The Company's business operations are conducted in the following segments: Aetna U.S. Healthcare, Aetna Financial Services, Aetna International and Large Case Pensions. The principal products included in these segments are as follows:


1. Aetna U.S. Healthcare

Aetna U.S. Healthcare provides a full spectrum of health products (managed care and indemnity) and group insurance products (life, disability and long-term care) on both an insured and an employer-funded basis. Under insured plans, the Company assumes all or a majority of health care cost, utilization, mortality, morbidity or other risk depending on the product. Under employer-funded plans, the plan sponsor, and not the Company, assumes all or a majority of these risks.

Aetna U.S. Healthcare consists of the Health Risk and PHC business and the Group Insurance and Other Health business.

• The Health Risk and PHC business includes health plans offered on an insured basis and the results of servicing Prudential's administrative services only business.
  
• The Group Insurance and Other Health business includes group life and disability insurance, long-term care insurance and dental products, offered on both an insured and employer-funded basis, and all health plans offered on an employer-funded basis.

Aetna U.S. Healthcare provides members of its managed care plans with access to health care services through networks of independent health care providers. The Company contracts with providers to participate in its provider networks in order to provide members with broad access to high quality, cost effective medical care. The providers in the Company's networks are independent contractors and are neither employees nor agents of the Company.

Aetna Financial Services (AFS) offers financial services products to employer-sponsored retirement plans, and to individuals on a qualified and nonqualified basis. These products include annuity contracts that offer a variety of funding and payout options, mutual funds, and products that offer a combination of both. These products also include programs offered to qualified plans and nonqualified deferred compensation plans that package administrative and recordkeeping services along with a menu of investment options, including mutual funds (both Aetna and nonaffiliated mutual funds) and variable, and fixed investment options. Financial services also includes investment advisory services, financial planning, pension plan administrative services and trust services.

AFS products and services are offered primarily to individuals, pension plans, small businesses and employer-sponsored groups in the health care, government, education (collectively "not-for-profit" organizations) and corporate markets. AFS products generally are sold through pension professionals, independent agents and brokers, third party administrators, banks, dedicated career agents and financial planners.


3. Aetna International

Aetna International, through subsidiaries and joint venture affiliates, sells primarily life insurance, health insurance and financial services products in markets outside of the United States. The Company seeks to invest in emerging and other selected markets outside the U.S. that have the potential for attractive long-term returns.

Aetna International conducts its business in the following major geographic locations:

• Asia Pacific – Operations are conducted through majority-owned subsidiaries in Hong Kong, Indonesia, Malaysia, New Zealand, the Philippines, Taiwan and Thailand as well as through an equity affiliate in China. In the fourth quarter of 1999, the Company acquired an equity interest in a Japanese life insurance company. The products and services sold by these businesses include individual and group life and health insurance, deposit administration and related financial products and services.
  
• Americas – Operations are conducted through wholly owned and majority-owned subsidiaries in Argentina and Chile and equity affiliates in Brazil, Colombia, Mexico, Peru, Poland and Venezuela. The products and services sold by these businesses include individual and group life and health insurance, annuities, personal and commercial property-casualty insurance, and pension fund administration services.

Each of the affiliates through which Aetna International conducts business operates within guidelines established by the Company. Methods of distributing products vary by country and product depending on local laws, customs and the needs of the particular customer segment. Distribution channels include career agents, independent agents and brokers, financial institutions and direct sales.

Competition varies by country and includes well-established local companies, as well as foreign based companies with a strong international presence.


4. Large Case Pensions

Large Case Pensions manages a variety of retirement products (including pension and annuity products) offered to IRC Section 401 qualified defined benefit and defined contribution plans. Contracts provide non-guaranteed, partially guaranteed and fully guaranteed investment options through general and Separate Account products. The majority of Large Case Pensions' products that use Separate Accounts provide contract-holders with a vehicle for investments under which the contract-holders assume the investment risk as well as the benefit of favorable performance. Large Case Pensions earns a management fee on these Separate Accounts.

The Company's operations are subject to comprehensive regulation throughout the United States and the foreign jurisdictions in which it does business. The laws of these jurisdictions establish supervisory agencies, including state health, insurance and securities departments, with broad authority to grant licenses to transact business and regulate many aspects of the products and services offered by the Company, as well as solvency and reserve adequacy. Many agencies also regulate investment activities on the basis of quality, diversification, and other quantitative criteria. The Company's operations and accounts are subject to examination at regular intervals by certain of these regulators. As a foreign investor, the Company is also subject to a variety of restrictions regarding permitted levels of equity ownership, remittance of foreign earnings, repatriation of capital, exchange of currency, and entry into new lines of business.