Insurance buyers and brokers sometimes view Wall Street as a mysterious, confusing nuisance, but what investors think about publicly traded carriers directly affects what those carriers can and can’t do.
Right now, the big publicly traded health insurers are getting extra attention from investors and securities analysts.
The health insurers are benefiting from easy access to the capital they’ve needed to participate in big new Patient Protection and Affordable Care Act (PPACA) programs, such as the PPACA public exchange system. But the health insurers are also facing more scrutiny from investors and investors’ representatives: the securities analysts.
Ideas about whether U.S. insurers should be owned by public investors or by their own customers have gone in cycles since the 1800s. In some periods, regulators and others have argued that having the policyholders be the owners — through a mutual company charter, or a co-operative ownership arrangement — is the only way to ensure that the managers are doing their best to maximize the well being of the policyholders.
In other periods, critics have argued that policyholder-owned insurers have much less access to capital than publicly traded insurers, and that managers of policyholder-owned insurers generally operate with much less, and much less effective, oversight than publicly traded insurers. Securities analysts are supposed to help investors check whether public companies really exist, are doing what they say they do, and make attractive investment opportunities.
Here’s a rundown on how one securities analyst, Brian Wright of Sterne Agee, has been looking at health insurers during the third-quarter earnings season.

1. Medical claims costs.
Like brokers and insurers, securities analysts are hungry for details about what PPACA, liver pills, the flu and other factors might do to claims.
This quarter, Wright has mentioned medical care ratios or other benefits cost indicators in just about every health insurer earnings note. When he covered Cigna Corp. (NYSE:CI), for example, he was careful to point out that the medical care ratio at the Medicare Part D prescription drug plan unit was 12.9 percentage points during the latest quarter than it was in the comparable quarter in 2013.
Wright pointed out that any details emerging about major cost trends affecting one insurer could affect competitors’ share prices.
Consumers and brokers might like to see an insurer willing to accept lower operating margins on a product like prescription coverage to make the coverage holders happy. Wright praised Cigna for making benefit design changes to get its Part D program medical care ratio back to normal.