Health Insurers Profits Sink

 

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TheStreet.com

26 March 2009 Thursday 09:58 AM EST

SECTION: NEWS & ANALYSIS; insurance

LENGTH: 670 words


TITLE: Health Insurers Profits Sink

Signature: Gavin Magor, TheStreet.com Ratings Senior Analyst Health Insurance.

Gavin Magor joined TheStreet.com Ratings in 2008 and is the senior analyst responsible for assigning financial strength ratings to health insurers and supporting other health-related consumer products, including supplement health insurance, long-term care insurance and elder care information. It conducts industry analysis in these areas. He has over 20 years of international experience in credit risk management, commercial lending and analysis, working in the United Kingdom, Sweden, Mexico, Brazil and the United States, it holds a Masters in Business Administration from the Open University in the UK



Health insurers including Humana (HUM: NYSE), UnitedHealth Group (UNH: NYSE) and WELLCARE Health Plans (WCG: NYSE) reported third quarter combined with a profit of $ 2.6 billion, setting up what will probably be the weakest since 2003.

Net income fell 31% to $ 4.8 billion for the third quarter of 2007, according to the National Association of Insurance Commissioners' financial health. Thirty percent of insurers reported losses.


If the company has remained the same over the last three months of 2008, it is likely that net income fell to less than $ 11.6 billion for the year, compared with $ 17.1 billion in 2007. In 2003, insurance companies, health benefits aside $ 10.3 billion. Profit margins are suffering from reduced investment income and downward pressure on subscription.

Health insurers have two main sources of income: subscription, the difference between premiums and the amount paid out in claims and investment income. Insurers to invest huge sums of money, as exemplified by the American International Group (AIG: NYSE), once the largest insurer in the United States, but now on the verge of bankruptcy.

There were failures of small insurers this year, but not on the scale of those in the banking sector. President Barack Obama plans for health care reform and the controversial plans Medicare Advantage payments increase the profits of the pressure on health insurers.

Health insurers generated 318 billion dollars in cash bonuses for the first nine months of 2008. Because of the short-term insurance contracts, companies generally can not make long-term investments and rely on the liquidity of bond markets.

Insurance companies recorded healthy $ 6.5 billion in investment income during 2007, equal to 40% of profits. Based on trends, the total investment income for May 2008 is approximately $ 3.4 billion, a decrease of 48%. In the third quarter, investment income dropped from 46% to $ 527 million for the same period a year earlier.

A total of 3.3% of the investment of insurers reported losses in September, with losses for insurers double to $ 99 million in the third quarter. Yet 70% of insurers who have posted investment losses of positive net income, including subsidiaries of Coventry Health Care (CVH: NYSE) and Wellpoint (WLP: NYSE).

The investment losses are not the cause insurers are losing money in the first nine months of 2008. However, substantial income to help keep the premiums and companies more competitive.

Health insurance companies make most of their profits on revenues from subscription. The insurer has $ 9.7 billion of underwriting in 2007, marginally by 2.4%.

Underwriting income in the third quarter rose 10.8% to $ 2.7 billion, but decreased by 5.7% during the first nine months of 2008. In previous quarters, medical costs rose faster than premiums. Due to lower medical costs, income from underwriting May exceed $ 10 billion for the year, an increase of 3% compared to 2007.

Thirty-six percent of the insurance losses recorded during the first nine months of the year, up 18%, or 200 million dollars, 1.3 billion dollars. Three-quarters of companies that lost money on underwriting has also recorded a net loss overall.

Thirty-six insurers underwriting losses that exceeded $ 10 million, including subsidiaries of Centena (CNC: NYSE), Humana, Molina Healthcare (MOH: NYSE) and UnitedHealth Group WELLCARE Health Plans.


Note: Insurers represent only those filing the annual statement of health to white with the National Association of Insurance Commissioners, or NAIC. Some companies of life and health or damage companies selling health insurance in May complete another deposit if they do not meet the requirements of the NAIC for the completion of compulsory health blank.

TheStreet.com Ratings issues financial strength rating of 4000 life, health, annuity and property / casualty insurers are available free of charge on insurers and HMOs Screener. In addition, the financial strength of each side of the nation of 8600 and savings banks and credit are available from Banks and Thrift Screener.

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