'd have similar reserve study to last year?

We-- not specifically to a number, but essentially as we go into the year and plan, we look at our execution and our reserve practices from being prudent is consistent.

So with consistent execution, we do go into the year expecting I'll call it a range similar, not materially different than what we've seen in the past.

Okay.

Thanks, Ralph.

Justin Lake with JPMorgan.

First question, just wanted to dig in a little bit more on the cost trend.

Can you add some specifics around how much physician and outpatient was up in the quarter and what you were expecting for those specific trends coming into the year and where you are now?

And maybe given we're already halfway through the year, any way you can kind of give us a little more specifics in terms of where you are within that 6% to 7% trend range would be great.

Yes, Justin, it's Ralph.

As it relates to the trend itself, we would expect as we move through the year to see a continued increase.

I think when we set the guidance at the beginning of the year, we sort of shaped it to be a gradual increase in cost, in the cost trend throughout the year.

So we're progressing in the first half at the lower end, and we'd expect to be in the middle of the range on average for the year.

So think of it in that 6% to 7% range.

Regarding the pieces themselves, as I mentioned in my remarks and some of the comments, we did see the mix of services within outpatient increase.

So it's not necessarily utilization base, but it's more of the mix of services within outpatient.

And we did see a step up in some utilization on the professional services side, while inpatient was largely flattish in utilization.

And when you saw that mix of services in outpatient, any two or three that you might be able to point out to us as to where the higher acuity is coming from?

Yes essentially it came in really in line with our expectations and there's probably some just shifting from inpatient to outpatient, which moves some of that mix up, but largely it moved as we expected.

Got it.

And so on the cost trend, what you're saying, I guess just to paraphrase what you were communicating is that coming into the year, maybe you were closer to the 6% range in the first quarter.

That's now kind of progressed to the midpoint and you expect to kind of end the year closer to 7%.

Is that reasonable to think of?

Yes, I would just look at it as more in the middle of the range as we progress through the year.

I wouldn't -- I don't think you should think of it as a steep curve here, but more of a gradual curve.

And if you are at around the middle of the range for the balance of the year is where we'll be.

Okay, and you've got a lot of large group business and I know that pricing gets set pretty early on in the summer, kind of early fall.

So you're kind of in their pricing business right now.

Are you-- is it fair to say that you would be pricing business conservatively, you're setting a conservative view trend there, given what you're seeing and therefore, pricing business kind of north of that 6% to 7% range for further cost trend increases next year?

Justin, it's David.

Obviously, we're not providing 2013 guidance.

Some businesses are already out.

We've already put bids on the market for 2013.

A small percentage of our business is bid.

I think the important piece is, one, our medical costs for 2011 were better than our expectations and developed favorably.

Our medical costs thus far through 2012 are in line with our expectations and we've priced accordingly, and we're using a similar approach to set the prices and establish the pricing for 2013.

Also very important to your point, since our book of business is larger than average, right, especially since we don't have an under 50 block of business, you're looking at the specific credibility of those cases as well, so you're a little less exposed to averages when you're dealing with those cases.

Our team is working on the case-specific credibility and that helps to pinpoint, because now you're deeper into the market specificity off of our Go Deep strategy.

Lastly, while you didn't ask about MA, I think it's important ti amplify from an MA standpoint, the medical costs are also year to date in line to slightly favorable with our expectations.

That's quite important, because as you know, the bid process for that is well established and well underway and the same successful HealthSpring team that has led that process for many years continues to lead that process and we feel good about jumping off a strong base in the first five months of the year to establish those bids as well.

So you're not seeing the same increase in cost trends in Medicare Advantage that you were seeing in the commercial side?

That's correct.

And again, let's separate the two.

In commercial, when we establish the outlook for the year, we indicated that we were expecting for and priced for a gradual increase in medical cost trend throughout the course of the year, and it's beginning to manifest itself in the second quarter.

Within MA, we didn't plan for or expect for that same increase and it's not manifesting itself.

In fact, we've been able to improve the medical care ratio outlook.

And so Justin ask yourself the question, why might that be?

Well, in part, as you know in Medicare, inpatient plays a very pronounced role in the overall cost category.

Inpatient is intact in commercial, it's intact in Medicare Advantage, but it's a larger part of the pie.

Secondly, in the very successful HealthSpring model, as indicated before, in excess of 60% of the block of business is in highly transparent physician partnership models, meaning tightly aligned incentives, very sophisticated clinical management programs that continue to deliver great value for the individual Medicare customers in partnership with physicians.

All of that's come together to deliver medical cost result in Medicare that's quite attractive right now and in line with our expectations.

Great.

Thanks for all the detail.

Ana Gupte of Sanford Bernstein.

So the first question is just to follow up on your commentary, David, earlier on Medicare.

I think Humana specifically has reported agents and the risk floor as being lower than the utilization and so the margin profile seems to be shifting more negatively.

And then I'm hearing from other sources as well that the 65 to 75 cohort is less profitable than the 75-plus because the risk floors have not been established.

Any comments on that?

And did you have your 81% to 82% Medicare MLR for this year, as you're looking in mix shift, star head winds, the Affordable Care Act headwinds, probably lower prior period, directionally how do you see that playing out year over year into '13?

Ana, good morning.

First, just kind of reestablishing the base for HealthSpring, number one, a consistent track record of delivery.

With their focused execution, what you've seen in HealthSpring over time is that good growth but now outpaced membership recovered life growth year after year.

And I think that underscores the discipline in terms of getting the benefit design in balance with the premium and the revenue stream, along with the physician partnership.

As I noted earlier, just shy of 6% covered life growth with an industry average of 7%, a little lower, because I'm not playing in the group MA space, but continued profitable growth.

We don't see a pronounced difference in the book of business.

I would note that without the physician partnership model, there would be some erosion or some challenge in terms of the medical costs.

However, there's a decade-plus of success with the physician partnership model and you're able to actually take some costs out of the equation to get the MLR to work.

As it relates to the MLR, we noted a 50 basis point improvement.

We're pleased with that.

If you take the current medical care ratio that the portfolio is running at and you adjust it for all of the moving parts, we expect to transpire as the dust settles with the Affordable Care Act.

On average, the portfolio is running about where it needs to be.

Of course, there'll be a little puts and takes by market and the HealthSpring team is taking that into consideration as they are positioning for 2013 and already thinking about the 2014 bid strategies.

So overall, very strong performing block of business, no meaningful noise in the block of business thus far.

Okay, thanks.

So it sounds like the future model would be more tightly controlled, primary care gate keeper in Medicare to try to achieve the kind of margin sustainability going forward?

Yes, Ana, just slightly different words and framing, but directionally correct.

And now when we say future model, you could assert that the HealthSpring model all along for the last decade plus has been that.

So they've been playing to a sub segment of the market and playing there very successfully.

And to your assertion, we believe your assertion is correct in the marketplace for that opportunity is going to expand.

The slight difference I would say is it's not 15 years ago gate keeper model.

It's more of a physician-directed model with care coordination, which looks and feels substantially different.

And those that have gone out and looked and felt and touched the model, it feels different.

With embedded care coordinators in the physician practice, with different information and data flows, higher engagement in prevention, wellness, lifestyle management programs, for those who value that approach, it is high quality, high value, high satisfaction.

And to your point, we think the marketplace demand for that is going to grow and HealthSpring is phenomenally positioned for that.

Thanks, David.

Just switching gears just while on the cap deployment, you talked about $800 million in cash at the end of the year at parent.

After HealthSpring, you did the supplemental deal on med sup.

I think you guys have also mentioned individual as a potential area of opportunity.

So as you're thinking about your other inorganic needs and then reflecting on Amerigroup and [Bell Point] and possibly your strategy on duals, can you comment on how you're thinking about this going forward?

Ana, you're very efficient about getting many questions in.

So just a few points, as Ralph noted, we're delighted to now second quarter this year increasing our outlook for capital available for deployment.

We increased it by $100 million in the first quarter.

We increased it by another $200 million this quarter.

And after, as Ralph noted, after paying for the pending acquisitions that we have out there, $800 million, or $350 million additional capital available for deployment.

Our broad targets and categories haven't changed, so our objectives for M&A have been to expand our global footprint on a targeted basis, secure our leading seniors capabilities and we haven't actually stated individually.

We've specifically stated retail capabilities, because we think the marketplace continues to evolve into a much more retail-oriented market.

And we're pleased to have secured the Great American capabilities that take us more toward the retail space in the US and be able to add that to our leading global health, life and accident portfolio.

So when we take all of that together, we feel quite good about what's been secured and now having much more capital flexibility for deployment in the second half of the year, we're pleased in terms of how we're positioned.

Lastly, as it relates to duals, we've been very consistent on duals.

That priority one, two and three for us was to secure a leading senior set of capabilities with a clinical program that is differentiated.

We're pleased to have done so with HealthSpring and we've been consistent by saying after we secure that we believe the dual and the high risk Medicaid market is an attractive opportunity for us in our targeted geographies, and we will pursue that marketplace.

Clearly, HealthSpring successfully serves some of that market today and we will pursue that market on a geography by geography basis, predominantly either through HealthSpring's organic capabilities, what they have in hand today, or partnership.

That's our preferred approach currently, but it's to build off of the success that the HealthSpring model has.

Thanks.

Really appreciate it.

Kevin Fischbeck with Merrill Lynch.

Just wanted to go back to some of the comments before about HealthSpring and how you're starting to leverage that.

I think last quarter you indicated the commercial opportunity was kind of a 2013 opportunity and group MA was 2014.

But I think in the prepared comments, it sounded more like you're trying to accelerate things a little bit.

Tell me about what you're doing in Tennessee and Houston and then comments about already launching sells efforts on the group MA.

Sure, Kevin.

It's David, good morning.

Your memory is correct.

As we laid out the acquisition case, we talked about the meaningful opportunity beginning to unfold in '13 and '14.

But our team was immediately at the ready and starting to get to work.

So what we flagged in the prepared remarks is early progress.

You should not read into the early progress to suggest that any of those items are going to move, to actually move our revenue or earnings contribution from the asset in 2012, but we're working at it and we're working at it aggressively.

So on the commercial side, to give you an example, what we've been able to do dating back actually to May of this year, we're able to stand up a commercial solution in Houston, a market place where HealthSpring is quite deep and we have a broad portfolio.

We're able to stand up a solution that uses HealthSpring's very successful and deep physician management model and deliver a revised solution for a large commercial employer who wanted access to that, as they saw it as an opportunity to get even further enhanced clinical quality and care coordination and as a result improve value and cost.

That's an example of success.

Similar approach in Tennessee, so two very deep markets for HealthSpring, two very strong markets for Cigna, where we've already seen good inbound demand from clients around those solutions.

Similarly, on group MA, this is a matter of reshaping solutions within the HealthSpring portfolio and proactively bringing them to market and creating awareness for our existing client base and per the prepared remarks, early interest is positive.

So we're pleased with that direction and we want to be moving on this so we're able to step into '13 and '14 with some momentum.

Okay, that makes sense.

And then I guess on the International side of things, obviously the global economic outlook is a bit shaky right now, are you seeing any kind of impact on that, obviously you reaffirmed your International guidance, but just wanted to see if you thought that that was having any kind of impact on any of your markets?

Kevin, it's David.

Broadly the answer is no to date.

A little more color on that.

Two large businesses there.

First, the business for the globally mobile corporate and IGO clients.

The globalization of the economy, that pace continues and the deployment of executives continues around the globe, and our positioning is quite well received in the marketplace.

Secondly, the individual health, life and accident business, key to success there is continued innovation and targeting specific solutions for specific buying segments.

So you could argue it's a little harder in the case of a little bit of economic head wind, but today, if you look at our results, some success remains in terms of good retention, good customer relationship expansion and good new business adds.

Okay, great.

Thanks.

Christine Arnold with Cowen.

As we think about 2013, you're pricing large groups now, are you expecting a continued creep in medical trend or do you look at the professional and outpatient utilization and say ultimately we're going to see inpatient and we expect a leap rather than a creep in medical trend?

How are you thinking about that going forward?

And then my follow up is could you talk about the ASO pipeline?

It looks like the 50 to 250 continues to accelerate in growth.

But you had a spectacular growth year this year, how do I think about that ASO pipeline?

Thanks.

And Christine, I think I'm going to take it in reverse order.

I'll speak to the ASO pipeline, I'll give a little color on pricing and ask Ralph to expand on that.

Specific to the ASO pipeline, and you're referencing the select segment, so employers between 50 and 250 lives, we're delighted with the performance of that portfolio, simply stated.

We've continued to build on the successful acquisition several years ago of Great West.

By securing that acquisition, we brought on some additional capabilities and we've targeted it in individual markets, driving those capabilities with further depth and the success continues.

Throughout the residual part of this year, we expect to see continued momentum in the ASO select segment, and there's no indication that that will abate as we step into 2013.

Key to that is continuing to make sure we're innovative and delivering the right solutions to the right employer clients and evolving some of the clinical models, but we're doing that very successfully currently.

Just macro, as it relates to the pricing environment, as I noted before, a small percentage of our risk business is out to bid for, or the bids are out for 2013.

As you very well know, the majority of our business is larger average case size, so again, the importance there is there's credibility to the individual cases medical experience.

That's quite helpful in an environment that we operate in like today.

So we're able to look at that benefit design, the changes in the benefit design, the underlying experience, and then make case level decisions as opposed to aggregate blended book of business decisions that you might have to do if your book was mostly under 50 or mostly under 100 life.

And final comment, as I hand it to Ralph, is our medical cost performance in 2012 is in line with our expectations.

So we're not seeing a spike that is broadly speaking outside of our expectations currently.

Ralph, just expand a little bit around our approach to pricing for '13.

Sure.

Thanks, David.

I think first, just to reinforce the point, we have the benefit with the mix of our business skewed to the larger size cases that we can take a look at those on a very case-specific basis.

So calling the macro trend is important and as we set up our strategy for pricing.

But most importantly is we've got good visibility to the clients and customers that we service.

So that helps us a lot.

As it relates to the trend itself, we would plan, I say still a lot more to learn and discern as it relates to what the trend might look like going into next year specifically.

Because if you think about it, we're really only starting now to see some change in the trend, which we did plan for, but we're only really starting to see some of that now.

So we're going to be looking at that very, very closely.

I would say, though, that our posture will be more, I'll call conservative, in the context of we want to be sure that we're pricing our business in line with medical care ratios that are essentially flattish to where we are, and so that will be our posture going in.

We want to make sure that our margins are thoroughly protected and frankly where we can deliver a lot of value for our customers is on the, on not only just the base services, but a lot of the other value-added things that we do in the specialty area as well.

Thank you.

Carl McDonald with CitiGroup.

In the commercial risk business, you guys have seen stable to up enrollment this year.

And it looks like the PMPM yields first half of a this year are basically equivalent with last year.

So just be interested in where you're seeing that stability to growth, whether it's coming from limited benefit or some of the more traditional risk products, given that a lot of the competitors are seeing some meaningful enrollment declines this year.

Carl, good morning, it's David.

First, contextually, as you know, the risk portfolio is less than 10% of the overall franchise in terms of covered lives.

There are puts and takes in the portfolio.

The one I would call out, we've been driving some targeted individual primary medical programs in the US now over the last 2.5 years, and we've been driving targets in a subset of our Go Deep geographies, with the objective of learning and being in position well in advance of the 2014 exchange environment.

And we've achieved our growth objectives over the last year and we're achieving our growth objective there.

So you actually see growth in the individual block of business offsetting somewhat of atrophy in the employer block of business that's being offset with the ASO sales.

That would be the trend I would give you for guaranteed costs.

All right.

And then the separate question on the Medicare business, I think it would just be interesting for people to hear some of the contrast for HealthSpring, particularly around new members, since the comment was made earlier, Humana has talked about new members being less profitable.

HealthSpring has historically said not only are new members more profitable, they're substantially more profitable, at least in certain periods of time.

And so as I said, I think it would just be interesting for people to hear some of the reasons why you think that is.

Carl, David, so I guess (inaudible) I'm not going to speak about what others are experiencing, I'll clearly speak about what HealthSpring experience is.

First and foremost, as I noted earlier, the HealthSpring team has had a long track record of being very disciplined in terms of how it establishes the benefit design in their targeted markets, so we call it Go Deep, they'll call it targeted markets.

So very disciplined.

And if you track them over time, good growth, but not ebb and flow outpaced growth.

So that's data point one.

I think when you cut to the core of your conclusion, which we agree with in terms of the HealthSpring model actually being highly attractive to new members, largely the reason is is their physician partnership and clinical model engages an individual at a level that the industry broadly speaking doesn't do.

And now you hear the buzz around accountable care organizations, et cetera.

Well, they've been at it for over a decade.

And what transpires is as a senior comes into the HealthSpring model, quite a comprehensive health assessment transpires and significant clinical coordination ensues with the individual or patient and their physician.

And what HealthSpring does, HealthSpring enables that.

They enable it with information.

They enable that with financial incentives.

And very importantly, they enable it with care coordination resources.

So embedded nurses, embedded case managers, embedded health coaches.

For some physician practices, actually taking real estate right next to the physician practice and having a healthy living center, where the annual physicals are conducted and the health coaching sessions and the lifestyle coaching sessions take place.

So Carl, when you take that picture together, you get out of the box with a well-positioned product design.

And then as you get your new customers on board, you're actively engaging them very important with their physicians and care coordinators, aligning the information, the financial incentives and the clinical programs.

That's why the HealthSpring model has been able to deliver significant value for new customers.

Part of that it shoots back to the individual in terms of health, quality of life benefit coverage.

Part of it goes back to the physician in terms of the financial incentives, only when the health status improves.

And part of it has come back to HealthSpring or the shareholder.

And that model is successful and we're seeking to grow it as fast as possible.

Great, thanks.

David Windley with Jefferies.

I want to come back to the reserves study.

I had in my notes that you had actually pushed your expectation for this to 3Q.

And so I wanted to see if that hitting in 2Q had the effect of rebalancing your earnings expectation or your earnings distribution for the year?

And just particularly kind of digging for, was it not upside-- was it included to some degree in your guidance and included in the second half and that's kind of why the guidance is not going up any more than it is?

David, it's Ralph.

Just regarding the timing, we didn't really move anything.

I think the reserve study on disability we perform in Q2 and that's been what we've done in the past.

And we do a more in-depth life study in Q3.

Okay.

And we'd expect to have that.

So that's how we entered the year with our expectations of the work and we remain on track to complete the life study in Q3.

David, as it relates to add-on, as Ralph noted earlier, second part of your question was around the, I'll call it forward-looking earnings expectations.

While there isn't an expressed number that we have relative to, for example, the disability reserve study in the second quarter, as Ralph noted previously to a question, with the consistent execution of the reserving process and our disability clinical model, what we've seen over the last couple of years is positive reserve development.

You noted there's a $2 billion reserve base.

And we take into consideration the prior experience and we have a range built into our expectations.

And what Ralph noted is what was posted in the second quarter was in line with our expectations of what we thought would transpire in the second quarter, hence no change in our forward-looking outlook.

Okay, thank you.

So then the other question that I had is around your technology investments that you called out a little more specifically in 1Q, did those continue in 2Q?

Are your-- are the benefits of those still unchanged or still the same in terms of the amount?

And do you also expect that amount to be realized, or the amount that you expected to be realized in the second half of '12 to be the same?

David, maybe specific, I'll talk a little bit more specifically on the technology investments, but kind of step back to our overall operating expense ratio.

We continue to be on track with the guidance that we had provided there on OpEx expenses for the year.

And as we noted that on the technology side in particular, we were making some investments in the first half of the year.

And in fact, I even noted in my remarks, we even took a charge related to a vendor contract in the quarter that was also related to some investments we're making in technology that will have benefits in the back half of the year.

And we are on track in the back half of the year there.

So if you think about where we are then first half/second half, you'd expect to see the operating expense improvements from some of these efficiencies from the first half.

And then also, we will make some investments in the back half of the year, particularly as it relates to getting ready for 2013 readiness.

But overall, we are on track on our op expense ratio and the technology investments that we set out are also performing as we-- or on track to perform as we expect.

Okay, great.

Thank you.

Melissa McGinnis with Morgan Stanley.

And sorry if I missed this, I had to jump off and on the call a couple times this morning.

On the $350 million I think you said that you now expected to have in deployable cash.

And we've seen the Company be quite acquisitive with some little acquisitions still very much aligned with your focus on senior in International.

Do you still see other capability gaps or places where you want to bolster the senior platform or regions of the world where you want to bolster your International platform?

Are we getting back to a place where you might see more robust re-entry into the share repurchase market?

Melissa, good morning, it's David.

First, what we underscored is we're pleased that we're actually able to increase our outlook in the first quarter for another $100 million of capital available for deployment and then take it up another $200 million above that this quarter.

So that's a very positive message.

Broadly speaking, your recollection is correct.

Our inorganic priorities have been to expand our global footprint, secure leading seniors capabilities here in the US and then expand our retail capabilities.

And those broad objectives remain, we'll be opportunistic with in-kind scale, tuck-in acquisitions or leverage acquisitions.

Broadly speaking, we feel great about having been successful over the last two years, securing what we wanted to augment the strategy and we're well positioned.

Now we have an opportunity to be opportunistic to the extent opportunities present themselves to either do further bolt-on or tuck-ins to our leading seniors capabilities, some further geographic expansion outside the US.

But our geographic priorities remain intact there, so we feel quite good about what's in hand, in front of us from an M&A standpoint.

Great, thanks.

And then can you also just update us, maybe some of your most recent thoughts as you started to get farther along in integration process with HealthSpring, how you're thinking about the pharmacy opportunity you might have with your PBM now that you're controlling more drug spend?

Sure.

First, broadly speaking, we noted that the HealthSpring, I'll call it integration, although it's a very light integration, is progressing quite well and we feel quite good about it.

Specific to pharmacy, the pharmacy opportunity was a meaningful opportunity as we were able to secure the HealthSpring acquisition.

First, to put the PBM in context, we've been quite consistent that our PBM is an important part of our clinical and service strategy.

Secondly, a couple years ago when there was a lot of activity in the space, we did a very comprehensive look at our PBM and we concluded our PBM was well run, highly profitable and we had expectations that it would continue to grow.

And the good news is we actually have grown it organically.

Now to your point, with having secured the HealthSpring acquisition, the scale of that asset is poised to grow, if we so choose meaningfully and therefore that can create a lot of shareholder value.

As such, we're stepping back, making sure we understand all the alternatives that are in front of us.

But the exciting part of that is any alternative is a meaningful step in shareholder value, as well as continuing the good value we're delivering to our customers.

So we're excited about the opportunities that are in front of us.

Great.

Thanks for all the great detail.

Scott Fidel with Deutsche Bank.

Was wondering if you could give us an update on Texas Medicaid and what HealthSpring has been seeing down there in STAR+PLUS and particularly in Hidalgo given some of the issues raised by some of the other Medicaid peers?

Good morning.

We have a very small position in Texas and specifically in the county that you reference.

Order of magnitude, think about less than 1% of the corporation's revenue and a de minimis part of the overall covered lives.

Having said that, within that context, we're seeing some of the same pressure that the marketplace has seen.

That's fully contemplated in our earnings outlook and guidance, et cetera.

There's a lot of interaction that's taking place with obviously the physicians, but also the state, as the state understands the performance.

And there's good directional progress with the states to rectify some of the, some of the issues as we go into the second half of this year.

And any sense on a rate increase there, David, both Molina and Centene had disclosed that the state had indicated they would be receiving rate increases, so interested if HealthSpring will be receiving one as well?

Yes, so we expect to and it's an attractive one in the context of the underlying medical costs to rectify the situation, toward the latter part of the year, think about the end of the third quarter, beginning of the fourth quarter.

So good continuity in terms of how the state is dealing with the various venders down there and the-- everybody's aligned in terms of trying to get this program back, back lined up.

Just important to underscore for you, Scott, it is a very small portion of the overall portfolio for us, number one.

And secondly, the economics around that are fully contemplated currently in our guidance.

Okay, and then just a quick follow up, just going back to the launch of the group MA product in some of the HealthSpring markets.

So are those the two markets where you've launched so far, Tennessee and Houston, or are there additional markets as well?

And then is there a way to size how many commercial retiree members you have in those markets right now in terms of thinking about the upsell opportunity you might have in terms of moving commercial ASO members into a group risk MA product?

Scott, first, Tennessee and Houston were markets we called out actually for the commercial solution.

So standing up a new commercial solution that takes advantage of the very successful HealthSpring physician model.

Those markets, plus a few others, come into play as it relates to MA.

I think it's early for that conversation for us.

We don't, we don't see it as a silver bullet by any stretch of the imagination.

Rather, we see it as another tool we're able to bring in for our team to offer our clients as they are working through how do they deal with the significant challenges of their long-term retiree medical costs.

And in those targeted markets where the HealthSpring portfolio delivers great value, we think we'll see good success going forward.

Early interest is high, but until there's meaningful runs on the board, we're not going to get overly excited, which is why when we did the business case and framed it for you, we said think about this in the some contribution in '13 but really a '14 opportunity.

And we expect to actually see some traction beginning to unfold on the commercial side in '13 a little earlier than that.

Okay.

Thank you.

Chris Rigg with Susquehanna.

Have you guys sized how much revenue you're buying for the fell [$100] million and can you give us a sense for possibly shorter term profitability there, or at least directionally, whether those transactions will be accretive next year?

And then just give us the better sense for how you sort of look at the longer term returns on these investments.

Chris, I'll start with it, first and foremost, two different relationships.

So one, you have about $100 million on the joint venture in Turkey with Finansbank.

We have been very successful in our health, life and accident business outside the US heretofore, driving significant attractive growth with high margins, high returns supported by strong retention.

We're quite excited about that opportunity.

We launched our business in Turkey organically in 2011, so we have the organization on the ground.

We have early traction relative to sales, and this is really going to supercharge that and accelerate our growth curve meaningfully.

Organically, it typically takes four to five years to break even in a marketplace.

This will dramatically reduce that time and put us on a pretty attractive trajectory starting next year.

So we feel good about that investment.

The US investment in terms of the supplemental business, that is an expansion on strategy of our retail capabilities, our direct-to-individual retail capabilities.

And it really is going to build on our successful global direct-to-individual health, life and accident portfolio where we have been successful.

Broadly speaking, both of these opportunities are profitable as we approach them day one.

They will be accretive as we go forward.

Clearly, the assumptions around what your base case is, we compare it to other alternative deployments of capital in terms of share-- including share repurchase and the like.

But these are on strategy and financially attractive opportunities for us.

Okay.

I'll leave it at that.

Thanks.

I will now turn the call back over to Mr. David Cordani for closing remarks.

Thank you all.

In closing, I just want to highlight and reinforce a few key points from our discussion today.

Our second quarter and year-to-date performance reflects strong revenue and earnings contributions from each of our ongoing businesses, reinforcing how our key differentiators resonate in our targeted markets.

We accelerated our investments in high growth customer segments and emerging markets with our announcement to acquire Great American Supplemental Benefits and a new joint venture in Turkey, helping us plant additional seeds for future growth.

Our HealthSpring acquisition is performing well and we are on track.

And the momentum we have created through the first half of 2012 provides us confidence to achieve our increased full-year outlook for earnings and capital available for deployment.

We thank you for joining us on our call and your interest in Cigna and we look forward to continuing our discussion in the future.

Ladies and gentlemen, this concludes Cigna's second-quarter 2012 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 1-800-839-2236 or 1-402-998-1055.

Thank you for participating.

We will now disconnect.