SOURCE: Highline Data

December 21, 2009 09:56 ET

According to Highline Data, Even as the Health Reform Debate Rages in Congress, Health Insurers' Net Income Falls

CAMBRIDGE, MA--(Marketwire - December 21, 2009) - According to a new analysis by Highline Data, the leading data provider of financial and marketing information on insurance companies, the health insurance industry reported a decline of 12.4 percent in net income, to $8.2 billion, as of September 30 compared to the same period in 2008.

More than a third of health companies (335) reported underwriting losses in the third quarter, with larger market players considerably outperforming their smaller competitors. Thirty-five percent ($2.8 billion) of total industry net income in the first nine months of the year was earned by the top 1 percent of companies ranked by 2008 total assets.

Underwriting costs, which primarily include health benefit payments, increased by 6.9 percent year-over-year and totaled $332 billion as of September 30. Underwriting costs showed a five-year CAGR of 9.5 percent, outpacing total revenue, which showed a five-year CAGR of 9.2 percent.

Overall, the industry saw gains in total assets, member months and capital and surplus, which was an improvement over 2008 results, all of which reported declines. Return on average equity continued to decline, however, reaching a six-year low of 11.2 percent.

"While the public perception is that health companies are recording record profits, the reality they face is clearly a reduction in profit margins [Net Underwriting Margin], which reached a four-year low of 2.4 percent," Laurie Dallaire, vice president and director of Highline Data, said. "Even before the anticipated impact of pending health reform legislation, the industry will continue to see depressed margins as companies strive to control premiums and benefits costs."

The industry is under enormous strain to keep Underwriting Costs down, even as medical costs continue to climb. In the face of these contradictory pressures, health companies have so far managed in 2009 to keep the growth rate of Underwriting Costs below rates seen earlier in the decade.

                  Health Insurance Industry Annual Growth
                          Year-over-Year Change

               2003     2004     2005     2006     2007    2008   3Q 2009
             -------  -------  -------  -------  -------  ------  -------
Total Assets    29.3%     9.6%    19.7%    16.7%     8.2%   -1.3%     7.0%
Capital &
 Surplus        47.7%    17.9%    26.6%    14.1%    12.4%   -7.1%    10.0%
 Months         -0.5%     0.4%     5.6%    -9.7%    15.6%   -1.9%     6.8%*
 Revenues       11.3%     6.9%    14.1%    10.7%     8.8%    5.9%     6.0%*
 Costs           9.6%     6.8%    13.7%    11.1%     9.4%    6.6%     6.9%*
 Gain (Loss)    84.8%    10.1%    23.0%     1.1%    -3.9%  -15.4%   -22.2%*
Net Income      87.3%    11.6%    21.9%    14.3%     5.7%  -48.0%   -12.4%*

Net U/W Gain
 to Revenue      3.9%     4.1%     4.4%     4.0%     3.5%    2.8%     2.4%
Net Yield        2.9%     3.2%     3.9%     5.1%     5.2%    2.3%     2.9%
Return on
 (ROAE)         27.9%    25.5%    25.3%    24.3%    22.1%   15.5%    11.2%
             =======  =======  =======  =======  =======  ======  =======
  * Percent change from 9/30/2008

The 2009 figures discussed here are year-to-date. All of the data used in this analysis is available in Highline Data's premier online analytical resource, Insurance Analyst PRO. The data is derived from the annual and quarterly statutory financial statements filed with the National Association of Insurance Commissioners (NAIC) by individual companies. The California companies' data is obtained from public filings submitted to the California Department of Managed Health Care.

About Summit Business Media

Highline Data is part of Summit Business Media, the leading B2B media and information company serving the insurance, investment and professional services markets through a variety of channels, including online, print and live events. Summit provides breaking news and analysis, in-depth practice management strategies, business-building techniques and actionable data to the markets it serves. Through its Media and Reference Divisions, Summit publishes 17 magazines and 150 reference titles. The Event Division hosts a dozen conferences in support of Summit's magazine brands and sponsors the International Investment Conferences on global mining investment. Summit's Data Division, comprised of Highline Data and Judy Diamond Associates, is the leading data provider of financial and marketing information on insurance companies, life and property-casualty agents and investment advisors.

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