Publicly traded managed-care companies' share prices fluctuated wildly amid fears that their investment losses will be large when they release third-quarter earnings in the coming weeks, but analysts appeared divided over how much the insurers will be hurt by Wall Streets chaos.
Managed-care companies are at their lowest valuation in nearly two decades, but most plans could write off nearly 20% of assets before having to raise new capital, said Carl McDonald, an analyst at Oppenheimer & Co., in an investor note. For instance, 86% of Humanas investments dont have much risk, McDonald wrote. Although managed-care companies are not immune to financial issues, McDonald wrote, they do not generally have any exposure to subprime, while assets held in mortgage-backed securities are also pretty modest.
Climbing medical claims costs and investment income lossesalong with rising unemployment that could reduce employer-sponsored membershipwill continue to put insurers under pressure in the near-term, according to an A.M. Best Co. report. Managed-care companies earnings fell by 27.5% in the first six months of this year. WellPoint had the largest decrease in shareholder equity, 14.9%, followed by UnitedHealth, 7.8%, according to A.M. Best, which revised its sector outlook to negative.
In two separate notes, Citigroup analyst Charles Boorady wrote that managed-care companies remain relatively well-capitalized with substantial cash on the balance sheets and available back-up financing, while Goldman Sachs analyst Matthew Borsch wrote that only Cigna and Humana are well-poised to sustain the down market compared to their peers. -- by Rebecca Vesely