Hartford Financial Services Group Inc.
(
HIG
) has agreed to refund premiums worth $24 million to its accidental
death and dismemberment policyholders in New York, according to
Reuters. The refund pertains to the minimum medical loss ratio (
MLR
) provision of the Patient Protection and Affordable Care Act.
The New York Department of Financial Services said that the
company reached a settlement with the state regulators after
failing to meet the minimum MLR requirement. MLR is the ratio of
total loss incurred in claims plus adjustment expenses to total
premium earned.
The Patient Protection and Affordable Care Act requires
insurance companies to spend a minimum stipulated percentage of
premiums earned on payment of claims. In case the insurer fails to
do so, it is required to refund the difference between the actual
claims paid and the minimum requirement.
Hartford is required to maintain a 60% MLR, but the company
misjudged the amount required for its claims. Hence, it was unable
to reach the threshold and, eventually, now has to end up refunding
the premium. Consequently, 300,000 policyholders in New York who
are covered by the company's accidental death and dismemberment
policies, will receive premium refunds from the company.
Additionally, Hartford will also cut its premium rates by 45%
for both existing and new policyholders. Moreover, the existing
policyholders will receive a 35% discount on their premiums for the
next three years. This implies that the current policyholders will
have to pay an annual premium of about $35 only, over the next
three years.
The premium refund will not materially affect the company's
financial position, as it had a cash balance of $2.58 billion at
the end of 2011. Moreover, the reduced premium rates are expected
to boost Hartford's membership significantly in the upcoming years.
However, the decline in premium revenues due to the rate cut and
discount is expected to substantially reduce the company's earnings
in the next few years.
Hartford, which competes with insurance companies like
American International Group
(
AIG
) and
MetLife Inc.
(
MET
), is one of the largest multi-line insurance and investment
companies in the U.S. Currently, the shares of the company carry a
Zacks #3 Rank (short-term Hold rating). Considering the
fundamentals, we maintain a long-term Neutral recommendation on
Hartford.
AMER INTL GRP (
AIG
): Free Stock Analysis Report
HARTFORD FIN SV (
HIG
): Free Stock Analysis Report
METLIFE INC (
MET
): Free Stock Analysis Report
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