HMSA posts
$17.5 million
loss in quarter

The insurer is hit
with $15.6 million
in investment losses

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By Lyn Danninger
ldanninger@starbulletin.com

This year's down financial markets have taken their toll on the state's largest health insurer, which took both underwriting and investment losses during the second quarter.

In its latest filing with the state Insurance Division, Hawaii Medical Service Association reported net losses of $17.5 million during the quarter ended June 30.

The company said it lost $15.6 million in investments, primarily on sales of stocks and bonds.

"The financial results in the selloff of some stocks was disappointing, but that was much the same for everyone," said Cliff Cisco, HMSA senior vice president.

HMSA derives its investment gains and losses through interest income derived from bonds, and from the sale of bonds and stocks.

The insurer received $13.5 million in interest from bonds during the first six months of 2002, about 15 percent less than it received during the same period of the previous year.

But HMSA's underwriting results showed improvement during the first six months of 2002. Its underwriting loss during 2002 was $8.8 million, compared with $15 million in underwriting losses for the first six months of 2001.

Drug costs by far showed the greatest increase among expenses, jumping 22 percent during the first six months of 2002. Drug payments went from $42 million a year ago to $51.6 million by the end of the second quarter, according to the filing.

Cisco said that while the company's hospital and doctor costs continue to increase, drug costs rose at a faster pace.

"Inflation in drug costs continued to outpace the cost of living," he said.

HMSA's reserves fell 6.3 percent during the second quarter to $403.3 million from $430.6 million at the end of 2001.

State Insurance Commissioner Wayne Metcalf said he was not surprised at HMSA's investment losses given the current financial climate.

"HMSA, like many insurers and companies, suffered losses on the stock market," Metcalf said. "But new investments they made -- about $11 million worth of mutual funds -- were purchased at a lower price, so as the stock market rebounds, so too should those investments."

Metcalf also said the drop in HMSA reserves is not a cause for concern.

"The net result of all of this is that their reserves have diminished by a relatively small degree. Their reserves are still substantial by any measure and they appear to be financially very sound," he said.

HMSA increased its enrollment 2.7 percent to 646,537 from 629,331 at 2001 year-end.

The latest financial report does not include results from HMSA's for-profit subsidiaries. It also reflects an adjustment allowed under a change in national insurance accounting rules.