September 10, 2014

Research

Healthcare Environment

Fun Facts:

• Founded in 1850 (as an annuity company)

• Incorporated in 1982• Aetna – name inspired by the volcano found on Mount Etna in Italy

• Thomas Enders was the first full time employee and became the first President in

1867• Aetna serves 44 million people – customers include:

• employer groups• Individuals• college students• part-time and hourly workers• health plans• healthcare providers• governmental units• government-sponsored plans• labor groups and expatriates

AETNA INC.

People:

• Mark Bertolini – joined Aetna in 2003– 2007 became President– 2010 named CEO– 2011 named Chairperson– Bertolini has a MBA in finance from Cornell and an undergraduate degree in

business from Wayne State University

• Aetna has approximately 48,400 employees

• Aetna’s Care network is composed of 1 million doctors and 5,400 hospitals

Geographic Footprint:

• Aetna has approximately 400,000 international customers in 100 countries

• Aetna offers Medicare in 30 states

AETNA INC.

PRODUCTS, SERVICES AND DISTRIBUTION CHANNELS

PRODUCTS AND SERVICES

• Three primary business units: Health Care (90% of the business), Group, Large Case Pensions

• Core Healthcare products: Medical, Dental, Vision, Pharmacy, Disability, and Life, Medicare, and Medicaid, Health and Wellness global

• 2/3 of Aetna’s plans are provided on an ASC basis (Administrative Services Contract)

• Aetna’s division for accountable care solutions was launched in 2013 and operated under the Healthagen brand

• CareEngine system provides evidence based medical management and data analytics products and services

• Caremark is Aetna’s Pharmacy administrator

DISTRIBUTION CHANNELS

• Corporate groups through direct sales representatives and independent brokers

• Small midsized and large multisite, national employer groups

• Medicare and Medicaid plan offerings account for 20% of revenues

CORE STRATEGIES

Customers

ClientsEmployees

BrokersAgentsProviders

Shareholders

VALUE PROPOSITION

TODAY’S STOCK PRICE

CI P/E Ratio: 19x

AETP/E Ratio: 14x

FINANCIAL PERFORMANCE ANALYSIS

Metric AET CI2013 2013

Cash 1,412 2795CashFlow 2278 719Total Revenue 47,295 32,380 Operating Profit 3,188 2176Operating Profit Margin 7% 7%Net Profit 1,914 1476Net Profit Margin 4% 5%EPS 6 5.18

Total Share Holders Equity 14,026 105.67Return on Equity 14% 14.00%Revenue Growth 29% 11.20%EPS Growth 7% -7.70%Net Income Growth 15% -9.10%

Cash

Profi

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sets

Grow

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Aetna vs. CignaStrengths: Cash Flow, Revenue, EPS and Net Income

Weaknesses: Cash, net profit margin

On par: Operating Profit Margin, Return on Equity

Product line/Business How Aetna is similar to Cigna How Aetna is different than Cigna

Medicare/Medicaid • Expanding in market by acquisitions

• Under similar regulatory pressures

• Aetna has a larger exposure to market as % of overall business and in absolute Covered Lives

Commercial business • Largest part of overall business

• Less focus on ASO, more fully insurred

Individual business • Sees as potential growth driver in future

• Focus is on growing exchanges, public and private

• In 8 state public exchanges vs. 10 for Cigna, have overlap in FL, AZ, TX

International • Does not discuss as a growth segment

Group • Does not discuss as a growth segment

• Smaller % of overall revenues

RELATIONSHIP AND IMPACT TO CIGNA

INFLUENCE ON CIGNA’S FINANCIAL PERFORMANCE

• Impacts our ability to grow in overlapping markets• Causes price pressures due to higher competition • Cigna’s differentiated business model is an area of advantage

SUMMARY

• Offers Medical Insurance in the USA market• High focus on Medicare/Medicaid (35% revenues)• Large % of book of business is fully insured• 22M members (2x size of Cigna)

• Vision for future of healthcare• Aligned economic incentives between payers and providers• A simpler, more transparent consumer experience• Technology that creates the health care community

KEY TAKEAWAYS

• Aetna’s solution to HCP partnership has been to purchase an IT Vendor for ACO and Private Exchanges and have been rebranded and selling that to Providers directly. This is a different strategy from Cigna which has been to focus on partnerships with the HCPs, providing consultation and data for free.

• Strategy and Value Proposition is very similar to Cigna and difficult for an outsider to differentiate.

• Big chunk of what Aetna is doing is focused on government regulated business. • Aetna is selling healthcare. Cigna is a global health and wellness partner.

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