Earnings rose in 2016 for the U.S. health insurance industry, with net income for those companies filing a health annual statement rising by 46% to $13.1 billion compared with $9.0 billion in 2015.

This, according to an A.M. Best special report titled, U.S. Health Insurance Industry Earnings Up in 2016.  The report notes that net income was supported by a second year of improving underwriting income, which is owed to favorable year-over-year development in the majority of lines of business. In particular:

• The comprehensive (commercial) business segment reported an overall underwriting loss of $893 million, which was a marked improvement from the $2.1 billion underwriting loss reported in 2015. The negative results were due primarily to the individual segment—in particular, to the Patient Protection and Affordable Care Act (PPACA) exchange products—owing to severe adverse selection and the inability to effectively manage risk pools.
• The improvement in the segment’s financial results followed very high rate increases, the modification of plan designs–including a reduction in the number of plans available with out-of-network benefits– and more effective medical management.
• The underwriting profitability of the Medicare Advantage business segment jumped 279% from 2015, owing to a decline of almost 200 basis points in the segment’s medical loss ratio.
• Capital and surplus grew by 7.5% to $161.9 billion from $150.7 billion in 2015, driven primarily by the improvement in net income. Additionally, net premiums written grew despite the rising amount of reinsurance ceded.
• Nearly all product lines had net premium growth in 2016, with an overall increase of 7.1%, to $784.7 billion from $732.1 billion in 2015.

One factor affecting the change in business mix is health insurers’ assets allocations. In order to mitigate the short-term liquidity pressure, health insurance carriers hold more liquid assets. Shares of cash and short-term instruments grew to 26.8% in 2016 from less than 25% in 2015, while the allocations to fixed income, stocks and real estate declined.

A.M. Best notes that although 2016 results indicate positive development and the industry’s capacity for profitable growth, potential near-term regulatory changes and uncertainty about the future direction of the individual and low income markets could negatively affect future results. However, the industry is focusing on strategic planning to help mitigate the effects of potential regulatory changes and to maintain consistent improvement in the operating performance of the PPACA exchange business – assuming laws and regulations in the U.S. do not change entirely in 2017.