More Stocks Drop on Insurance Probe
The plunge in U.S. insurance stocks widened Tuesday as New York Atty. Gen. Eliot Spitzer’s investigation into industry practices expanded to health and life insurers.
A Morgan Stanley index of health maintenance organization shares fell 9.4%, its biggest decline in five years.
Philadelphia-based Cigna Corp. confirmed it received a subpoena from Spitzer, and the Hartford Courant said Aetna Inc., based in Hartford, Conn., received one. Aetna did not return calls seeking comment.
Cigna sank $6.85, or 10.3%, to $59.73, while Aetna dropped $11.57, or 11.8%, to $86.17.
HMO losses were across the board. Shares of Thousand Oaks-based WellPoint Health Networks Inc. dropped $11.30, or 11.5% to $87, and PacifiCare Health Systems Inc. of Cypress fell $2.11, or 5.8% to $34.33, even though neither has been named in Spitzer’s probe.
Life insurance stocks also tumbled. MetLife Inc., the second-largest U.S. life insurer, and UnumProvident Corp., the biggest U.S. disability insurer, said they received new subpoenas from Spitzer.
The insurance sell-off began last week, after Spitzer sued insurance broker Marsh & McLennan Cos., alleging that it conspired with insurance companies to rig bids and inflate costs for large and mid-size employers that hire Marsh to negotiate the best insurance deals.
The probe “is scaring to death anyone invested in the sector,” said Tim Ghriskey, chief investment officer of Solaris Asset Management. “It intimates that brokerage fees could potentially become transparent to consumers, and that will increase competition. As a result, brokerage fees might decrease. Consumers will benefit, but it will squeeze the companies.”
Other states, including California, also are investigating the industry.
Marsh shares extended their decline, falling $1.47 to $24.10 on Tuesday after Moody’s Investors Service cut the company’s debt rating. Marsh’s stock plunge has wiped out $11.4 billion in market value since Thursday and has intensified investor calls for Chief Executive Jeffrey Greenberg to step down. Spitzer said he would not negotiate a settlement with current management.
“You’ve got to rework the culture of Marsh,” said James Huguet, who manages $1.4 billion at Great Cos. and has been selling Marsh shares. “This happened on Jeff’s watch.”
Spitzer’s probe centers on the “contingent commissions” that insurers offer brokers in exchange for steering insurance business their way. He is also examining potentially fictitious bids made at the expense of corporate and municipal clients.
“It’s hazardous to touch these stocks right now,” said Thomas Wille, who oversees the equivalent of $200 million in U.S. stocks at Verwaltungs- und Privat-Bank in Zurich, Switzerland. “Basically the motto is: ‘If Spitzer is around, sell.’ Who needs the aggravation?”
Spitzer said in an interview that he was looking at many types of insurance. He declined to name which ones. “Many will be implicated by the time we are done,” Spitzer said.
Among life insurers, MetLife fell 52 cents to $33.98. The company said it uncovered no evidence of bid rigging. MetLife said it paid brokers $25 million in contingent fees last year.
Also in the sector, Prudential Financial Inc. lost $2.04 to $42.87, Lincoln National Corp. dropped $2.25 to $42.05, Principal Financial Group Inc. was off $1.09 to $34.43 and UnumProvident fell $1.33 to $12.19.
