Aetna HealthFund Study Finds Consumer-Directed Plans Offer Employers, Consumers Cost Savings - Manufacturing Close-Up

Employers that replaced their traditional health benefits planswith Aetna HealthFund consumer-directed plans saved $21.5 millionover a five-year period for every 10,000 members, based on a recentstudy of Aetna health care claims and utilization.

The study showed that members of consumer-directed plans accessedmore preventive care and screenings than people with traditionalPreferred Provider Organization (PPO) plans. In addition, AetnaHealthFund reported that plan members were more engaged health careconsumers and continued to get the care they need.

The study, which is the longest-running review of consumer-directed health plans in the industry, included more than 2 millionAetna members. The Company noted that the study compared people withPPOs and those with Aetna HealthFund plans, which consist of HealthSavings Accounts (HSA) and Health Reimbursement Arrangements (HRA).When compared to PPO members, HSA members used online tools to lookup cost information nearly three times as often and took a healthassessment twice as often.

'Aetna has been on the forefront of the consumer-directed healthplan movement since the beginning,' said Aetna CEO and PresidentMark Bertolini. 'The rising cost of health care has been a concernfor companies for many years now. We have shown that by workingtogether to engage consumers in their own care and by giving themeasy-to-understand tools and actionable information, we can helpcompanies keep their employees healthy and save money.'

While companies that switched completely to Aetna HealthFundplans reaped the highest cost savings, those that offered AetnaHealthFund HRA and HSA plans as one option experienced savings of $9million over five years for every 10,000 members enrolled in allhealth plan options. Among other findings, Aetna HealthFund saidthat members in the Company's plans:

-Spent 12 percent more on preventive care and accessed higherlevels of screenings for breast and cervical cancer compared tomembers in PPO plans. In particular, diabetics in the AetnaHealthFund plans accessed screenings at higher rates than diabeticmembers in PPO plans;

-Visited the emergency room for non-urgent care five percent lessthan members in a PPO plan; and

-Used the prescription drugs to treat chronic conditions, such asdiabetes, heart failure, high blood pressure and high cholesterol,at rates similar to PPO members.

The results also showed that HSAs continue to demonstrate moredramatic savings than HRAs. HSA members had 15 percent lower primarycare physician utilization for non-routine visits, which may includea cold or sore throat, the Company reported that 11 percent lowerspecialist utilization and 9 percent lower overall medical costs in2009.

The study looked at nearly 2.3 million members, which consistedof 1.8 million members whose employer offered an Aetna HealthFundproduct but who chose another product, and 498,000 Aetna HealthFundmembers. The study period extended from Jan. 1, 2002 to Dec. 31,2009.

In addition, this year the study analyzed the impact of plandesign on cost savings. Aetna HealthFund noted that employers thatoffered plans that required increased member responsibilityexhibited the best 2009 total cost trends. Specifically, those whooffered Aetna HealthFund plans with deductibles of at least $1,500for individuals experienced approximately 4 percent lower total costtrend than plans with deductibles that were less than $1,000.

The Aetna HealthFund reported that its study also providesemployers with examples of how to maximize the potential of theirAetna HealthFund plan, including:

-Designing a plan that includes appropriate levels of memberresponsibility;

-Encouraging employees to enroll in the consumer-directed planoption by lowering the employees' contribution levels or increasingthe amount of funds in the account;

-Communicating and educating members on how to use the plans; and

-Offering wellness programs and incentives for healthy behaviors.

Aetna is a diversified health care benefits company.

More Information:

www.aetna.com

www.aetnatools.com

Aetna Foundation Awards $100K in Grants to Colorado Nonprofits in 2010. - Health & Beauty Close-Up

Aetna and the Aetna Foundation together awarded nearly $100,000 in community grants and sponsorships in Colorado during 2010.

In a release, the Company said that the grants were made to organizations addressing a variety of health issues, including obesity in children and adults, racial and ethnic equity in health care, and needed improvements in the integration and coordination of health care services. In addition, grants were made in support of human services programs.

The five Colorado recipients were:

-The Rocky Mountain Youth Medical and Nursing Consultants, Inc.;

-University of Colorado Foundation;

-Aspen Brain Forum Foundation;

-The Women's Foundation of Colorado; and

-The Mile High United Way, Inc.

'Aetna is pleased and proud to support nonprofit organizations here in Colorado that are working to make a difference on key health and wellness challenges we face in our communities,' said Kay Thompson, Aetna's local market president for Colorado.

The Rocky Mountain Youth Medical and Nursing Consultants received a $30,000 grant to support its Weight Management Clinic for young people. The clinic provides case management for patients age 2 - 21 who struggle with obesity and are at risk of obesity-related diseases.

A $20,000 grant was awarded to the University of Colorado Foundation to support its Chart the Course campaign that educates young girls and women about the importance of good nutrition, increased physical activity and other healthy behaviors to decrease the prevalence of obesity, heart disease and diabetes.

A $25,000 sponsorship was awarded to the Aspen Brain Forum Foundation to support its conference for many of the world's preeminent scientists who are developing cutting-edge innovations in brain science.

The Women's Foundation of Colorado received a $15,000 sponsorship for the Annual Denver Luncheon, the Foundation's principal fund-raising event that supports the organization's programs to help women and girls be economically self-sufficient.

A $2,500 sponsorship was given to the Mile High United Way's Women's Leadership Luncheon, which raises money and awareness for the organization's Adult Self-Sufficiency Initiative to help individuals and families in the state become financially stable.

Nationwide during 2010, Aetna and the Aetna Foundation gave $15.6 million in grants and sponsorships. In addition, the Aetna employees, retirees and directors donated an additional $6.9 million through the company's matching gift program, bringing combined giving in communities where Aetna employees and customers live and work to $22.5 million. And, Aetna's employees donated more than dollars, generously giving nearly 335,000 hours of their personal time and talents in communities nationwide. Since 2003, Aetna employees have logged more than 2.3 million volunteer hours.

'During 2010, Aetna and the Aetna Foundation were pleased to provide grants and sponsorships to 661 nonprofit organizations nationwide, and to match the generosity of our employees to another 9,492 organizations within our communities,' said Anne C. Beal, M.D., M.P.H., Aetna Foundation president. 'We also made significant progress toward our goals of concentrating our grants on specific health issues of national concern, giving nearly $2.35 million to the fight against obesity, $1.24 million to improve racial and ethnic equity in health and health care, and more than $1 million to support better integrated health care in America.'

The Aetna Foundation is a national health foundation and the independent charitable and philanthropic arm of Aetna.

Aetna is a diversified health care benefits company.

More Information:

www.AetnaFoundation.org

www.aetna.com

Aetna, Aetna Foundation Update on 2011 Donations - Manufacturing Close-Up

Aetna Inc. and its philanthropic arm, the Aetna Foundation,awarded $19.2 million in 2011 to nonprofit organizations working toimprove people's health, particularly those from underservedpopulations, and to increase their access to health care.

According to a release, much of the funding was directed atreversing the obesity epidemic in adults and children, promotingracial and ethnic health equity and advancing integrated health careand care coordination. In addition, grants were made to programsaddressing veterans' needs, diversity and inclusion and communitydevelopment.

Aetna said its employees, retirees and directors donated anadditional $5.5 million in 2011 through the company's matching giftprogram, bringing combined giving in communities where Aetnaemployees and customers live and work to $24.7 million.Additionally, Aetna's employees generously volunteered nearly340,000 hours of their personal time and talents in 2011.

'Providing people with tools to live healthier lives drives ourbusiness and our philanthropy,' said Mark Bertolini, chairman, CEO,and president of Aetna Inc. and chairman of the Aetna Foundation.'Our 2011 charitable giving focused on helping people take charge oftheir health. We supported nutrition education, better access tohigh-quality health care and efforts to make our health care systemmore equitable and effective.'

The company noted that programs receiving grants include thosethat make fresh fruits and vegetables available in food deserts,offer prenatal care to women at high risk of premature birth, andinvestigate ways to enhance primary care that puts the patient'sneeds first.

In 2011, Aetna and the Aetna Foundation directed $4.8 million inthe fight against obesity, $3.2 million to eliminate racial andethnic disparities in health and health care, and $2.5 million topromote integrated health care and care coordination in primary caresettings.

Complementing the grant making by Aetna and the Aetna Foundationwas the commitment by thousands of Aetna employees to encouragehealthy lifestyles by donating their time to company-sponsoredvolunteer efforts or individual initiatives.

'Whether it's developing community gardens, teaching kids oralhealth, or participating in fund-raising walks and bike-a-thons,Aetna employees often focus on healthy living as their way to giveback in their communities,' said Floyd Green, head of Aetna'sCommunity Relations and Urban Marketing. 'Last year alone, ouremployees helped thousands of kids be physically active through ourprograms to combat childhood obesity. Aetna KidsPlay, for example,enables kids across the country to play soccer, baseball and othersports on teams coached by our employees and supported with Aetnasponsorships. We are proud to support our employees' long traditionof giving through our matching gifts program and volunteer grants.'

More information:

www.AetnaFoundation.org

www.aetna.com

Aetna Bestows in Excess of $330K to North Texas Nonprofits in 2009. - Health & Beauty Close-Up

Aetna and the Aetna Foundation in 2009 awarded 27 community grants and sponsorships in North Texas totaling $338,000, with a particular focus on disease prevention, obesity and health screening, the group reported.

In a release, the group noted that the contributions support its commitment to enhancing the quality of health care, and reducing racial and ethnic disparities. In total, the Aetna Foundation, Aetna and its employees, awarded more than $24 million nationally in 2009.

Among the community grants awarded in North Texas were:

-$75,000 to the American Heart Association;

-$25,000 to the American Diabetes Association Inc.;

-$25,000 to the Dallas Concilio of Hispanic Service Organizations;

-$15,000 to the Design Industries Foundation Fighting AIDS (DIFFA);

-$10,000 to the Fort Worth Hispanic Chamber of Commerce; and

-$5,000 to the Back to School Round-Up.

Twenty-one other organizations in North Texas also received Aetna grants or sponsorships including the African American Museum, AIDS Arms, American Lebanese Syrian Associated Charities, Attitudes and Attire, Black Tie Dinner, Dallas Foundation, Dallas Summer Musicals, DFW Business Group on Health, Foundation for the Education of Young Women, Greater Dallas Hispanic Foundation, Hispanic Wellness Coalition, International Dallas Communities, Junior Achievement of Dallas, Inc., Latin Arts Association of Fort Worth, North Texas Navidad en el Barrio Foundation, Open Arms, Inc., Parents Step Ahead, PWA Coalition of Dallas, Rebuilding Together-Greater Dallas, The Dallas Opera, and The Empowerment Project.

'Aetna is proud to support organizations in the Metroplex which are making great strides in targeting health care issues that affect our communities,' said Ralph Holmes, market head for Aetna in North Texas. 'As a responsible corporate citizen, we recognize our obligation to help address these critical needs.'

The Aetna Foundation awarded a $75,000 sponsorship to the American Heart Association for their 2009 Start! Heart Walk, which promotes physical activity and heart-healthy living in the community.

The American Diabetes Association received a $25,000 grant for their Por Tu Familia program, which provides workshops and activities to educate Hispanics about diabetes and the importance of making healthy food choices and exercising.

Under a $25,000 grant, the Dallas Concilio of Hispanic Service Organizations will use the Latino Initiative for Diabetes Education and Risk-Reduction (LIDER) program to produce a self-management course entitled Viviendo con la Diabetes ('Living with Diabetes). The course will give people the tools to live longer and healthier lives and reduce risk of further complications.

The Dallas Industries Foundation Fighting AIDS (DIFFA) received a $15,000 grant to fund the Aetna Health Award, which recognized a health care professional in the community who works with those living with HIV/AIDS.

The Aetna Foundation gave the Fort Worth Hispanic Chamber of Commerce (FWHCC)a grant in the amount of $10,000 to be used as sponsorship of the FWHCC's four fundraisers and to support the leadership and bilingual business development courses offered to its members.

The Back-To-School Round Up received a $5,000 grant to assist in providing 8,000 low income children in Tarrant County with backpacks, school supplies, gift cards for shoes, immunizations and haircuts.

'Aetna and the Aetna Foundation are proud to partner with organizations across the country in support of their good work, and we look forward to continued relationships as we focus our giving in key areas going forward,' said Anne Beal, MD, MPH, president of the Aetna Foundation. 'For 2010 and beyond, we are transitioning to a new approach that encompasses a more concentrated grant-making focus on specific health issues of national concern, enhanced communication and measurement of the impact of our grants, a more proportionate distribution of our charitable giving across the country, and a more holistic relationship with our community partners that capitalizes on our employee presence and the generosity and talents of our employee volunteers.'

The Aetna Foundation has opened the call for proposals for the 2010 grant cycle. Grant applicants should visit aetnafoundation.org for more information on how to apply for a grant and to learn more about the following Aetna Foundation focus areas for grant making in 2010 and beyond:

-Addressing the rising incidence of obesity among U.S. residents, including children;

-Promoting racial and ethnic equity in health and health care for common chronic conditions and for the prevention of infant mortality; and

-Advancing integrated health care, by:

-Improving coordination and communications among health care professionals;

-Creating informed and involved patients; and

-Promoting cost-effective, affordable care.

Aetna Enters the Capital Markets With the First Medical Benefits ILS Transaction.(insurance linked securities) - Mondaq Business Briefing

Introduction

The first health insurance linked securities (ILS) deal transferring the reinsured risk of medical benefit claims of a major U.S. health care company, Aetna Life Insurance Company (Aetna), to capital market investors closed on January 10, 2011. Aetna secured surplus capital relief through the transaction by entering into a quota share reinsurance agreement with Health Re, Inc. (Health Re), a newly formed, Vermont, special purpose financial captive insurance company. Simultaneously, Health Re entered into a three-year, indemnity-based, annual aggregate excess of loss reinsurance agreement (XOL reinsurance agreement) with Vitality Re Limited (Vitality Re), a newly formed, Cayman Islands exempted company licensed as a restricted Class B insurance company. Vitality Re sold $150 million of Class A notes, rated BBB by Standard & Poor's (S&P), to Goldman Sachs as initial purchaser, which were in turn sold to qualified institutional investors (also known as QUIBS) pursuant to Rule 144A of the Securities Act of 1933. The proceeds of the off ering were used by Vitality Re to collateralize and fund its obligations to Health Re (Aetna) under the XOL reinsurance agreement. Aetna made clear that this was the first of several such capital markets transactions it would undertake.

Traditionally, large U.S. health care companies, such as United Healthcare, Wellpoint, Aetna, CIGNA, and Coventry Health Care, have believed that their memberships (ranging from 5 to 50 million subscribers) adequately spread their risk, eliminating the need to transfer such risk to the capital markets or reinsurers. Aetna's motivation in engaging in this uncharted venture appears motivated solely by the cost of capital and not reimbursement on potential losses. Joseph M. Zubretsky, Aetna's chief financial officer, stated that the deal has 'improved [Aetna's] capital efficiency, enhanced our financial flexibility, and reduced our weighted average cost of capital.' The terms of the Aetna deal are favorable (in today's market) to investors, and future deals on similar terms would likely draw the interests of institutional investors looking for steady, low risk returns. If successful, Aetna's foray into the capital markets may herald the arrival of the health care industry in the ILS market and, perhaps, the reinsurance market as well. Given the size of the health care sector, the top five U.S. health care companies have combined annual revenues of more than $250 billion, its use of the reinsurance and the capital markets to transfer risk has the potential to fundamentally transform both of these markets.1

Terms of the Deal

In November 2010, Aetna announced that it was entering into two distinct, collateralized, three-year XOL reinsurance agreements with Vitality Re, which would then issue health insurance linked bonds to collateralize its obligations under the agreements. The deal had Aetna ceding a portion of its overall commercial group health insurance risks to its affiliated, self-funded reinsurance captive, Health Re. Health Re and Vitality Re would enter into the $200 million annual, aggregate XOL reinsurance agreements. Vitality Re would then enter into a tri-party repurchase agreement with Goldman Sachs who would sell it a pool of permitted securities in return for cash, with an obligation for Vitality Re to repurchase the securities at maturity. On a quarterly basis, Goldman Sachs, as the repurchase counterparty, pays a fee to Vitality Re and receives all of the income earned on the permitted investments. The pool of permitted investments would be over-collateralized, and the market value marked to market on a daily basis by the tri-party agent. If the market value of the collateral dropped below the required level on any given day, Goldman Sachs would be obligated to deliver additional permitted investments in order to maintain the required over collateralization. The repurchase agreement could be terminated by the repurchase counterparty following a change in law event.

The bonds were to have a target of $200 million and would be issued in two tranches. S&P rated the first tranche, $125 million Class A notes, at BBB-, and the second tranche, $75 million Class B notes, at BB. The attachment point for the reinsurance, and hence the point at which investor capital would be eroded by losses under the reinsurance agreement, was to be an agreed upon percentage of Aetna's medical benefi ts loss ratio (MBR), a ratio of claims to premium. The risk modeling for the transaction was provided by Milliman Inc. (Milliman), who created a simulation based stochastic model for the transaction. In rating the transaction, S&P said it expected actual results to differ somewhat from Milliman's modeled results. Accordingly, Milliman adjusted the probability of attachment using stress indicators and cited a pandemic as the transaction's greatest risk of loss. Finally, bondholders' return was projected at LIBOR plus 4.25 for the Class A notes and LIBOR plus 6.25 for the Class B notes.

The Aetna transaction closed on January 10, 2011 and followed closely on the November announcement, save for a few wrinkles and greater disclosure of the deal terms. Specifically, the three year agreement provided Aetna $150 million (not $200 million) in annual aggregate excess of loss coverage. Rather than issue two tranches of notes, Vitality Re issued a single $150 million tranche of the Class A notes. Accordingly, as the XOL reinsurance agreements were linked to each class of notes, Health Re entered into one XOL reinsurance agreement rather than two. The XOL reinsurance agreement has an attachment point of 104 percent of Aetna's MBR for 2011. The ratio is calculated on an annual aggregate basis, acting as an index of claims. If the MBR for 2011 reaches 114 percent, Aetna receives the full $150 million of coverage. The targets are to be reset (or renegotiated) for 2012 and 2013. The collateral is invested in highly rated assets and the account over-collateralized so the arrangement can provide credit for reinsurance for capital relief purposes.

Health Care Sector Transferring Risk

Aetna and its competitors are not unfamiliar with the reinsurance and securitization markets. In addition to medical benefits, most health care companies offer their employer clients both group life and group AD&D coverage, risks often reinsured by independent third-party reinsurers. Likewise, Triple-X, or redundant, reserving is a financial burden on life carriers who, in the past, have regularly offloaded these risks through securitization.2 Medical benefits risks, however, are fundamentally different from life and disability products. Medical benefits tend to be short tail risk; premium is more closely tied to experience and is adjusted annually, and reserves more accurately reflect future liabilities. Moreover, individual subscribers for the largest health care companies number in the millions. An individual medical catastrophe could hardly alter the loss experience for a health care company's largest clients, let alone the carrier's overall performance. As a result, the use of reinsurance and the capital markets in this segment has been limited. The increasing desire for capital surplus, and perhaps the uncertainty of health care reform and medical inflation, may make offloading such risks a more common practice in the health care sector.

Appeal for Investors

Most catastrophe bonds securitize U.S. hurricane and worldwide earthquake exposure. Investors are likely to welcome the Aetna transaction as it diversifies the ILS market with a low risk investment alternative. Aetna bondholders, like CAT bondholders, will lose all or a portion of their principal and interest on the notes if Vitality Re, as the issuer, is required to make loss payments under the XOL reinsurance agreement. The bondholders have limited recourse to the assets of Vitality Re and no recourse to the assets of Aetna or Health Re. The risk of loss, however, is estimated at 1 percent. Clearly the bondholders stand an excellent chance of realizing their full principal and interest. For the fourth quarter of 2010, Aetna disclosed that its earnings rose 30 percent as the health insurer's MBR declined to 83 from 85.4 percent a year earlier. By contrast, the attachment for 2011 under the XOL reinsurance agreement is 104 MBR, truly a catastrophe cover.

The Aetna transaction demonstrates that the convergence of traditional reinsurance and the capital markets is continuing to produce new issuances covering various types of ceded insurance business. Michael Millette, managing director at Goldman Sachs, indicated that the Vitality Re notes were placed with traditional ILS investors 'that were made up of Cat Funds and reinsurers.' He added that the number of investors was 'similar to that in a Cat Bond of the same size.' With many ILS market participants projecting a return to net growth in 2011, and new issuances between $5 billion to $6 billion, the 'health insurance linked bonds could represent an important, though relatively small, component of the overall market.' In this respect, it appears that the health care sector could potentially provide additional deal flow for yield hungry capital market investors who are also continuing to seek investments with relatively low correlations to other financial markets. With reinsurance rates projected to level off in 2011, the ILS market could represent a cost eff ective and diverse method for health insurers to transfer risk, address regulatory concerns, and enhance capital surplus. Whether third-party life and health reinsurers will attempt to capture a piece of this 'emerging' market remains to be seen.

Endnotes

1 Aetna alone served approximately 35.4 million people on September 30, 2010. Aetna off ers a broad range of traditional and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, medical management capabilities, and health care management services for medical plans.

2 Since 2007 the life carriers have been unable to securitize these risks that formerly guaranteed the bondholders' return through the purchase of insurance from mono-line insurers. These same carriers now enter into syndicated, long-dated letter of credit facilities.

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STOCK PERFORMANCE PROMPTS SHAKEUP AT AETNA.(BUSINESS) - Albany Times Union (Albany, NY)

Byline: MARION GAMMILL Bloomberg News

HARTFORD, Conn. -- Aetna Inc., the biggest U.S. health insurer, said Richard Huber resigned as chairman and chief executive amid shareholder pressure after the company's shares lost more than half their value since May.

Huber, 63, was replaced by William H. Donaldson, 68, a co-founder of Donaldson, Lufkin & Jenrette Inc. and a member of Aetna's board since 1977. Donaldson will head a company with three main businesses: U.S. health insurance; financial services; and insurance and financial planning outside the U.S.

The company offers various insurance policies to customers in the Capital Region, including health insurance to 200 area businesses, a company spokesman said last year. It also has been trying to expand operations of its health maintenance organization, Aetna U.S.Healthcare, into the area for the last four years, but so far has not succeeded in getting approval to do so from the state Health Department.

Aetna's stock has fallen from a 52-week high of 99 on concerns that the company isn't integrating acquisitions and controlling medical costs. Donaldson, former chief executive of the New York Stock Exchange, said Aetna has started an ``urgent review'' of its businesses and strategy.

``This is the first step,'' said John Schneider, a fund manager at Pimco Equity Advisors whose fund owns 450,000 Aetna shares. ``They need to recognize the value of the three pieces (of the company), particularly the international.''

Shares of Aetna, which rose slightly on news of the resignation, closed up 18.75 cents at $40.75 on the New York Stock Exchange.

Donaldson was named chairman, president and chief executive at a scheduled board meeting Friday. Aetna said it revoked a company rule that mandated retirement for executives at 65.

``Mr. Donaldson does not view his job as interim,'' said Joyce Oberdorf, an Aetna spokeswoman. ``The board has asked him not to approach this job as a caretaker.''

Huber, who had said he didn't think Aetna's share price accurately reflected the company's value, resigned amid pressure from shareholders to do something to reverse the stock decline. Before the resignation, some shareholders said the company needed to consider spinning off or selling some major business lines, possibilities Aetna had considered previously.

``This stock price is the same as it was in 1981,'' Schneider said. ``This is an incredibly, incredibly cheap stock.''

Analysts said, though, that the company needs to focus on getting its health-insurance operations under control. Aetna shares fell Feb. 8 after it said fourth-quarter medical costs had risen faster than analysts expected, driven up by drug cost increases and medical claims left over from the third quarter.

Aetna also faced a review by the U.S. Securities and Exchange Commission of the accounting it used for acquisitions during the past three years. That time period included Aetna's $8.9 billion purchase of U.S. Healthcare Inc. in 1996, the $1.1 billion purchase of New York Life Insurance Co.'s health-insurance unit in 1998, and last year's $1 billion purchase of Prudential Insurance Co. of America's managed-health unit.

``They need to stop focusing on being bigger and start running their business better,'' said Todd Richter, a Banc of America Securities analyst with a ``neutral'' rating on Aetna. ``This is a company that has performed poorly for 20 years through three management teams.''

Other shakeups are going on in the health-insurance industry as companies try to stay ahead of medical-cost increases being pushed up by new technology, new drugs and an aging population. Huber's resignation comes weeks after PacifiCare Health Systems Inc. chief executive Alan Hoops said he would retire from the Santa Ana, Calif.-based health insurer.

PacifiCare shares lost about one-third of their value in the last year, amid concerns that the company hadn't compensated for reduced growth in payments from Medicare, the government health plan for the elderly. PacifiCare is the biggest operator of health-maintenance organizations serving Medicare members.

Also earlier this month, Humana Inc., the second-biggest operator of Medicare HMOs, named senior vice president Michael McCallister president and chief executive of the Louisville, Ky.-based company. The appointment came about six months after Gregory Wolf, then the president and chief executive, resigned in the wake of a plunge in Humana shares following a profit warning last April.

Aetna, in contrast, has gone outside the managed health care insurance industry for its new chief executive. Donaldson helped found Donaldson, Lufkin & Jenrette in 1959 and was appointed U.S. undersecretary of state in 1973. He helped found Yale University School of Management in 1975 and served as its first dean until 1980.

Huber, who joined Aetna in 1995, also came from outside the managed-care industry.

Before joining Aetna, he was president and chief operating office at Grupo Wasserstein Perella, a Latin American unit of investment bank Wasserstein Perella & Co. He also worked at Continental Bank NA in Chicago, Chase Manhattan Corp. and Citicorp.

Huber became president and chief executive of Aetna in 1997 and was named chairman in 1998. He stood out in the managed-care industry, thanks to a history of sometimes inflammatory comments, analysts said.

Last July, Aetna and Huber were sued for allegedly defaming an attorney who had just won a record $120.5 million verdict against the company's California subsidiary.

``You had a skillful ambulance-chasing lawyer, a politically motivated judge and a weeping widow,'' Huber was quoted as saying after the verdict.

Huber subsequently apologized for the remarks, and in November, Aetna won dismissal of the defamation suit in court.

A.M. Best Affirms Ratings of Aetna Inc. and Its Subsidiaries. - Managed Care Weekly Digest

A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of 'a+' of the insurance and health maintenance organization (HMO) subsidiaries of Aetna Inc. (Aetna) (NYSE: AET). Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and ICR of 'a' of Aetna Insurance Company of Connecticut. A.M. Best also has affirmed the ICR of 'bbb+' and debt ratings of Aetna. Additionally, A.M. Best has assigned a debt rating of 'bbb+' to the $500 million 4.125% senior unsecured notes, due 2021 of Aetna. The outlook for all ratings is stable. All the above companies are headquartered in Hartford, CT. (See below for a detailed listing of the companies and ratings.)

The rating affirmations of the lead operating entity, Aetna Life Insurance Company (ALIC), and the insurance and HMO subsidiaries of Aetna reflect their excellent operating and net income, good liquidity and solid risk-based capitalization levels. Aetna continues to generate good operating and net income results, which mainly are due to strong underwriting gains in the health care segment. Health care earnings were driven by favorable medical utilization rates in 2010. Aetna maintains a good level of liquidity through parent company cash, subsidiary dividends, an untapped $1.5 billion credit facility and its commercial paper program. The consolidated Aetna insurance operations' favorable net income has contributed to the group's solid capital level through retained earnings. The consolidated organization, driven by ALIC, has a strong risk-based capital ratio, and its capital and surplus level is more than adequate for the ratings (see also Health Insurance).

Partially offsetting these positive rating factors is the decline in Aetna's consolidated membership over the near term as commercial employer groups continue to be negatively affected by the state of the economy. This negative affect has pressured enrollment and premium growth in this business segment due to in-group disenrollment resulting from layoffs, decreased sales of complementary products and pricing pressures as employers look to contain benefit costs. Furthermore, growth in Aetna's Medicare lines had been hindered by the Centers for Medicare and Medicaid Services' imposed freeze on the plan, prohibiting it to actively market Medicare Advantage products in April 2010. While this did not affect the existing enrollees, the effect has obviously prevented growth in Aetna's membership for the January 2011 selling season. The sanctions against Aetna have since been lifted, and the plan will begin to actively enroll beneficiaries beginning in July 2011. Additionally, the company announced agreements to acquire Prodigy Health Group on April 28, 2011, and on June 13, 2011, the Medicare Supplement business of Genworth Financial, Inc., which includes Continental Life Insurance Company of Brentwood, Tennessee and its subsidiary, American Continental Insurance Company. The acquisitions may result in an increase in its debt-to-capital, should Aetna issue debt or utilize its commercial paper program to fund these acquisitions. A.M. Best expects Aetna's debt-to-capital to be in the range of or near 30% over the medium term.

The FSR of A (Excellent) and the ICR of 'a+' have been affirmed for the following subsidiaries of Aetna Inc.: Aetna Life Insurance Company Aetna Life & Casualty (Bermuda) Ltd. Aetna Health Inc. (a Connecticut corporation) Aetna Health Inc. (a Florida corporation) Aetna Health Inc. (a Georgia corporation) Aetna Health Inc. (a Maine corporation) Aetna Health Inc. (a New Jersey corporation) Aetna Health Inc. (a New York corporation) Aetna Health Inc. (a Pennsylvania corporation) Aetna Health Inc. (a Texas corporation) Aetna Health Insurance Company of New York Aetna Health Insurance Company Aetna Health of California Inc. Aetna Dental Inc. (a New Jersey corporation) Aetna Dental Inc. (a Texas corporation) Aetna Dental of California The following debt ratings have been affirmed: Aetna Inc.-

-- 'bbb+' $750 million 6.0% of senior unsecured notes, due 2016

-- 'bbb+' $500 million 6.5% of senior unsecured notes, due 2018

-- 'bbb+' $800 million 6.625% of senior unsecured notes, due 2036

-- 'bbb+' $700 million 6.75% of senior unsecured notes, due 2037

-- 'bbb+' $750 million 3.95% of senior unsecured notes, due 2020

-- AMB-2 on commercial paper

The following indicative ratings on universal shelf securities have been affirmed: Aetna Inc.-

-- 'bbb+' on senior unsecured debt

-- 'bbb' on subordinated unsecured debt

-- 'bbb-' on preferred stock

The principal methodology used in determining these ratings is Best's Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: 'Rating Health Insurance Companies'; 'Understanding BCAR for Life and Health Insurers'; 'Understand Universal BCAR'; 'Risk Management and the Rating Process for Insurance Companies'; 'Rating Members of Insurance Groups'; 'Rating Commercial Paper'; 'Assessing Country Risk'; and 'A.M. Best's Ratings & the Treatment of Debt.' Methodologies can be found at www.ambest.com/ratings/methodology. Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright [c] 2011 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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