Hawaii Medical Service Association’s investments are playing a big role in keeping the state’s largest health insurer profitable.

The insurer said Friday it earned $5.4 million in the fourth quarter thanks to a $10.1 million net investment gain.

And for the full year, HMSA saw its profit of $36 million buoyed by a $25.8 million increase from its investments.

"We are earning investment returns to help compensate for the rising cost of health care," HMSA Chief Financial Officer Steve Van Ribbink said.

The earnings by HMSA and the full-year profit reported Friday by Kaiser Permanente Hawaii, the state’s largest health maintenance organization, were encouraging to Hawaii Insurance Commissioner Gordon Ito. He noted that the insurers, who have been increasing rates every year, achieved their profits primarily due to net gains in investments, not operating revenue. That means the insurers aren’t relying as much on increased premiums to fuel their operations.

HMSA achieved a 1.12 percent return on its investments in the fourth quarter when the Dow Jones industrial average had a 1.7 percent decline and the Standard & Poor’s 500 was down 0.4 percent.

For the year, HMSA’s investment return was 9.6 percent compared with a 10.2 percent gain for the Dow and 16 percent return for the S&P 500.

Besides stocks, HMSA also puts its money in bonds, short-term investments and real estate.

"It is encouraging to see that the health insurers have been able to move on to a more solid financial footing after the difficult recession years," Ito said. "With that said, the Insurance Division will continue to look closely at these earnings along with the trend of medical care costs when the insurers request a change in rates and utilization."

HMSA raised its premiums 2.6 percent for small businesses July 1 and boosted rates by 3.6 percent at the start of last year for large businesses,

The insurer, which has 708,378 members, had an operating loss in the fourth quarter of $5.5 million as benefit expenses — the amount paid to physicians, hospitals, pharmacies and other health care providers — and administrative expenses outpaced dues revenue. Benefit expenses rose 26.9 percent to $578.3 million, and administrative expenses grew 28.5 percent to $62.5 million for total expenses of $640.79 million.

That surpassed revenue of $635.3 million, which was up 23.4 percent from the year-earlier quarter.

HMSA’s membership grew by 20.4 percent in 2012, accounting for some of the increase in expenses.

For the year, HMSA had an operating gain of $8.6 million. Benefit expenses rose 20.3 percent to $2.25 billion, and administrative expenses gained 24.6 percent to $217.4 million for a combined $2.47 billion. Revenue rose 20.4 percent to $2.5 billion. Its net income, though, was down 17.8 percent from $43.8 million in 2011.

"HMSA was founded 75 years ago on the idea that our members deserve excellent value for the money they entrust to us," Van Ribbink said.

"Throughout history we’ve been a national leader in being financially responsible to our members, and I’m very pleased that we outperformed the federal standard for health care expenditures on our members in 2011 and 2012."

HMSA spent $2.3 billion, or 90.9 percent of dues, on health care services for its members last year, surpassing the minimum 80 percent to 85 percent required by the Affordable Care Act’s medical loss ratio provision. Its administrative costs of $217.4 million represented 8.8 percent of dues revenue in 2012.

Investment and other income totaled $27.9 million.

At the end of 2012, HMSA had a reserve of about $452.2 million, or $638 per member, up from $406.2 million in 2011.

The HMSA reserve is used to protect members from financial losses and community health emergencies, such as a disease outbreak or natural disaster.