Giving their most specific figure to date, the investment bankers advising Insurance Commissioner Steven B. Larsen said yesterday that they believe CareFirst BlueCross BlueShield is worth "in the $1.8 billion range" - half a billion dollars more than the price the company negotiated for itself with WellPoint Health Networks Inc.

Also, WellPoint's investment banker, Gregory Sorensen of Banc of America Securities, testified that he and his client were "certainly surprised by the size" of merger bonuses for CareFirst executives, which they did not learn about until after WellPoint had submitted its bid.

The comments came in the first of three days of public hearings Larsen is conducting this week. The value of the company is important because it will go for health-related foundations or similar purposes, and Larsen has to decide if the figure is fair. He is also considering the role the bonuses may have paid as CareFirst decided whether to sell and to whom.

Sorensen defended the $1.3 billion price as "a fair number. We would call it an aggressive number now, given the changes in the marketplace."

He said Larsen's consultants, the Blackstone Group, had not made sufficient allowance in their calculations of value for the fact that CareFirst, if it were for-profit, would have to pay premium taxes. Adjusting for the premium tax, Sorensen testified, would reduce CareFirst's estimated value by about $300 million.

Under questioning from Jonathan Koplovitz, one of Blackstone's bankers, Sorensen conceded that he hadn't adjusted for the premium tax in many of the projections he made for WellPoint as the deal was being concluded.

"This is very important for us," Martin Alderson Smith, senior managing director of the Blackstone Group, said after the hearing. "We wanted to make it clear that the methodology used by Banc of America was identical to the methodology we used."

Alderson Smith testified that Blackstone used earnings projections from CareFirst management, which took account of the premium tax change. "You can't just take our valuation range and knock off a few hundred million," he said after the hearing.

Sorensen said CareFirst's projections had assumed that the company could pass the premium tax cost through to subscribers, but he believed, given that CareFirst's premiums are already high in a competitive market, the added cost of the tax - $30 to $40 million a year - would come out of earnings.

Also, Sorensen said, events since Blackstone did its calculations in August - including a decline in earnings multiples of 15 percent to 20 percent for publicly traded health insurers, and CareFirst earnings below projections - argued for a lower price.

Blackstone's report, made public in September, used four different methods of estimating CareFirst's value, and gave a range of prices for each method - from $1.35 billion to $2.25 billion. Although declining to specify an exact value yesterday, Alderson Smith said, "The nearer you get to the middle [of the ranges], the higher our degree of comfort."

Sorensen said WellPoint viewed CareFirst's $39.4 million in executive bonuses (and tax payments associated with them), as, in effect, raising the price of the deal.

He said WellPoint made its "best and final" offer for CareFirst in April 2001. The bonus plan was not approved by CareFirst's board until July. Although WellPoint knew there might be some bonuses, he said after the hearing, "we didn't think it would be as large as that, and we told them that." He said he could not name a specific bonus level that would have seemed normal to WellPoint or Banc of America.

Alderson Smith commented, also after the hearing, "It is not Wall Street practice to announce management compensation of that magnitude after you've received a best-and-final bid. 'Unusual' would be charitable."

Larsen plans to devote today's hearing to executive compensation. The hearing begins at 9:30 a.m. at the Baltimore Inner Harbor Marriott Hotel. Larsen is expected to rule in February on whether to approve CareFirst's conversion to for-profit operation and the WellPoint deal.