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SX must raise premiums

Underwriting losses mean that Southern Cross has to increase its premiums substantially.

Wednesday, February 20th 2002, 9:37PM

Southern Cross is spending more than it earns and must raise premiums to maintain its current financial strength, a PricewaterhouseCoopers report on the health insurer’s finances says.

Recent delays in processing claims payments relate to system deficiencies and not to Southern Cross’s ability to pay, says the report, a summary of which was made public yesterday.

PricewaterhouseCoopers says the not-for-profit insurer has net assets of $217 million at the end of last year, $196 million of which was held in highly liquid investments such as bank deposits and bonds.

"Southern Cross therefore has the necessary financial resources and liquidity to meet its obligations to members under a range of adverse circumstances both now and over the period reviewed, being the 18 months to 30 June 2003."

But the insurer is currently suffering underwriting losses, with claims expenses and operating overheads exceeding premium income, it says.

"This position cannot be sustained indefinitely without eroding reserves to the point where prudential margins would be jeopardised."

Southern Cross must raise premiums substantially to a level that at least covers claims, it says. Further premium increases will be needed to cover future rises in medical and surgical claims.

Following the release of report, commissioned by Southern Cross’ directors, the insurer said premiums are likely to rise by about 16% on average by the middle of the year.

Earlier this week, Southern Cross said it had more than halved the backlog of unpaid claims and had reduced the processing time to less than three weeks.

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