Sector Snap: Mortgage worries hit health insurers

Wall Street has begun reassessing the risks to investments held by health care providers as concerns spread over the health of government-sponsored mortgage backers Fannie Mae and Freddie Mac. The companies together own or back $5.3 trillion in mortgage debt, which is repackaged and sold as securities to investors. Federal officials are currently discussing a bailout plan for the companies, which have sustained massive losses as default rates have soared.

Lehman Brothers analyst Joshua Raskin estimated the 12 largest health insurers, on average, hold about 16 percent of their fixed-income assets in mortgage-related investments. WellPoint has the highest portion invested in the sector at over 25 percent. A spokeswoman for the Indianapolis-based insurer declined to comment on Lehman Brothers' report.

Raskin estimated Humana had the lowest exposure to mortgage investments with about 12 percent of its assets.

The analyst also noted that several companies, including Coventry Heath Care Inc. and Humana, have recently reported larger spreads on their credit debt swaps, a measure which can predict defaults on company obligations.

Miller Tabak & Co. analyst Les Funtleyder noted that no health insurer has yet discussed the need for writedowns of mortgage investments. Despite such assurances, Funtleyder said investors are taking a "guilty until proven innocent," view of many companies.

"Until otherwise noted investors are going to be skeptical because of the pervasiveness of these problems across multiple sectors," Funtleyder said in a phone interview.

In a separate development Tuesday, President Bush vetoed a bill that would cut government payments to insurers that offer Medicare Advantage plans, an alternative to the government's health care plan for seniors.

Shares of health insurers rebounded somewhat after the news, though most analysts expect Congress to override the veto, which would assure the payment cuts will take effect.

Shares of WellPoint Inc. rose 19 cents to $45.13 in afternoon trading, after falling to $43.26 in the morning. Coventry Health Care Inc. shares rose 27 cents to $29.30 after falling to $28.13 earlier in the day.