The Hawaii Medical Service Association today reported net income of $3.7 million for the first quarter of the year, reversing a recent trend of multimillion-dollar quarterly losses.

But HMSA officials said those results were tempered by the knowledge that the company, in the fourth-quarter 2002, had "front-loaded" $15 million in losses it expected to sustain this year.

Though HMSA accounted for that $15 million as a charge to its fourth-quarter 2002 earnings, $6 million of those losses, which were due to higher-than-expected costs of health care, actually occurred in first-quarter 2003.

Without that front-loading, the company would have sustained about a $2 million loss in the first quarter, said Steve Van Lier Ribbink, chief financial officer and treasurer of HMSA, a nonprofit company that provides health insurance to more than 670,000 Hawai'i residents. Van Lier Ribbink said the front-loading was required by state law.

As a result, HMSA continues to say that it needs to increase its premiums to ward off substantial losses. The insurer in April announced plans to raise premiums for 10,000 small-business clients by 11.5 percent as of July 1, pending regulatory approval.

"At the present time, we are not seeing any slowdown in health care inflation," Van Lier Ribbink said.

HMSA officials blame its recent struggles on steadily rising health care costs, which have caused HMSA's claims payouts to health care providers to increase sharp ly. In the late 1990s and through 2001, HMSA had managed to ward off losses by investing its surpluses in the booming stock market. But the recent bear market caused this income source to evaporate in 2002.