American Equity shares tumble after Prosperity pulls takeover bid

American Equity Investment Life Holding Co.'s stock fell this week after an unsolicited takeover bid for the insurer was abruptly pulled, ending a weekslong saga.

Piper Sandler analyst John Barnidge said in an interview that the decision by Prosperity Group Holdings LP to end its bid for American Equity caused the volatility the insurer saw in its shares during the week ended Feb. 24. The stock finished the week down 7.71%.

Prosperity and principal shareholder Elliott Investment Management LP made an initial offer in early December 2022 to acquire American Equity for $45 per share in cash. The bid, which would have been worth $3.9 billion, was quickly rejected by the insurer.

Though Prosperity reaffirmed its interest following the refusal and kept its commitment to a proposed acquisition on the table for more than two months after its first offer, it eventually withdrew the proposal, citing American Equity's "refusal to engage."

American Equity has fielded several takeover offers over the past five years as private equity's interest in the life insurance industry has grown, but company executives have made their intention to remain a stand-alone entity clear.

In an email, a spokesperson said the insurer is eager to execute its "proven strategy" and increase value for shareholders.

American Equity on Feb. 16 reported fourth-quarter 2022 earnings reflecting a net loss of $29.4 million, or a loss of 34 cents per share, compared to net income of $82.2 million of 88 cents per share in the year-ago period.

Sunnier insurtech earnings fail to brighten stocks

A number of insurance technology companies reported financial results this week but failed to reverse a general malaise affecting the stock prices of the would-be disruptors.

Root Inc. reported a fourth-quarter 2022 net loss of $58.3 million, or $4.13 per share, an improvement from a loss of $109.9 million or $7.91 per share in the year-ago period.

Wells Fargo analyst Elyse Greenspan said in a note to clients that Root beat expectations on the back of better underwriting results due to improved earned premiums and lower expenses, as well as higher investment and fee income.

The more positive results did little for the stock, which shed 13.43%.

Lemonade Inc. posted a fourth-quarter 2022 net loss of $63.7 million, or a loss of 93 cents per share, a slight improvement from a net loss of $70.3 million, or a loss of $1.14 per share, in the year-ago quarter.

Executives during an earnings call stressed that Lemonade is past "peak losses" and is on its way to profitability after a tough 2022. Chairman and co-CEO Daniel Schreiber noted that Lemonade launched new products, added new markets, acquired and integrated Metromile, and grew its overall business in the last year, even while taking substantial net losses.

Bank of America analyst Joshua Shanker said in a note that Lemonade's earnings results beat his estimates, with lower-than-expected operating expenses as the main driver. Lemonade is estimating its in-force premiums for 2023 to hit between $695 million and $700 million, which reflects a deceleration of growth.

The insurtech finished the week down 4.43%.

U.S. equity markets in general fared poorly this week. The S&P 500 declined 2.67% to 3,970.04, while the S&P 500 U.S. Insurance Index slipped 1.30% to 597.48.