A.M. Best Special Report: Publicly Traded Health Insurers Increase Revenues But Operating Earnings Contract Through First Quarter 2016

OLDWICK, N.J.--()--The stock price performance of publicly traded U.S. health insurance companies covered in a new A.M. Best special report increased 3.3% in first-quarter 2016, continuing on the momentum from the previous quarter and besting the broader market’s 0.8% gain.

According to the Best Special Report, titled, “Publicly Traded Health Insurers Increase Revenues But Operating Earnings Contract Through First Quarter 2016,” of the 11 companies’ stock-price performance followed in this report, WellCare Health Plans reported the largest increase at 18.6%, followed by Magellan Health Services’ 10.2% increase. The average operating return on equity (ROE) for the population was a strong 22.0%, aided by the fact that all but four companies reported ROEs above 20%. Despite the overall positive ROE, five companies were trading below the index price/book of 2.06 times.

A.M. Best’s outlook for the health insurance industry was recently revised to negative from stable, largely related to earnings and capitalization pressure as a result of the Patient Protection and Affordable Care Act (ACA).

The health industry reported strong year-over-year revenue growth of 13.6% for the first quarter of 2016. More than 60% of the population’s revenue growth was reported by UnitedHealth, which saw revenues increase $8.7 billion, or 24.5%. Strong revenue growth was also boosted by Molina Healthcare, Centene and Triple-S Management, all of which reported increases of more than 30%.

With increased revenue and a decline in operating income, the aggregated operating margin for the population declined from 7.3% in the first quarter of 2015 to 6.2% for the same time period in 2016. On the other hand, the average operating margin for the group of companies is much lower, and has declined to 4.2% in the first quarter of 2016 from 4.7% for the same period in 2015. Premium has also grown more rapidly in the past two years, driven by the new ACA exchange marketplace members and lower margin Medicaid managed care enrollment due to the expansion.

However, the report notes that millions of non-subsidy-receiving consumers are likely to face some large premium hikes in 2017 as insurers take corrective pricing actions and some companies leave certain state exchanges due to unfavorable performance and mounting losses.

A.M. Best will continue to monitor industry trends, operating results and levels of risk-adjusted capitalization while having discussions with company managements regarding their financial results and operating plans, including their future plans for the ACA exchange marketplace and strategies for maintaining solid operating performance and capitalization.

To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=250174.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2016 by A.M. Best Rating Services, Inc. ALL RIGHTS RESERVED.

Contacts

A.M. Best
Jason Hopper, +1 908-439-2200, ext. 5016
Senior Industry Research Analyst
Credit Rating Criteria
Research and Analysis
jason.hopper@ambest.com
or
Christopher Sharkey, +1 908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best
Jason Hopper, +1 908-439-2200, ext. 5016
Senior Industry Research Analyst
Credit Rating Criteria
Research and Analysis
jason.hopper@ambest.com
or
Christopher Sharkey, +1 908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com