AETNA RETIREMENT ARM CHOPS 63 JOBS: TOTAL OF 509 LAID OFF, MOST FROM HMO UNIT, AS INSURER STRUGGLES TO STAY COMPETITIVE

In a continuing bid to trim expenses, Aetna Inc. cut 509 positions during this year’s first half as part of two-year-old drive to bring the Hartford, Conn., insurer’s costs in line with those of competitors.

To do so, the company took a $55.8 million charge against a reserve set up for severance payments, vacated office leases and related expenses.

Though the bulk of the cuts occurred at Aetna’s troubled health maintenance organization, U.S. Healthcare, 63 positions were ended at its Retirement Services unit, which sells insurance, annuities and mutual funds.

In April, Aetna chairman Richard Huber sought to dispel rumors that the insurer was mulling a sale of the retirement savings business. Speculation increased in late May, when the company agreed to sell its domestic individual life insurance business to Lincoln National Corp. in Fort Wayne, Ind., for $1 billion. An Aetna spokeswoman says the insurer remains “comfortable with the configuration of the company as is.”

In a filing with the Securities and Exchange Commission earlier this month, Aetna reported that it expects to complete job cuts in its Retirement Services unit by the end of next month. Cuts at U.S. Healthcare will continue through March.

The company calls the overhaul administrative streamlining. For the first six months of this year, net income in the Retirement Services unit rose 24% to $135.6 million, excluding $9 million in year 2000 costs and net realized capital gains. (On a consolidated basis, Aetna earned $433 million during the year’s first half, down 15% from the same period in 1997.)

Retirement Services’ increase came mostly as a result of higher fees from assets under management — which climbed 30%, due to market appreciation, new deposits and the inclusion of assets from broker-dealer Financial Network Investment Corp., which Aetna acquired in July 1997.

“They’ve made very good progress improving their operating results,” says Duff & Phelps Credit Rating Co. analyst Douglas Meyer in Chicago. Operating expenses as a percentage of average annuity assets declined from 0.91% in December 1996, to 0.73% for the 12 months ended in June.

not just downsizing

“That is not just cutting heads, but reorganizing how the business is administered and getting more aggressive in pursuing more business opportunities,” Mr. Meyer says.

But he adds that expenses in the Retirement Services unit are still above average. On the basis of earnings as a percentage of assets under management, well-run annuity companies usually generate more than 1% in after-tax earnings. Mr. Meyer estimates that Aetna earns 0.5% to 0.6%, because its large separate accounts business operates on lower margins.

Retirement Services president Thomas McInerney has set of goal of doubling the unit’s assets from $50.4 billion to $100 billion by 2000.

“Aetna views themselves as a benefits company, providing not just health, but saving and retirement programs,” says Mr. Meyer. Achieving that goal will require Aetna not only to expand its product line internally, but to buy businesses.