Question-and-Answer Session
Operator
Thank you ladies and gentlemen. (Operator Instructions). We will take our question from John Rex with JPMorgan.
John Rex - JPMorgan
Thank you. My first question just, I am most surprised we can see a more significant reserve boost in the quarter, kind of given the more conservative buyers you're talking about as you look forward in the year. Should we -- maybe if you can talk a little bit to that in the 2Q itself and then should we expect to see reserves coming up more meaningfully in the second half of the given how you're positioning it?
Ronald Williams
John we strengthen reserves as we said by $60 million in the quarter. And we really took into consideration all of the higher medical cost experience we experienced in the second quarter into consideration. So we really do think we have a strong reserve position and adequate provision for average deviation.
I will also point out that we took that same experience in to consideration in our third and fourth quarter forecast. So in our forecasting we assumed no improvement in either pricing or medical cost experience for the balance year although, we will manage to a better outcome. So, I think we've a conservative outlook and a very strong reserve position at the end of the second quarter.
John Rex - JPMorgan
And then just I appreciate your comment on the 2010 and just and I realize this is going to be done on an account by account basis but for our purposes what would you be targeting, what should we be seeing in terms of kind of an average favorable spread? And kind of where will you end up in costs for the year, let's say it is 9% this year. What magnitude of favorable spread would you expect us to see as you are moving into 2010 across the entire book of commercial insured?
Joseph Zubretsky
Well John if you look at our financial statements you will see that in the first quarter we did have a negative spread between trend and yield of 300 bases points. That has grown to 700 basis points on a reported basis, but adjusted for development approximately 400 basis points. As I said, we've taken no improvement to that negative spread for the balance of the year. Although we are clearly going to price to a better outcome and that effect should have, should start to have effect in the latter half of the year and into 2010. So clearly, we do believe that the medical benefit ratio that we've currently posted can be managed through a better outcome.
- To read the full transcript on Seeking Alpha, click here »
