UPDATE 1-HMO stocks endure rough week amid exposure fears

(Adds stock details)

NEW YORK, Sept 18 (Reuters) - Shares of U.S. health insurers have fallen more than twice as much as the broader markets this week on concerns over their exposure to troubled financial companies and association with the broader insurance sector, analysts said.

The Morgan Stanley Healthcare Payor index .HMO has fallen 9 percent this week. Humana Inc (HUM.N) has slumped nearly 12 percent, Aetna Inc (AET.N) and UnitedHealth Group (UNH.N) have dropped 10.3 percent, and Cigna Corp (CI.N) has fallen 8.6 percent.

Most of the stocks recovered part of their losses on Thursday amid broad market optimism over a possible U.S. government plan to deal with the bad debt.

Giant insurer AIG (AIG.N) had to be rescued by the U.S. Federal Reserve earlier this week, and health insurers "first and foremost" are insurance companies, said David Heupel, a portfolio manager with Thrivent Investment Management.

"It's just guilt by association," Heupel said.

"Structurally, they do some things in a way similar to how your typical life insurance company or an AIG does things," Heupel said. "But the comparisons really end right there."

As insurers, the managed care companies have financial reserves that must be maintained and invested more so than other types of companies, Stifel Nicolaus analyst Thomas Carroll said.

"It's probably the fear of what kind of exposure could these companies have to the likes of Lehman and AIG and potentially other financial organizations like that," Carroll said.

"It's just the fear of what is not known -- the unknowns that could potentially be threaded through the entire financial world that could come back to impact the managed care companies," Carroll said.

The concern may be that the health insurers will be forced to take hefty write-downs, said Edward Jones analyst Aaron Vaughn. Aetna and Humana have disclosed their exposure this week to AIG and Lehman Brothers (LEHMQ.PK), which filed for bankruptcy earlier this week.

"From an operations perspective, nothing has happened within these companies," Vaughn said. "It's simply from the investment portfolio that they have."

The week's losses compounded a brutal year for health insurance stocks. The healthcare payor index is down 37 percent this year, as most larger health insurers have cut back on their initial 2008 profit expectations. (Reporting by Lewis Krauskopf, editing by Richard Chang)