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HMO Profits Jump 21% in First Quarter 2005, According to Weiss Ratings; Profit Margin Increases Despite Signs of a Slowdown

Posted on: Monday, 24 October 2005, 12:01 CDT

The nation's HMOs(1) reported a $3.6 billion profit for the first three months of 2005, representing a $646 million, or 21.4 percent, increase over the $3.0 billion earned during the first quarter of 2004, according to Weiss Ratings, Inc., the nation's leading independent provider of ratings and analyses of financial services companies, mutual funds, and stocks. While the 21.4 percent profit increase still represents strong growth for the industry, it is considerably less than other recent first-quarter increases, including 152.7 percent in 2002, 60.9 percent in 2003, and 32.9 percent in 2004.

HMOs reporting the largest year-over-year increases in net income include: Net Income ($Mil) -------------------------------- 1st 1st Weiss Qtr Qtr Safety 2005 2004 $ % Company Headquarters Rating ($Mil) ($Mil) Change Change ---------------------------------------------------------------------- Kaiser Foundation Health Plan, Oakland, Inc. Calif. B+ 552.2 431.3 120.9 28.0 Horizon Healthcare Services, Inc. Newark, N.J. A 50.3 14.6 35.7 245.0 Horizon Healthcare of New Jersey, Inc. Newark, N.J. A 34.4 4.4 30.1 686.8 Woodland Hills, Health Net Calif. B 33.0 10.7 22.4 209.9 Oxford Health New York, Insurance, Inc. N.Y. B 44.5 22.8 21.6 94.7 ---------------------------------------------------------------------- Weiss Safety Rating: A=Excellent, B=Good, C=Fair, D=Weak, E=Very Weak, F=Failed, U=Unrated

"Earnings growth is slowing," said Melissa Gannon, vice president of Weiss Ratings, Inc. "The market seems to have reached the point at which it will no longer bear drastic rate increases, thus the industry will not be able to maintain the earnings growth levels experienced in the past few years."

Industry Profit Margin Increases to 4.6%

The industry profit margin registered only a slight improvement with a rise to 4.6 percent in the first quarter 2005 compared to 4.2 percent in the first quarter 2004. Profit margins in the first quarter of previous years were 3.5 in 2003, 2.4 in 2002, and 1.1 in 2001.

Notable Upgrades and Downgrades

Of the 485 HMOs reviewed by Weiss using first quarter 2005 data, only one company was upgraded, while three were downgraded. The insurer receiving an upgrade was: -- Horizon Healthcare Insurance Co of NY from C to B (New York, N.Y.) The companies downgraded were: -- New West Health Services (Helena, Mt.) from D- to E+ -- PHP Insurance Plan, Inc. (Green Bay, Wis.) from D- to E+ -- Community Health Group (Chula Vista, Calif.) from D to D-

The Weiss Safety Ratings are based on an analysis of a company's risk-adjusted capital, five-year historical profitability, quality of investments, liquidity, and stability. The latter category combines a series of factors including asset growth, premium growth, strength of affiliate companies, and risk diversification.

Weiss Ratings, Inc. reviews more than 8,000 stocks daily, including all those traded on the New York Stock Exchange, the American Stock Exchange, and Nasdaq. Weiss also issues investment ratings on more than 12,000 mutual funds, covering equity, fixed-income, and closed-end funds, and provides financial risk ratings on more than 15,000 financial institutions, including banks and insurance companies. It is the only major rating agency that receives no direct or indirect compensation from the companies it rates. Ratings and analyses are available through www.weissratings.com or by calling 800-289-9222.

(1) Analysis based on insurers that filed a NAIC Health Statement or a California Health Care Service Plan statement. Other insurers offer health insurance but are not included in this analysis. Please refer to Weiss Ratings' Life & Health releases for additional health insurance studies and/or companies at www.WeissRatings.com.

Note to editors: National and state listings of strongest and weakest HMOs are available.

Source: Business Wire

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