Towers Watson shares jump on IBM contract win
(Reuters) - Shares of Towers Watson & Co (TW.N) jumped as much as 10 percent on Monday after IBM (IBM.N) said it will move its U.S. retirees to an insurance exchange owned by the employee benefits consultant.
Insurance exchanges help consumers compare insurance plans and enroll in coverage. They are the cornerstone of President Barack Obama's healthcare reform that aims to roll out insurance coverage to all Americans.
Towers Watson said it operates the largest private Medicare exchange in the United States.
IBM said on Friday it will shift its U.S. retirees off its company-sponsored health plan to Towers Watson's insurance exchange, Extend Health, saying the plan offered IBM retirees more choice and better value than the company could provide through existing group plans.
The contract, which will add about 110,000 members according to Deutsche Bank analyst Paul Ginocchio, is great news for the newly set up health insurance exchanges and a big win for Towers Watson.
"Towers Watson's exchange currently serves over 500,000 lives, primarily retirees. IBM represents about 20 percent growth by itself," SunTrust Robinson Humphrey analyst Tobey Sommer wrote in a note to clients.
However, skepticism about insurance exchanges remain, with many top insurers preferring to watch from the sidelines until they prove to be successful.
"Ultimately, about all of the 12 million retirees who are eligible for Medicare will probably be on exchanges. Right now we estimate that about only one in ten are on exchanges," Sommer said.
IBM said its retirees had a more positive outlook once they were presented with the concept and understood the options available to them through these exchanges.
On Sunday, Time Warner Inc (TWX.N) said it was also planning to transfer retirees to private insurance exchanges.
Towers Watson's shares were trading up 6.6 percent in afternoon trading at $90.38 on the New York Stock Exchange on Monday.
(Corrects paragraph 10 to say Time Warner Inc, not Time Warner Cable, plans to transfer retirees to private insurance exchanges)
(Reporting by Esha Dey and Mridhula Raghavan in Bangalore; Editing by Sreejiraj Eluvangal)
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