A.M. Best Special Report: U.S. Health Insurance Industry Earnings Up 46% in 2016

By a News Reporter-Staff News Editor at Managed Care Weekly Digest -- The health insurance industry posted improved earnings for 2016, with net income for those companies filing on a health annual statement rising by 46% to $13.1 billion compared with $9.0 billion in 2015, according to a new A.M. Best special report (see also A.M. Best).

The Best's Special Report, titled, "U.S. Health Insurance Industry Earnings Up in 2016," notes that net income was supported by a second year of improving underwriting income, which is owed to favorable year-over-year development in the majority of lines of business.

The comprehensive (commercial) business segment reported an overall underwriting loss of $893 million, which was a marked improvement from the $2.1 billion underwriting loss reported in 2015. The negative results were due primarily to the individual segment-in particular, to the Patient Protection and Affordable Care Act (ACA) exchange products-owing to severe adverse selection and the inability to effectively manage risk pools. The improvement in the segment's financial results followed very high rate increases, the modification of plan designs-including a reduction in the number of plans available with out-of-network benefits- and more effective medical management. The underwriting profitability of the Medicare Advantage business segment jumped 279% from 2015, owing to a decline of almost 200 basis points in the segment's medical loss ratio.

Capital and surplus grew by 7.5% to $161.9 billion from $150.7 billion in 2015, driven primarily by the improvement in net income. Additionally, net premiums written grew despite the rising amount of reinsurance ceded. In 2016, nearly all product lines had net premium growth, with an overall increase of 7.1%, to $784.7 billion from $732.1 billion in 2015.

The change in business mix is affecting health insurers' assets allocations. To mitigate the short-term liquidity pressure, health insurance carriers are holding more liquid assets. The shares of cash and short-term instruments grew to 26.8% in 2016 from less than 25% in 2015, while the allocations to fixed income, stocks and real estate declined.

A.M. Best notes that although 2016 results indicate positive development and the industry's capacity for profitable growth, potential near-term regulatory changes and uncertainty about the future direction of the individual and low-income markets could negatively affect future results. However, the industry is focusing on strategic planning to help mitigate the effects of potential regulatory changes and to maintain the improvement in the operating performance of the ACA exchange business.

Keywords for this news article include: A.M. Best, Investing, Health Insurance.

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