The health insurance industry reported a decline of 12.4% in net income, to $8.2 billion as of Sept. 30, compared to the same period in 2008, according to a new analysis by Highline Data.

The 10 largest companies ranked by year-end 2008 total assets accounted for $2.8 billion, or 35% of the total industry net income during the quarter, considerably outperforming smaller players, according to Highline, a subsidiary of Summit Business Media Inc., the parent company of National Underwriter.

Of all companies in the industry, 335, or 38%, reported underwriting losses in the third quarter.

Underwriting deductions, which primarily include health benefit payments, increased by 4.5% year-over-year and totaled $332 billion as of Sept. 30.

Underwriting deductions showed a 5-year compound annual growth rate of 9.5%, outpacing total revenue, which showed a 5-year CAGR of 9.2%.

Overall, the industry saw gains in total assets, capital and surplus, and member months, all improving over 2008 results. Return on average equity continued to fall, however, reaching a 6-year low of 11.1%.

“While the public perception is that health companies are recording record profits, the reality they face is clearly a reduction in profit margins, reaching a four-year low of 2.4% (net underwriting gain to revenues),” said Laurie Dallaire, vice president of Highline, Cambridge, Mass. “Even before the anticipated impact of pending healthcare reform legislation, the industry will continue to see depressed margins as companies strive to control premiums and benefits costs.”