March 20, 2007 Ronald A. Williams Chairman, CEO and President
2 Cautionary Statement CAUTIONARY STATEMENT -- Certain information in this presentation is forward looking information. Forward-looking information is based on management's estimates, assumptions and projections, and is subject to significant uncertainties and other factors, many of which are beyond Aetna's control. Important risk factors could cause actual future results and other future events to differ materially from those currently estimated by management, including failure to achieve desired membership growth due to significant competition, reputational issues or other factors in key geographic markets where membership is concentrated; unanticipated increases in medical costs (including increased medical utilization, increased pharmacy costs, increases resulting from unfavorable changes in contracting or re-contracting with providers, changes in membership mix to lower-premium or highercost products or membership-adverse selection; as well as changes in medical cost estimates due to the necessary extensive judgment that is used in the medical cost estimation process, the considerable variability inherent in such estimates, and the sensitivity of such estimates to changes in medical claims payment patterns and changes in medical cost trends); and the ability to reduce administrative expenses while maintaining targeted levels of service and operating performance. Other important risk factors include, but are not limited to: the ability to improve relations with providers while taking actions to reduce medical costs; the ability to successfully implement multiple strategic and operational initiatives simultaneously; lower levels of investment income from continued low interest rates; adverse government regulation (including legislative proposals eliminating or reducing ERISA pre-emption of state laws that would increase potential litigation exposure, and other proposals, such as patients' rights legislation, that would increase potential litigation exposure or mandate coverage of certain health benefits); adverse pricing actions by government payors; changes in size, product mix or medical cost experience of membership in key markets; our ability to integrate, simplify, and enhance our existing information technology systems and platforms to keep pace with changing customer and regulatory needs; the outcome of various litigation and regulatory matters, including litigation and ongoing reviews of business practices by various regulatory authorities (including the current industry wide investigation into insurance brokerage practices concerning broker compensation arrangements, bid quoting practices and potential antitrust violations being conducted by the New York Attorney General, the Connecticut Attorney General and others, and for which the Company has received and may receive subpoenas); and increases in medical costs or Group Insurance claims resulting from any acts of terrorism, epidemics or other extreme events. For more discussion of important risk factors that may materially affect Aetna, please see the risk factors contained in Aetna's 2006 Annual Report on Form 10-K, on file with the Securities and Exchange Commission. You also should read Aetna's 2006 Annual Report on Form 10-K for a discussion of Aetna's historical results of operations and financial condition.
3 Presentation Agenda Aetna Profile External Forces Shaping the Health Care Marketplace Leadership Strategy Operating Excellence The Aetna Advantage
Aetna s Financial Profile FY2006 Actual Total Revenue 1 $25.1 billion Operating Earnings 1,2 $1,636 million Pre-Tax Operating Margin 1,2 10.9% Operating Cash Flow 3 132% of net income Total Debt/Total Capital (12/31/2006) Market Capitalization (3/14/2007) ~22% $22 billion 1 Excludes net realized capital gains and losses 2 Excludes other items and favorable development 3 Before $159 million after-tax voluntary pension plan contribution 4
5 Consistent and Profitable Membership Growth Medical Members (in millions) 16 14 12 10 13.0 13.7 6% CAGR 14.8 15.4 8 2003 2004 2005 2006
Medical Membership Profile By offering a broad spectrum of products, plan designs and price points, Aetna meets the unique needs of a diverse customer base 16 15.4 Members in Millions 1 12 8 4 0 Total Medical 10.6 National Businesses Regional Businesses ASC Fully Insured 35.9 million unique people with at least one Aetna product 4.8 1 As of 12/31/06 6
Diversified Specialty Products Driving growth with integrated value-added specialty products 16 Members in Millions 12 8 4 0 Dental Pharmacy Group Insurance Behavioral Health ActiveHealth 1 Services 1 Acquired May, 2005 YE2004 YE2005 YE2006 7
8 Presentation Agenda Aetna Profile External Forces Shaping the Health Care Marketplace Leadership Strategy Operating Excellence The Aetna Advantage
Key External Forces Shaping the Marketplace Medical Cost Increases Consumer Engagement Distribution Brokers Political Environment Globalization Consumers Providers Under/ Uninsured Employer Trends Plan Sponsors Public Sector Expansion Health Information Technology 9 Industry Consolidation
Market Opportunities In millions of members DoD / VA ~11 Uninsured ~47 Medicaid ~38* Medicare ~40* Public Sector ~19 National Accounts Corporate ~49 Individual ~19 Small Group ~44 Middle Markets ~52 Total U.S. Health Care Market is ~ 300 million members * Includes dual eligibles Source: Inductis Analysis of D&B Data, Census CPS Survey, Annual Social and Economic Supplement, 2006: EBRI Issue Brief #298, 10/06, Aetna Analyses 10
HIGH Differentiation: Taking it to the Next Level Segmentation Consumerism Integration Operating Excellence Transparency Transparency Investment / Sophistication ~73% HSA/HRA Capabilities Member Web Portal Disease/Case Management High Performance Networks Wellness & Health Advocacy HSA/HRA Capabilities Member Web Portal Disease/Case Management High Performance Networks Wellness & Health Advocacy HSA/HRA Capabilities Member Web Portal Disease/Case Management Transaction Based Transaction Based Transaction Based Transaction Based LOW B2B Marketing Networks/ Discounts Fundamentals B2B Marketing Networks/ Discounts 11 B2B Marketing Networks/ Discounts B2B Marketing Networks/ Discounts Differentiation
12 Presentation Agenda Aetna Profile External Forces Shaping the Health Care Marketplace Leadership Strategy Operating Excellence The Aetna Advantage
13 Leadership Strategy Information Information Information Information
Expanding Market Opportunities 15.4 million Medical Members AK West 14% HI WA OR NV CA ID UT North Central 19% MT ND MN SD WY IA NE CO MO KS WI IL MI OH IN KY NY WV PA VT NH VA ME MA RI CT NNJ SNJ DE MD DC Northeast 17% Mid- Atlantic 17% AZ NM TX OK AR LA MS TN AL GA SC NC FL Southeast 17% Market Growth Market Opportunity Market Maintain Southwest 15% 14
Multiple Segments Expected to Contribute to our Growth in 2007 Market Segment Self-Insured Fully-Insured Corporate Government Labor Federal Fee-based Services 15 Middle Markets Student Health Small Group Individual Pre/Post 65 Retirees 65+ Medicare
16 Executing on our Leadership Blueprint Quality Creating Value Health Literacy Transparency Evidence-based Engaging Consumers, in Concert with Providers, to Achieve their Optimal Health Affordable Products Influencing Public Policy
17 Integrating our Product Portfolio Pharmacy & Medical Integration Medical, Pharmacy & Disease Management Integration Medical Health & Disability Integration 33 days earlier identification 34% fewer Disability durations Dental Pharmacy hospital admissions are shortened by 5.6 days Care Management Medical Behavioral Dental Care Management Disability Pharmacy Behavioral Disability
EMD HRA The CareEngine Powers the PHR and Aetna Health Connections CareEngine Powered PHR Member Self Reported Data CareEngine Claims Data Mx, Rx, Lx Plan Design Demo/Psych o-graphic Data Eligibility Data Aetna Health Connections External Data Bases Dentist MD Hospital * The study population was 39,462 members of QualChoice, a Mid-western managed care plan 18 Study* revealed: Paid claims were $8.07 PMPM lower across entire population
19 Presentation Agenda Aetna Profile External Forces Shaping the Health Care Marketplace Leadership Strategy Operating Excellence The Aetna Advantage
20 Delivering Business Value INNOVATION INFORMATION INTEGRATION Achieve Competitive Advantage through IT Innovation Deliver Operational Effectiveness and Efficiency Improve Foundational Capabilities Operating Excellence Enable Turnaround Agile Enterprise Architecture
21 Programs Driving Operational Excellence Auto adjudication initiative Enterprise architecture Synchronized customer service application Aetna Voice Advantage Aetna Quoting Center ecommerce / Self-service Medical management strategic platform Provider network contracting enhancements
22 Systematic Approach to Continuous Improvement 24% Operating Efficiency Improvement 22.9% Productivity and operational efficiency SG&A Expense Ratio* 22% 20% 18% 16% 20.8% 19.8% 18.8% 510 basis point reduction ~17.8% Volume reductions Real estate management Unit cost reductions 14% 2003** 2004 ** *** 2005** 2006 *** 2007 Guidance * Total Revenue excludes net realized capital gains and losses; operating expenses include depreciation and exclude amortization expenses ** Prior periods have been restated for FAS 123R *** FY2004 Operating Expense excludes funding of the Aetna Foundation, Inc. FY2006 Operating Expense excludes an acquisition related software charge recorded in 1Q2006 and a write-off of the reinsurance receivable related to the prior year physicians class action litigation settlement and a debt refinancing charge recorded in 2Q2006. Overhead reductions
Full Year Operating Results 1 Reported Operating EPS FY2005 Actual FY2006 Actual Change $2.23 $2.87 +28.7% Medical Membership 15.433M 14.755M +4.6% Total Revenue $22.5B $25.1B +11.8% Commercial Risk MCR 78.4% 79.4% +100 bps SG&A % of Revenue 19.8% 18.8% -100 bps Operating Earnings Pre-Tax Operating Margin $1,349.8M $1,635.9M 10.2% 10.9% +21.2% +70 bps 1 Financial metrics exclude net realized capital gains and losses, other items and favorable development. Prior periods have been restated for FAS 123R. 23
24 Disciplined Capital Management $3.0 $2.5 ~ $1.1B ~ $160M $2.0 $1.5 $1.0 $0.5 $0.0 ~ $275M $1.7B $2.3B ~ $88M $1.5B $445M 2003 2004 2005 2006 Share buy-back Acquisitions Strategic acquisitions designed to enhance our operational and product capabilities, reduce medical costs and improve quality, and to expand our market breadth remain a key part of our overall strategy for profitable growth going forward. We will continue to utilize share buy-back as an important way to deploy some of our substantial available capital.
25 Presentation Agenda Aetna Profile External Forces Shaping the Health Care Marketplace Leadership Strategy Operating Excellence The Aetna Advantage
26 The Aetna Advantage Strong brand recognition and reputation Disciplined pricing and underwriting Industry leading medical quality and cost management Constituent preference driven by: Segmentation Consumerism Integration Operating Excellence High Performance Culture: The Aetna Way
Key Financial Metrics Summary 2007 Outlook Operating EPS Medical Membership Health Care Revenue Commercial Risk MCR $3.30 $0.77 in 1Q07 +575k 600k +175k 200k in 1Q07 Double digit growth ~ 80% Medical Benefit Ratio ~ 81% Total Operating Expense Ratio Cash Flow from Operations Medical Cost Trend Premium Yield Pre-Tax Operating Margin ~ 100 bp improvement 120% - 130% of Net Income 7.5% +/- 50 bp In line with medical cost trend Stable to slightly higher than 06 Financial metrics exclude other items and net realized capital gains and losses. 27
28 Long-Term Sustainable Growth Model Achieve top line revenue growth Pricing actions in-line with medical cost trend Segment / Sub-Segment Modest membership growth across funding and product portfolio Expand pre-tax operating margin Maintain stability of medical benefit ratio Improve operating expense efficiency Deploy capital for optimal returns Continue to diversify and expand the portfolio of opportunities for profitable growth
29 Investment Summary Focused strategy designed to deliver sustained long-term profitable growth Expanding opportunities for incremental growth New geographic and customer market expansions Expanding value-added products and services Extensive and integrated operational capabilities Solid financial performance Disciplined and effective capital management
30 Innovation Information Integration Strategic Performance Operational Performance Financial Performance
31 Additional Information Reconciliation information for operating earnings and certain other measures that may be disclosed to relevant GAAP measures is contained in the Aetna First and Fourth Quarter 2006 Financial Supplements and the Aetna 2007 Guidance Summary dated February 8, 2007. That information, as well as this presentation, is available via the Aetna Investor Information Web site at: http://www.aetna.com/investor In order to provide a comparison that the Company believes provides useful information regarding its underlying performance, all operating earnings exclude the following from income from continuing operations: other items and net realized capital gains (losses). Management uses operating earnings to assess performance and make operating decisions.