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"Our strong fourth quarter results capped off an excellent year forAMERIGROUP. We have applied a disciplined approach to new markets andproducts and effectively managed our mature markets, all of which position uswell to benefit from future growth," said James G. Carlson, AMERIGROUP'sPresident and Chief Executive Officer. "Fundamentally, we feel very good aboutour business and our outlook for 2008 remains positive."
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Revenue
Total revenues for the fourth quarter of 2007 increased 33.0% to $1.1billion compared with $809.7 million in the fourth quarter of 2006.Sequentially, total revenues increased $44.0 million, or 4.3%, compared withthe third quarter of 2007. The sequential increase primarily reflects rateincreases received in Texas and Florida in September.
For the year ended December 31, 2007, total revenues increased 39.2% to$3.9 billion from $2.8 billion for the year ended December 31, 2006,reflecting 38.5% organic premium revenue growth. The retroactive rateincrease in Georgia is not included in the 2007 results.
Fourth quarter investment income and other revenue was $23.7 millioncompared with $11.9 million in the fourth quarter of 2006. Sequentially,investment income and other revenue increased $4.6 million, or 24.1%, from thethird quarter of 2007. Investment income and other revenue increased in thefourth quarter primarily due to the inclusion of the newly acquired TLC FamilyCare Health Plan in West Tennessee with 170,000 members, which are servicedunder an administrative services only agreement (ASO) with the State ofTennessee.
Health Benefits
Health benefits as a percent of premium revenues were 82.9% for the fourthquarter of 2007 versus 80.4% in the fourth quarter of 2006, and wereconsistent with the third quarter of 2007. The health benefits ratioreflects strong revenue growth, solid performance of mature markets,improvements in developing markets as well as favorable reserve developmentthat was similar to recent quarters.
For the full-year 2007, the health benefits ratio was 83.1% compared with81.1% for the full-year 2006.
Selling, General and Administrative Expenses
Selling, general and administrative expense was $141.5 million or 13.1% oftotal revenues for the fourth quarter of 2007 versus $114.8 million or 14.2%of total revenues in the fourth quarter of 2006, and compared with $129.9million or 12.6% of total revenues in the third quarter of 2007.
For the full-year 2007, the selling, general and administrative expenseratio was 12.6% compared with 13.0% for the full-year 2006.
The sequential increase in selling, general and administrative expense isprimarily due to an increase in experience rebate expense in Texas driven bytwo factors: an accrual of $7.4 million associated with the resolution ofaudit items on all open experience rebate reports for prior years', aspreviously disclosed in AMERIGROUP SEC filings; and, the experience rebateexpense associated with the favorable reserve development in the State.
The total favorable reserve development recorded for the Company, in thequarter, was fully offset by the experience rebate expense items detailedabove.
Balance Sheet and Cash Flow Highlights
Cash and investments at December 31, 2007 totaled $1.
