Southern Cross Health Society, the not-for-profit health insurer, saw its surplus increase sharply in the year ended June 30, as premium income rose much faster than claims from members.

The Auckland-based mutual posted a surplus of $35 million, up from $5.8 million.

Income from premiums rose by 6 per cent to $871 million from $818 million, the third year in a row that premium income has risen by about 6 per cent. In that time membership has remained steady, moving between around 810,000 and 820,000 members.

Government data shows health insurance premiums have risen by an average of 7.4 per cent on an annual basis over the past three years.


In 2015, chairman Greg Gent said the cost of providing health care had risen by 6.2 per cent, driven by the increasing number of claims, the growing cost of procedures, an aging population and the greater range of treatments that are available.

Some $749 million was paid out in claims in the 2016 financial year, compared with $738 million a year earlier, a rise of 1.4 per cent. Eighty-six cents of every dollar paid in premiums went on members' treatment, down from 90.2 cents the previous year.

The ratio of premium to payout in 2016 is the lowest since 2012 when 85.7 cents of every dollar paid in premiums went on treatment.

In their written report to members, chairman Greg Gent and chief executive Peter Tynan said the $35 million surplus meant members, "can have confidence that we have enough money to pay future claims, even in adverse circumstances."

The number of members rose 1.1 per cent to 820,469 from 811,462 and its market share remained at 61 per cent.

Investment income from its $523 million portfolio fell to $17.5 million from $23 million a year earlier. In the summary of its annual report, Southern Cross told members that it would be adjusting its investment approach over the next financial year, moving some its money our of short-term low yielding portfolios and into more managed investments.

Hip replacements cost New Zealand's biggest health insurer $39.6 million annually, followed by knee replacements at $38.7 million, skin surgery at $36.3 million, colonoscopies at $33 million and cataracts at $27 million.