Best’s has released their latest report on the profitability of the Property and Casualty insurance industry. The net is 2004 has been a very good year, despite the large number of catastrophic events most notable of which were the four hurricanes that devastated the southeastern US.
The industry appears to have been profitable on an underwriting basis to the tune of over $4 billion for the nine months ended 9/30/04. This is a very strong performance, as the industry typically loses money on an underwriting basis, relying on investment income (from investing premiums in debt and equity instruments) to deliver profits.
If not for the estimated $20.5 billion in covered losses from the hurricanes (most of which was incurred by US insurers), 2004 would have been a stupendously profitable year. But, as one wag put it, that’s why they call it insurance.
This silver cloud has a grey lining. Historically, senior management in the P&C industry has a pathologic aversion to profits, which they demonstrate by cutting premiums and writing lots of bad business whenever they start to make lots of money. Expect this condition to perpetuate itself in the new year. In fact, Best points out that it may already have started…
“(the) industry’s operating performance measured by return on revenue improved to a healthy 10.3 percent as of nine-month 2004 results, up from 8 percent in the comparable 2003 period. However, operating results moderated from the 13.8 percent return on revenue reported for the first six months of 2004 due to reduced underwriting income…”

Coventry’s pending acquisition of First Health passed a key milestone with the Feds’ approval of the merger. This is now a “done deal”, not that there was much doubt it was going to happen.
News from sources familiar with First Health indicate that Pat Dills, Lee Dickerson, and Ed Wristen (FH senior leadership) will be departing the organization in the (very) near future. Art Lynch, present head of sales for FH, will remain on board, and will likely assume additional responsibilities.
One interesting tidbit related to this is the pending issues resulting from Coventry’s ability to access HealthNet contracts. Huh? Read on…
FH acquired the WC assets of HealthNet earlier this year. As part of the deal, FH received access to HealthNet’s WC contracts with their providers – this was perhaps the most attractive piece of the deal to FH, which had long been under pressure to improve California network results. Well, sources indicate that the FH-HealthNet contract does NOT include any change in control language, leaving HealthNet contracts (at least in theory) accessible by Coventry.
If these sources are correct, one has to wonder what HealthNet was thinking…rumors had abounded earlier this year about FH’s shaky future.

Tom Lynch’s WorkComp Insider has a great synopsis of the weekend’s WC blogging activity.

As goes California, so goes the nation. Particularly bad news if the trend one is watching is health care. California’s health care premiums have just passed the $10,000 per family threshold, a level some experts think will finally lead to calls for significant change.
Don’t bet on it.
The frightening thing about this increase is it reflects a lower than expected trend rate of 11.4%…2003 costs were up a whopping 15.8%. When 11.4% is good news, you know we’re in trouble.
The study, sponsored by the California HealthCare Foundation and Kaiser Family Foundation, also covers national health care premium trends. And those numbers aren’t a beam of sunshine either.
The national health care trend rate is 11.2%. Since 2000, health care premiums are up 61%.
Sixty-one percent.
For those who are interested, a summary of the report presents the highlights, including employer contribution rates and trends, specific plan trend rates, and future cost projections. Make sure you are sitting down when you read this.