Health insurance industry reports decline in net income

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.

While the ten largest companies' ranked by year-end 2008 total assets accounted for 35 percent ($2.8 billion) of the total industry net income during the quarter, considerably outperforming smaller players, 38 percent (335) of the companies reported underwriting losses in the third quarter.

Underwriting deductions, which primarily include health benefit payments, increased by 4.5 percent year-over-year and totaled $332 billion as of September 30. Underwriting deductions 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, capital and surplus, and member months, which was an improvement over 2008 results, which all reported declines. Return on average equity continued to decline, however, reaching a six-year low of 11.1 percent.

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