While the new health insurance market is about as profitable as the pre-reform era for some large insurers, that is not the case for those like Assurant.
Publicly-traded insurance company Assurant is experiencing some growing pains in its bid to expand its health insurance business, which currently accounts for about 20 percent of its revenue.
The New York-based insurer saw its earnings slip 5 percent to $439 million, or $6 per share, from $466 million in 2013, even as revenue increased more than 10 percent to $8.6 billion. Fourth quarter revenue was $50 million, down from $109 million the year before.
The company's stock price has since tumbled 5 percent, trading at around $60 -- in contrast with Aetna and UnitedHealth Group, whose stock and profits have both grown.
While Assurant's solutions, speciality property and employee benefits insurance businesses all turned a profit, the health insurance division lost $67 million for the year, on revenues of $1.9 billion.
Thus are the challenges vying in the Affordable Care Act market.
Assurant ended the year with 967,000 health insurance members in individual and small group policies on and off the exchanges. The company sold public exchange plans for the 2015 in 16 states, including Arizona, Florida, Illinois, Pennsylvania and Texas. Now, it is scrambling to try to make the exchange business at least modestly profitable.
Alan Colberg, the president and new CEO, told investors that last year brought "higher-than-expected losses" that were "only partially offset by risk mitigation programs."
The health plans saw "higher claims and increasing market morbidity," and the $400 million in total recoveries from the risk adjustment, reinsurance and risk corridor programs were not enough to make up the difference.
"While we are encouraged to see our products resonate with consumers, our focus must remain on driving profitability and achieving specialty returns," said Colberg, who came to Assurant in 2011 after 22 years with Bain & Company. "The loss for the year was disappointing and reflected persistently high ACA claims experience," he continued. "Mandated coverage extensions introduced after the industry had set 2014 pricing, drove higher overall market morbidity and significantly affected results."
To manage the new risk, in January the company implemented new plan designs, "increased premium rate substantially for all 2015 ACA policies," lowered broker commission levels in several states to further manage risk. "We believe the actions we are taking, along with ongoing expense discipline should improve results in 2015," Colberg said.
The company, he added, is also looking for opportunities in health and its employee benefits line, especially voluntary products which have increased 12 percent, "well in excess of the market."