Former CEO of Coventry Health Care takes job back

First Allen Wise took over Dale Wolf's chair position, and now declining profits have stripped Wolf of his other executive role.

By — Posted Feb. 18, 2009

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A little more than four years after giving up leadership of Coventry Health Care to a man he said was "the finest CFO I've ever worked with," one he expected to be the "finest CEO," Allen Wise has taken back the title of chief executive officer of the Maryland-based health plan from Dale Wolf.

That change, effective Jan. 30, was the second in two months in which Wise took over an executive spot from a resigning Wolf. On Dec. 10, 2008, Wise, the nonexecutive chair of the board for Coventry, took over the executive chair position from Wolf, which gave Wise more of a say in the company's day-to-day business.

Though it holds a modest share of most of the HMO and PPO markets where it operates, Coventry, under Wolf, came to dominate workers' compensation networks, with an estimated share of more than 65% of the market.

The CEO switch came as Coventry, like most of the other publicly traded national health plans, anticipated reporting a second consecutive quarter of declining profits.

As of early February, its stock was trading around $16, down from a 52-week-high of about $57 per share. Its competitors have seen similar drops in stock price following declining profits and investment losses, but Coventry saw one of the steepest losses in stock value over the course of 2008. Coventry has lost 74% of its New York Stock Exchange value over the last 12 months, compared with an average of 49% among other publicly traded plans.

After the release of its last quarterly earnings statements October 2008, Wolf called the company's financial results "somewhere between disappointing and lousy."

Chief Financial Officer Shawn Guertin at the time attributed the declining profits to flawed underwriting that resulted in unexpectedly high medical expenses in multiple products. Weeks later, the company's board named Wise executive chair of the board of directors.

In a company statement, Wise thanked Wolf for his work, and acknowledged "the combination of the current economic, financial and political situations creates a complex operating environment." Coventry declined comment to AMNews, citing a need to stay quiet in advance of its fourth-quarter earnings report to be released later this month.

Wise had been chair of Coventry's board of directors since his retirement from the CEO position in 2004. He was given the new "executive" title to give him oversight over the company's daily operations.

That move may have put Wolf's future in question, some analysts said. When Wolf resigned, Dave Shove, an analyst with BMO Capital Markets, wrote in a research note about Coventry, "Although we believe two heads are better than one, there can only be one boss."

The company's financial decline and management changes have sparked new rumors that a larger health plan could buy Coventry.

"We believe [the change in management] also solidifies the company's status as an acquisition target, considering Mr. Wise is 66 years old and may not have the desire to remain engaged for a prolonged period of time," Stifel Nicolaus analyst Thomas Carroll wrote.

Indianapolis-based WellPoint has signaled it is looking for plans to purchase, and WellPoint executives have emphasized they would like to buy a Blues plan. Analysts also noted that UnitedHealth Group was built to its dominant size by acquisitions of smaller plans like Coventry, but United has been focused lately on improving its operations rather than mergers and acquisitions.

Widespread rumors among investment analysts and others following the market had Aetna considering acquiring Coventry last year, but no deal has materialized. Aetna spokesman Alfred Laberge said the company does not comment on "rumors or speculation."

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