A.M. Best Special Report: Good Year Overall in 2007; But Income Is Pressured in 2008

Business Wire, May 12, 2008

OLDWICK, N.J. -- Across the board, GAAP results for health insurers were good in 2007, with many companies seeing a larger portion of their revenues coming from government programs. But some companies have already lowered their earnings guidance for 2008 as a result of lower interest rates and high claims experience from the winter's flu season.

While earnings are expected to remain positive and overall margins should remain good, the level of overall income has started to come under pressure. Companies competing with the non-profit Blue Cross Blue Shield companies could face pricing pressures as the Blues plans continue to revert to driving net income from investment results rather than underwriting. Plus, companies with Medicaid contracts could face resistance to rate increases as states try to balance budgets. Current economic conditions also may continue to negatively impact commercial business as employers lay off workers, consolidate coverage and look to lower costs.

The following is a recap of 2007 GAAP trends:

* Merger and acquisition activity resumed, with 15 transactions announced.

* Medical enrollment, excluding stand alone Medicare Part D, grew 3.9%.

* Enrollment in stand-alone Medicare Part D plans grew by 3.2%.

* Total revenues grew 9.7% year over year, largely driven by a 9.9% increase in premiums.

* Management service fees and other revenues increased by 8.2%.

* The average medical loss ratio worsened by 20 basis points to 81.6%.

* Net income grew by 10.3%.

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Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.