What do you want from a stock? Among other things, you might expect it to rise over time, a dividend and, of course, a company that is financially secure. If you are thinking of investing in a
, maybe you should think again.
Twenty-eight percent of insurers completing the National Association of Insurance Commissioners' health-insurance financial statement reported losses totaling $610 million for the first half of 2008, compared with 23% losing $720 million for all of 2007. Thirty-six percent recorded underwriting losses totaling $1.1 billion, calculated after medical expenses were deducted from premiums received.
Loss-making companies included subsidiaries of Aetna
, Medco Health Solutions
, Health Net
( AGP), Wellcare Health Plans
. Those had combined underwriting losses of $291 million, 26% of the total of all health insurers.
It is untrue that
are an unsafe place for your money. In fact, they are very safe. Perhaps it is that "safeness" that should put you off, depending on your appetite for investment risk in these difficult times. Protections afforded to policyholders include a massive amount of underworked capital that doesn't generate significant returns.
Because of the strict regulations noted above, health insurers reported profits of $6.5 billion for the first half of 2008 after losses were taken into account. This compares with profits of $17.8 billion for 2007. The figures indicate that full-year net income may be down about 25% to less than $13 billion, the lowest since 2004's $11.5 billion.
In the first half, health premiums rose an annualized 5.1%. Medical expenses increased at a higher rate, 6%. Thus, margins were squeezed, despite a 0.3% drop in administrative expenses as a percentage of premiums. Underwriting margins narrowed from 2.4% in 2007 to 2.2%, and net income as a percentage of premiums declined from 4.3% to 3.1%.
Investment income from January to June was $2.3 billion, down 29% on an annualized basis. In 2007, investment income represented 38.2% of net income. For investment income to drop to 35.9% in the first half of 2008, compared with an annualized 25% decline in total income, is concerning because 72 of the 250 insurers (29%) with underwriting losses were dependent on investment income to be profitable.
Insurers with losses on investments more than doubled, from 0.75% to 1.75%, in the first six months of 2008. Investment losses totaled $50.3 million. In 2007, investment losses were $10.5 million.
Total assets grew at an annualized rate of 1.9%, from $199.3 billion to $202.3 billion, slowing from double digits in recent years. Net worth climbed at an annualized rate of 3.6% to $101.3 billion. Assets and net worth advanced only 0.1% and 0.6% in the second quarter, respectively.
Note: The insurers referred to represent only those filing the health annual statement blank with the National Association of Insurance Commissioners. Some life and health companies, or property and casualty companies, selling health-insurance coverage may complete a different filing if they do not meet the NAIC requirements for mandatory health blank completion.
TheStreet.com Ratings issues financial strength ratings for 4,000 life, health, annuity, and property-casualty insurers. They are available at no charge on the
. In addition, the Financial Strength Ratings on each of the nation's 8,600 banks and savings and loans are available on the
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 care-related consumer products, including Medicare supplement insurance, long-term care insurance and elder care information. He conducts industry analysis in these areas. He has more than 20 years' international experience in credit risk management, commercial lending and analysis, working in the U.K., Sweden, Mexico, Brazil and the U.S. He holds a master's degree in business administration from The Open University in the U.K.