Health insurers are not immune from an ailing economy. The industry’s net income fell by 12.4% ($8.2 billion) during the third quarter of 2009, reports Highline Data, a Massachusetts-based provider of financial information.

Analyzing third quarter financial results of health insurers filed with the National Association of Insurance Commissioners, researchers at Highline Date found that more than a third of health insurance firms reported underwriting losses.

The big health insurers, however, continue to outperform their smaller brethren, according to the research. Nearly 35% of the industry’s net income arose from the top 1% of companies with the largest assets.

The research also reveals that health benefit payments jumped by 6.9%, totaling $332 billion as of Sept. 30, while underwriting costs experienced a five-year compound annual growth rate of 9.5%, outpacing total revenue, which showed a five-year compound annual growth rate of 9.2%. Some business experts explain that health insurance companies face enormous pressure to keep underwriting costs at a low, despite escalating medical costs.

Highline Data’s experts also report that return on average equity continued to drop, hitting a six-year low of 11.2%. Still, health insurance companies earned gains in total assets, member months and capital and surplus during the third quarter of 2009.

“While the public perception is that health companies are recording record profits, the reality they face is clearly a reduction in profit margins, which reached a four-year low of 2.4%,” explains Laurie Dallaire, vice president and director of Highline Data. “Even before the anticipated impact of pending health reform legislation, the industry will continue to see depressed margins as companies strive to control premiums and benefits costs,” she adds.

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