Centene Corporation Reports 2010 First Quarter Earnings

April 27, 2010 at 6:03 AM EDT

ST. LOUIS, April 27, 2010 /PRNewswire via COMTEX/ --Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended March 31, 2010. The results of operations for our New Jersey health plan, University Health Plans, are classified as discontinued operations. The discussions below, with the exception of cash flow information, are in the context of continuing operations and all financial ratios exclude premium taxes.

First Quarter Highlights

  • Quarter-end managed care at-risk membership of 1,468,600, an increase of 221,300 members year over year.
  • Premium and Service Revenues of $1.022 billion, representing 12.5% year over year growth.
  • Health Benefits Ratio (HBR) of 84.0%.
  • General and Administrative (G&A) expense ratio of 13.3%.
  • Days in claims payable of 47.7, including pharmacy claims payable.
  • Diluted earnings per share from continuing operations of $0.41.

Other Events

  • During the first quarter of 2010, we completed the sale of 5.75 million shares of common stock, including the underwriters' overallotment option, for a public offering price of $19.25 per share. Net proceeds from the sale of the shares were $104.6 million.
  • In February 2010, we announced a definitive agreement to acquire certain Medicaid assets in South Carolina. The transaction is expected to close in the second quarter of 2010 and add revenues of approximately $60 million and diluted earnings per share of $0.02 to $0.03 for 2010.
  • In March 2010, we completed the previously announced sale of our New Jersey health plan, University Health Plans, and recorded a pre-tax gain on sale of $8.2 million, or $0.08 per diluted share, in discontinued operations during the first quarter of 2010.
  • In March 2010, we announced that our specialty company, Cenpatico Behavioral Health, retained its existing service area contract and was also awarded an expanded contract by the Arizona Department of Health Services to manage behavioral healthcare services for an additional four counties. The expanded contract is expected to take effect July 1, 2010, and add revenues of approximately $20 million for 2010.
  • In March 2010, Moody's Investors Service upgraded our senior unsecured debt rating and our corporate family rating to Ba2 from Ba3.
  • In April 2010, we announced that our Celtic Group subsidiary, CeltiCare Health Plan of Massachusetts, renewed its contract to serve Commonwealth Care members as the low cost provider in Massachusetts.
  • In April 2010, we announced that our Wisconsin subsidiary was not awarded the Southeast Wisconsin BadgerCare Plus Managed Care contract. The loss of the contract award will reduce revenues by approximately $25 million in 2010.
  • In April 2010, Fortune Magazine announced that Centene ranked #486 in the magazine's annual ranking of the world's largest companies by revenue, up from #609 last year. The ranking placed Centene in the Fortune 500 for the first time.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, stated, "We are pleased to have maintained our positive operating momentum as 2010 begins and we are dedicated to maintaining our discipline and focus in the future."

The following table depicts membership in Centene's managed care organizations, by state, at March 31, 2010 and 2009:


                                     March 31,
                                     ---------
                                   2010             2009
                                   ----             ----
    Arizona                      19,000           15,500
    Florida                     105,900           29,100
    Georgia                     301,000          289,300
    Indiana                     211,400          179,100
    Massachusetts                26,900                -
    Ohio                        156,000          137,000
    South Carolina               53,900           48,500
    Texas                       459,600          421,100
    Wisconsin                   134,900          127,700
                                -------          -------
          Total at-risk
           membership         1,468,600        1,247,300
    Non-risk membership          62,200           96,000
                                 ------           ------
          Total               1,530,800        1,343,300
                              =========        =========


The following table depicts membership in Centene's managed care organizations, by member category, at March 31, 2010 and 2009:


                                    March 31,
                                    ---------
                                        2010            2009
                                        ----            ----
    Medicaid                       1,088,300         921,100
    CHIP & Foster Care               266,300         256,900
    ABD & Medicare                    87,100          69,300
    Other State programs              26,900               -
                                      ------             ---
        Total at-risk membership   1,468,600       1,247,300
    Non-risk membership               62,200          96,000
                                      ------          ------
        Total                      1,530,800       1,343,300
                                   =========       =========


Statement of Operations

  
  • Premium and service revenues increased 12.5% in the three months ended March 31, 2010 over 2009 as a result of
  • membership growth in all of our states. This increase was moderated by the removal of pharmacy services in two states
  • beginning in 2010. These pharmacy carve outs had the effect of reducing 2010 revenue by approximately $35 million.
  • The consolidated HBR for the three months ended March 31, 2010 of 84.0% was an increase of 0.5% over the comparable
  • period in 2009. A reconciliation of the change in HBR from the prior year same period is presented below:
First Quarter 2009 83.5% Improvements in existing markets (0.5) New markets reserved at higher rates 1.0 --- First Quarter 2010 84.0% ====

The increase in the first quarter of 2010 over the comparable period in 2009 was primarily due to higher HBR in our new markets, partially offset by improvements in our existing markets.

  • Consolidated G&A expense as a percent of premium and service revenues was 13.3% in the first quarter of 2010, a decrease from 13.5% in the first quarter of 2009. The decrease reflects the leveraging of our expenses over higher revenues, partially offset by a $4.6 million increase in contributions to the Company's charitable foundation.
  • Other income for the quarter includes a $3.0 million gain on distributions received from the Reserve Primary Fund in excess of our adjusted basis. An offsetting $3.0 million contribution was made to the Company's charitable foundation and is included in G&A expense discussed above.
  • Earnings per diluted share from continuing operations were $0.41, compared to $0.43 in the first quarter of 2009, and reflect the approximate 10% increase in diluted shares outstanding resulting from the stock offering.

Balance Sheet and Cash Flow

At March 31, 2010, the Company had cash and investments of $969.2 million, including $917.9 million held by its regulated entities and $51.3 million held by its unregulated entities. Medical claims liabilities totaled $444.8 million, representing 47.7 days in claims payable, a decrease of 2.4 days from December 31, 2009. Total debt was $232.7 million and debt to capitalization was 23.7%. Year to date cash flow from operations was $(38.5) million, reflecting a $73.3 million decrease in unearned revenue from December 31, 2009 as a result of the prepayment of monthly premiums. In 2010, only two monthly premium payments were received during the quarter from Ohio and Florida.

A reconciliation of the Company's change in days in claims payable from the immediately preceding quarter-end is presented below:





    Days in claims payable, December 31, 2009                50.1
       Additional processing days at quarter end             (1.5)
       Pharmacy carve out                                    (0.9)
    Days in claims payable, March 31, 2010                   47.7
                                                             ====






Outlook

The table below depicts the Company's annual guidance from continuing operations for 2010:


                                   Full Year 2010
                                   --------------
                                  Low       High
                                  ---       ----
    Premium and Service
     revenues (in millions)     $4,300     $4,400
    Earnings per diluted share
     (EPS)                       $1.73      $1.83
    HBR %                        84.0%      86.0%
    G&A %                        12.4%      12.9%

    Diluted Shares Outstanding
     (in thousands)                        50,500
    --------------------------             ------





The Company is increasing its earnings guidance by $0.03 to reflect the first quarter performance and results of the RFP's in Arizona and Wisconsin. The Company is adjusting its revenue guidance to reflect a shift in the start date of our Mississippi operations to October 1, 2010. Our current guidance excludes the previously announced South Carolina transaction, which is expected to add approximately $60 million of revenue and $0.02 to $0.03 diluted earnings per share in 2010, as the transaction has not yet closed.

Conference Call

As previously announced, the Company will host a conference call Tuesday, April 27, 2010, at 8:30 A.M. (Eastern Time) to review the financial results for the first quarter ended March 31, 2010, and to discuss its business outlook. Michael F. Neidorff and William N. Scheffel will host the conference call. Investors and other interested parties are invited to listen to the conference call by dialing 800-273-1254 in the U.S. and Canada; 973-638-3440 from abroad, or via a live, audio webcast on the Company's website at www.centene.com, under the Investors section. A replay will be available for on-demand listening shortly after the completion of the call for the next twelve months or until 11:59 PM (Eastern Time) on Tuesday, May 11, 2011, at the aforementioned URL, or by dialing 800-642-1687 in the U.S. and Canada, or 706-645-9291 from abroad and entering access code 63527302.

About Centene Corporation

Centene Corporation, a Fortune 500 company, is a multi-line healthcare enterprise operating in two segments: Medicaid Managed Care and Specialty Services. Our Medicaid Managed Care segment provides Medicaid and Medicaid-related health plan coverage to individuals through government subsidized programs, including Medicaid, the State Children's Health Insurance Program, or CHIP, Foster Care, Medicare Special Needs Plans and the Supplemental Security Income Program, also known as the Aged, Blind or Disabled Program, or collectively ABD. Our Specialty Services segment offers products for behavioral health, health insurance exchanges, individual health insurance, life and health management, long-term care programs, managed vision, telehealth services, and pharmacy benefits management to state programs, healthcare organizations, employer groups and other commercial organizations, as well as to our own subsidiaries.

The information provided in this press release contains forward-looking statements that relate to future events and future financial performance of Centene. Subsequent events and developments may cause the Company's estimates to change. The Company disclaims any obligation to update this forward-looking financial information in the future. Readers are cautioned that matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, regulatory, competitive and other factors that may cause Centene's or its industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Actual results may differ from projections or estimates due to a variety of important factors, including Centene's ability to accurately predict and effectively manage health benefits and other operating expenses, competition, changes in healthcare practices, changes in federal or state laws or regulations, inflation, provider contract changes, new technologies, reduction in provider payments by governmental payors, major epidemics, disasters and numerous other factors affecting the delivery and cost of healthcare. The expiration, cancellation or suspension of Centene's Medicaid Managed Care contracts by state governments would also negatively affect Centene.

(Tables Follow)




                         CENTENE CORPORATION AND SUBSIDIARIES

                              CONSOLIDATED BALANCE SHEETS
                           (In thousands, except share data)
                                      (Unaudited)


                                                  March 31,     December 31,
                                                     2010           2009
                                                     ----           ----
    ASSETS
    Current assets:
        Cash and cash equivalents of
         continuing operations, including
         $5,918 and $8,667, respectively,
         from consolidated variable
         interest entities                        $350,075      $400,951
        Cash and cash equivalents of
         discontinued operations                       14          2,801
                                                      ---          -----
             Total cash and cash equivalents      350,089        403,752
         Premium and related receivables,
          net of allowance for
          uncollectible accounts of $1,338
          and $1,338, respectively,
          including $6,565 and $11,313,
          respectively, from consolidated
          variable interest entities               110,120       103,456
        Short-term investments, at fair
         value (amortized cost $39,953
         and $39,230, respectively)                40,220         39,554
        Other current assets, including
         $5,023 and $4,507, respectively,
         from consolidated variable
         interest entities                         69,136         64,866
        Current assets of discontinued
         operations other than cash                 2,337          4,506
                                                    -----          -----
            Total current assets                  571,902        616,134
    Long-term investments, at fair
     value (amortized cost $547,148
     and $514,256, respectively)                  558,270        525,497
    Restricted deposits, at fair
     value (amortized cost $20,532
     and $20,048, respectively)                    20,618         20,132
    Property, software and equipment,
     net of accumulated depreciation
     of $111,938 and $103,883,
     respectively, including $110,764
     and $89,219, respectively, from
     consolidated variable interest
     entities                                     269,492        230,421
    Goodwill                                      229,512        224,587
    Intangible assets, net                         22,008         22,479
    Other long-term assets                         35,416         36,829
    Long-term assets of discontinued
     operations                                    23,453         26,285
                                                   ------         ------
            Total assets                       $1,730,671     $1,702,364
                                               ==========     ==========
    LIABILITIES AND STOCKHOLDERS'
     EQUITY
    Current liabilities:
        Medical claims liability                 $444,826       $470,932
        Accounts payable and accrued
         expenses, including $23,122 and
         $14,020, respectively, from
         consolidated variable interest
         entities                                 200,615        132,001
        Unearned revenue                           18,362         91,644
        Current portion of long-term
         debt                                         660            646
        Current liabilities of
         discontinued operations                   20,650         20,685
                                                   ------         ------
            Total current liabilities             685,113        715,908
    Long-term debt                                232,064        307,085
    Other long-term liabilities                    63,575         59,561
    Long-term liabilities of
     discontinued operations                          385            383
                                                      ---            ---
            Total liabilities                     981,137      1,082,937

    Commitments and contingencies

    Stockholders' equity:
        Common stock, $.001 par value;
         authorized 100,000,000 shares;
         51,490,256 issued and 49,049,990
         outstanding at March 31, 2010,
         and 45,593,383 shares issued and
         43,179,373 shares outstanding at
         December 31, 2009                             51             46
        Additional paid-in capital                390,878        281,806
         Accumulated other comprehensive
          income:
          Unrealized gain on investments,
           net of tax                               7,203          7,348
         Retained earnings                        382,909        358,907
         Treasury stock, at cost
          (2,440,266 and 2,414,010 shares,
          respectively)                           (47,742)       (47,262)
                                                  -------        -------
          Total Centene stockholders'
           equity                                 733,299        600,845
         Noncontrolling interest                   16,235         18,582
                                                   ------         ------
            Total stockholders' equity            749,534        619,427
                                                  -------        -------
            Total liabilities and
             stockholders' equity              $1,730,671     $1,702,364
                                               ==========     ==========



      CONSOLIDATED STATEMENTS OF OPERATIONS
        (In thousands, except share data)
                   (Unaudited)

                                              Three Months
                                                 Ended
                                               March 31,
                                               ---------
                                             2010                 2009
                                             ----                 ----
    Revenues:
      Premium                            $999,315             $885,006
      Service                              22,907               23,849
                                           ------               ------
        Premium and service revenues    1,022,222              908,855
      Premium tax                          46,499               23,580
         Total revenues                 1,068,721              932,435
                                        ---------              -------
    Expenses:
      Medical costs                       839,708              739,340
      Cost of services                     17,152               15,962
      General and administrative
       expenses                           135,507              122,279
      Premium tax                          46,743               23,942
         Total operating expenses       1,039,110              901,523
                                        ---------              -------
         Earnings from operations          29,611               30,912
    Other income (expense):
      Investment and other income           7,057                3,613
      Interest expense                     (3,813)              (3,986)
                                           ------               ------
         Earnings from continuing
          operations, before income
          tax expense                      32,855               30,539
      Income tax expense                   12,525               10,845
                                           ------               ------
         Earnings from continuing
          operations, net of income
          tax expense                      20,330               19,694
    Discontinued operations, net
     of income tax expense
     (benefit) of $4,440 and
     $(160), respectively                   3,920                 (449)
                                            -----                 ----
         Net earnings                      24,250               19,245
    Noncontrolling interest                   248                  787
                                              ---                  ---
         Net earnings attributable
          to Centene Corporation          $24,002              $18,458
                                          =======              =======

    Amounts attributable to
     Centene Corporation common
     shareholders:
      Earnings from continuing
       operations, net of income
       tax expense                        $20,082              $18,907
      Discontinued operations, net
       of income tax expense
       (benefit)                            3,920                 (449)
                                            -----                 ----
      Net earnings                        $24,002              $18,458
                                          =======              =======

    Net earnings (loss) per
     share attributable to
     Centene Corporation:
      Basic:
        Continuing operations               $0.43                $0.44
        Discontinued operations              0.08                (0.01)
                                             ----                -----
        Earnings per common share           $0.51                $0.43
                                            =====                =====
      Diluted:
        Continuing operations               $0.41                $0.43
        Discontinued operations              0.08                (0.01)
                                             ----                -----
        Earnings per common share           $0.49                $0.42
                                            =====                =====

    Weighted average number of
     shares outstanding:
        Basic                          47,260,714           43,067,992
        Diluted                        48,761,528           44,238,863





                          CENTENE CORPORATION AND SUBSIDIARIES

                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                     (In thousands)
                                      (Unaudited)

                                                    Three Months Ended
                                                         March 31,
                                                      ------------------
                                                       2010              2009
                                                       ----              ----

    Cash flows from operating activities:
      Net earnings                                  $24,250           $19,245
      Adjustments to reconcile net earnings to
       net cash provided by operating
       activities
       Depreciation and amortization                 12,527            10,233
       Stock compensation expense                     3,460             3,789
       (Gain) loss on sale of investments, net       (3,547)              439
       (Gain) on sale of UHP                         (8,201)                -
       Deferred income taxes                            950             2,282
      Changes in assets and liabilities
       Premium and related receivables               (4,457)          (39,396)
       Other current assets                          (1,375)           (1,397)
       Other assets                                   1,937              (497)
       Medical claims liabilities                   (33,129)            2,165
       Unearned revenue                             (73,282)           44,507
       Accounts payable and accrued expenses         40,433           (18,674)
       Other operating activities                     1,934               722
                                                      -----               ---
          Net cash (used in) provided by operating
           activities                               (38,500)           23,418
                                                    -------            ------
    Cash flows from investing activities:
      Capital expenditures                          (23,099)          (11,157)
      Purchases of investments                     (146,935)        (292,964)
      Proceeds from asset sales                      13,420                 -
      Sales and maturities of investments           117,469           224,312
      Investments in acquisitions, net of cash
       acquired                                      (2,019)           (5,191)
                                                     ------            ------
          Net cash used in investing activities     (41,164)          (85,000)
                                                    -------           -------
    Cash flows from financing activities:
      Proceeds from exercise of stock options           519               890
      Proceeds from borrowings                       22,030           108,000
      Proceeds from stock offering                  104,557                 -
      Payment of long-term debt                     (97,136)          (82,573)
      Distributions to noncontrolling interest       (3,585)           (1,181)
      Excess tax benefits from stock
       compensation                                      96               (17)
      Common stock repurchases                         (480)             (407)
          Net cash provided by financing
           activities                               26,001)            24,712
                                                     ------            ------
          Net decrease in cash and cash
           equivalents                              (53,663)          (36,870)
                                                    -------           -------
    Cash and cash equivalents, beginning of
     period                                         403,752           379,099
                                                    -------           -------
    Cash and cash equivalents, end of
     period                                        $350,089          $342,229
                                                   ========          ========

    Supplemental disclosures of cash flow
     information:
      Interest paid                                    $345              $724
      Income taxes paid                              $8,272           $18,602

    Supplemental disclosure of non-cash
     investing and financing activities:
      Contribution from noncontrolling
       interest                                        $306      $          -







                   CENTENE CORPORATION

    CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA

                                Q1                Q4             Q3
                               2010              2009           2009
                               ----              ----           ----
    MEMBERSHIP
    Managed
     Care:
       Arizona               19,000            18,100         17,400
       Florida              105,900           102,600         84,400
       Georgia              301,000           309,700        303,400
       Indiana              211,400           208,100        200,700
       Massachusetts         26,900            27,800            500
       Ohio                 156,000           150,800        151,200
       South
        Carolina             53,900            48,600         46,100
       Texas                459,600           455,100        450,200
       Wisconsin            134,900           134,800        132,500
                            -------           -------        -------
            Total at-
             risk
             membership   1,468,600         1,455,600      1,386,400
                          ---------         ---------      ---------
       Non-risk
        membership           62,200            63,700         63,200
                             ------            ------         ------
            TOTAL         1,530,800         1,519,300      1,449,600
                          =========         =========      =========

       Medicaid           1,088,300         1,081,400      1,040,000
       CHIP &
        Foster Care         266,300           263,600        263,400
       ABD &
        Medicare             87,100            82,800         82,500
       Other State
        programs             26,900            27,800            500
                             ------            ------            ---
            Total at-
             risk
             membership   1,468,600         1,455,600      1,386,400
                          ---------         ---------      ---------
       Non-risk
        membership           62,200            63,700         63,200
                             ------            ------         ------
            TOTAL         1,530,800         1,519,300      1,449,600
                          =========         =========      =========

    Specialty
     Services(a):
      Cenpatico
       Behavioral
       Health
       Arizona              119,300           120,100        117,300
       Kansas                39,800            41,400         41,000
      Bridgeway
       Health
       Solutions
       Long-term
        Care                  2,700             2,600          2,500
            TOTAL           161,800           164,100        160,800
                            =======           =======        =======

    (a) Includes
     external
     membership
     only.

    REVENUE PER
     MEMBER PER
     MONTH(b)               $215.95   (c)     $226.42        $222.77

    CLAIMS(b)
       Period-end
        inventory           341,400           423,400        414,900
       Average
        inventory           283,900           279,000        227,100
       Period-end
        inventory
        per member             0.23              0.29           0.30



                                      Q2             Q1
                                     2009           2009
                                     ----           ----
    MEMBERSHIP
    Managed
     Care:
       Arizona                     16,200         15,500
       Florida                     22,300         29,100
       Georgia                    292,800        289,300
       Indiana                    196,100        179,100
       Massachusetts                   -              -
       Ohio                       141,200        137,000
       South
        Carolina                   46,000         48,500
       Texas                      443,200        421,100
       Wisconsin                  131,200        127,700
                                  -------        -------
            Total at-
             risk
             membership         1,289,000      1,247,300
                                ---------      ---------
       Non-risk
        membership                114,000         96,000
                                  -------         ------
            TOTAL               1,403,000      1,343,300
                                =========      =========

       Medicaid                   958,600        921,100
       CHIP &
        Foster Care               261,400        256,900
       ABD &
        Medicare                   69,000         69,300
       Other State
        programs                       -              -
                                     ---            ---
            Total at-
             risk
             membership         1,289,000      1,247,300
                                ---------      ---------
       Non-risk
        membership                114,000         96,000
                                  -------         ------
            TOTAL               1,403,000      1,343,300
                                =========      =========

    Specialty
     Services(a):
      Cenpatico
       Behavioral
       Health
       Arizona                    110,500        104,700
       Kansas                      41,100         40,600
      Bridgeway
       Health
       Solutions
       Long-term
        Care                        2,400          2,300
            TOTAL                 154,000        147,600
                                  =======        =======

    (a) Includes
     external
     membership
     only.

    REVENUE PER
     MEMBER PER
     MONTH(b)                     $219.75        $220.29

    CLAIMS(b)
       Period-end
        inventory                 362,200        325,000
       Average
        inventory                 234,500        267,600
       Period-end
        inventory
        per member                   0.28           0.26



    (b) Revenue per member and claims information are presented for the
    Managed Care at-risk members.
    (c) Reduction in revenue per member per month is a result of the
    pharmacy carve-outs in 2010.




                      Q1       Q4       Q3       Q2       Q1
                     2010     2009     2009     2009     2009
                     ----     ----     ----     ----     ----

    DAYS IN CLAIMS
     PAYABLE
       Medical       46.6     48.1     47.1     47.5     45.3
       Pharmacy       1.1      2.0      1.8      1.5      1.8
                      ---      ---      ---      ---      ---
            TOTAL    47.7     50.1     48.9     49.0     47.1
    Days in Claims Payable is a calculation
     of Medical Claims Liabilities at the end
     of the period divided by average claims
     expense per calendar day for such
     period.



    CASH AND INVESTMENTS (in millions)
       Regulated      $917.9      $949.9      $911.4      $825.8      $816.8
       Unregulated      51.3        36.2        27.6        27.0        28.9
                        ----        ----        ----        ----        ----
            TOTAL     $969.2      $986.1      $939.0      $852.8      $845.7
                      ======      ======      ======      ======      ======

    DEBT TO
     CAPITALIZATION     23.7%       33.2%       31.9%       33.0%       34.6%
    Debt to Capitalization is calculated as
     follows: total debt divided by (total
     debt + total equity).




    Operating Ratios:

                                              Three Months Ended
                                                  March 31,
                                              ------------------
                                               2010             2009
                                               ----             ----
    Health Benefits Ratios:
    Medicaid and CHIP                      85.6%            84.8%
    ABD and Medicare                       80.3             81.4
    Specialty Services                     80.6             78.3
      Total                                84.0             83.5

    General & Administrative Expense
     Ratios                                13.3             13.5





    MEDICAL CLAIMS LIABILITY (In thousands)
    The changes in medical claims liability are summarized as follows:

    Balance, March 31, 2009             $387,242
    Incurred related to:
       Current period                    3,313,053
       Prior period                        (49,162)
                                           -------
         Total incurred                  3,263,891
                                          ========
    Paid related to:
       Current period                    2,874,916
       Prior period                        331,391
                                            ------
         Total paid                    3,206,307
                                        --------
    Balance, March 31, 2010             $444,826
                                        ========




Centene's claims reserving process utilizes a consistent actuarial methodology to estimate Centene's ultimate liability. Any reduction in the "Incurred related to: Prior period" amount may be offset as Centene actuarially determines "Incurred related to: Current period." As such, only in the absence of a consistent reserving methodology would favorable development of prior period claims liability estimates reduce medical costs. Centene believes it has consistently applied its claims reserving methodology in each of the periods presented.

The amount of the "Incurred related to: Prior period" above includes the effects of reserving under moderately adverse conditions, new markets where we use a conservative approach in setting reserves during the initial periods of operations, increased receipts from other third party payors related to coordination of benefits and lower medical utilization and cost trends for dates of service prior to March 31, 2009.

SOURCE Centene Corporation