Taking Your Insurer's Pulse

Every quarter TheStreet.com Ratings looks at the financial strength of over 500 health insurers. The firm's quantitative analytical model assigns a rating, on a scale of A to E, based on each insurer's five-year financial performance, including an analysis of profitability, liquidity, stability and capitalization.

A lower rating doesn't necessarily mean policyholders are likely to be stuck with unpaid claims. But those companies at the bottom of the scale are more likely to be acquired, wind down their business or withdraw from unprofitable business lines. The real issue is continuity of care -- whether you would have to be concerned about a change in benefits and provider network.

A review of third-quarter 2006 financial statements shows that the industry reported an aggregate net income of $11.3 billion, compared with $10.8 billion for the same period the previous year. The 4.57% increase, however, is somewhat distorted, because Anthem Insurance, a subsidiary of Wellpoint Inc. (WLP Quote), did not file a health insurance statement in third quarter of 2005.

If we subtract out the $238.9 million in net income for this one firm, the aggregate increase in net income for the year is only 2.36%. TheStreet.com ratings distribution reflects the continued profitability and strong capitalization of the industry with 65% of the 514 rated health insurers having grades in the B-range or higher.

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