A.M. Best Special Reports: U.S. Health Stocks Maintain Momentum During Second-Quarter 2015; Life/Annuity Stocks Turn Positive

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FOR IMMEDIATE RELEASE

OLDWICK - OCTOBER 06, 2015 02:21 PM (EDT)
According to two special reports by A.M. Best, despite the second-quarter 2015 slowdown, U.S. health stock price movements remained favorable and life/annuities (L/A) outperformed the broad market in 2015, although still lagging.

The U.S. health Best Special Report, titled, “U.S. Health Stocks Continue Their Favorable Performance,” says stock prices for the 12 companies comprising the publicly traded health insurance population increased 8.8% in second-quarter 2015, below the first quarter increase of 13.7% but still assisting the overall 23.6% increase for the year through June 30.

Some of the highlights from this health report include:

• The aggregated operating margin for the population improved to 7.1% from 6.7% year over year. Similarly, the average operating margin of the group improved to 4.7% from 4.5%.;


• Driven by the implementation of the health insurance marketplaces, commercial enrollment increased 1.1% year-over-year through second-quarter 2015, compared with 2.9% for the same period in 2014; and


• Overall, Medicare Advantage (MA) enrollment for the population increased 7.9% through the second quarter of 2015, an increase from 7.1% from the same period in 2014.

A.M. Best notes that although commercial business remains very important to health insurers’ revenues, margins for this business have narrowed over the past several years. A.M. Best’s outlook for the health insurance industry remains stable, as it views favorably the emphasis on diversification, implementation of technology and expense-reduction initiatives that have more recently been embraced by the large publicly traded companies.

The U.S. L/A Best Special Report, titled, “L/A Stocks Return to Positive Performance During Second Quarter 2015 as Macro Factors Continue to Drive Returns,” states that the L/A performance was largely driven by macroeconomic factors, specifically interest rates. The large unexpected drop in interest rates in the beginning of the year gave way to fears that already low-spread based business would be compressed even further. However, improving economic data and subsequent rising rates during second-quarter 2015 aided in the improved performance of L/A writers, which have a strong correlation to interest rates.

Some of the highlights from this L/A report include:

• For the 23 companies featured in this report, total revenue for the group was up 2.8% to USD 75.7 billion from second-quarter 2014, with fee income up 0.8% and premiums up 4.4%. Overall operating income was up 8.5%, to USD 7.8 billion, from USD 7.2 billion year-over-year;


• Operating income for the group was strong, up 8.5%; however, only 12 companies out of the 23 actually reported a boost in year-over-year operating income; and


• For the companies featured in this report, the average operating return on equity was down to 13.5% from 16% in second-quarter 2014.

Many L/A companies are moving to less capital-intensive businesses and are unlocking reserves. This allows companies to return more capital to shareholders than would otherwise be possible. A.M. Best expects this to be a short-term phenomenon amid a gradual run-off of closed blocks of business and as more participants leave capital-intensive products. As rates rise, A.M. Best expects these products to once again become more profitable.

For the full copy of the health special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=242026 .

For the full copy of the life/annuity special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=242005 .

A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.