Oregon Health Insurers Ride Stock Market Gains

Net investment income helps buoy insurance earnings to pre-recession levels
The Lund Report
December 1, 2010 – Oregon health insurers continued an aggressive earnings pace through September of this year that saw the state’s top eight companies posting more than $170 million in net income.
The substantial gains in the first nine months of this year came off two years of declining profits in 2008 and 2009 when Oregon’s top health insurers made $76 million and $100 million respectively.
If their current pace continues this year, insurers may surpass profits in 2005 and 2006 when they made around $250 million in net income for the year.
This year’s profits, however, further illustrate how much of the health insurance industry depends on the success of Wall Street. Investment gains amounted to more than half of the net income for the top three health insurers in the state: Regence BlueCross BlueShield of Oregon, Kaiser Permanente and Providence Health Plans.
Regence led the pack so far this year with $70.4 million in net income largely off investment gains of $37.2 million. At the same time, Regence shed 200,000 members in the commercial market.
“Insurance is a cyclical business,” said Samantha Meese, Regence spokesperson. “Because of the economy, many employers were forced to drop or reduce coverage and many sought low-cost plans. In addition, many individual members had to reduce or drop coverage entirely.”
Meese acknowledged most of that gain was made on the backs of a positive stock market.
“Despite the subsequent decline in premium revenue, net income increased because of investment income,” Meese said. “The rising stock market has yielded better returns than last year.”
Those gains, however, are not seeing their way into premium rate requests, which continue to skyrocket. This year, Regence won approval from the Oregon Insurance Division to increase premiums on small businesses by 15.6 percent starting Jan. 1, 2011. The company is also seeking a 22.7 percent average increase on individuals.
Oregon insurers in general appear to be in good financial shape as they emerge from the recession and prepare for upcoming federal reform laws. By September, Oregon insurers had put away $80 million in additional surplus from the same time last year and were on pace to more than double their profits from the year before.
On the down side, ODS Health Plan recorded a $2 million third-quarter deficit, although it added $7 million to its surplus this year. Last year, ODS reported a $10 million deficit.
Dave Evans, ODS vice president and controller, said the insurer was on pace to finish the year with positive returns. He said the company’s third quarter slump was based on utilization and the fact that many plans come up for renewal later in the year.
“We’re really performing at where we expect to be for the year,” Evans said. “From our standpoint everything is clicking and we’re happy with our performance. You always want to be more positive, but we are on target and expect a decent fourth quarter.”

Second Quarter 2010

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If they use investment income to keep premiums down now, then what happens if the investments turn in a negative direction? They won't be able to pay claims, that's what happens. I guess you won't mind telling the good folks who have paid their premiums that insurance companies can't pay their claims though.... Also, would you like to see a bailout in this sector?

Their stock portfolios are very conservative - compare insurer stock losses in 2008 to Dow Jones Industrial -- most insurers were in single-digits, while DJIA was 33%

Those insurers better insure themselves for a shock because the markets are not going up forever. This is the calm before the second storm hits. This is uncharted waters for the economy. Never in the history of America has there been such and budget gaps. The numbers are into the atmosphere. I would not be surprised to see the Dow Jones Index drop further in the next few months.