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Healthcare stocks slide amid 'Medicare-for-all' proposal, Cohen hearing

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Healthcare stocks slide amid 'Medicare-for-all' proposal, Cohen hearing

A number of health insurance stocks ended this week in the red, following a sharp midweek decline as the sector digested several political developments.

The broader markets outpaced insurance companies for the week ending March 1. The S&P 500 rose 0.40% to 2,803.69, while the SNL U.S. Insurance Index dropped 1.72% to 1,063.36.

Health stocks dropped in the middle of the week as a number of Democrats in the House of Representatives announced a "Medicare-for-all" proposal. Matt Borsch, an analyst for BMO Capital Markets, said the stock movement was a direct reaction to the bill's release.

"What's weird about it is we knew [the proposal] was coming ... nothing was a surprise, and yet when it hit Wednesday morning investors proceeded to sell off the managed care stocks pretty hard for two days," he said.

Even though Borsch believes "Medicare for all" is unlikely to become a reality anytime soon, he said the rollout may have reminded investors that there is some extinction risk for managed care companies. The analyst also said congressional testimony by President Donald Trump's former lawyer, Michael Cohen, may have contributed to the selloff.

"If people found that [testimony] significantly more damaging to Trump than they expected and said, 'Oh, you know what, Trump is more likely than I thought to lose in 2020,' well there you go," Borsch said. "Now you've got slightly higher, if very low, odds on 'Medicare for all.'"

Health Insurance Innovations Inc. suffered the biggest decline among health-related companies with its shares tumbling 18.54%. Fellow broker eHealth Inc. dropped 7.20%. Managed care providers Cigna Corp., UnitedHealth Group Inc. and Humana Inc. slipped 7.95%, 7.81% and 6.02%, respectively.

Centene Corp. fell 4.17%, while WellCare Health Plans Inc. shares dropped 5.88%.

In the life space, Brighthouse Financial Inc. shares dropped after the company announced the resignation of CFO Anant Bhalla.

The company release said the CFO's pending departure, effective March 14, was not due to any matters regarding the company's financial disclosure or practices. However, in a note to clients, Credit Suisse analysts said "the timing of his exit seems abrupt."

Brighthouse ended the week down 10.55%.

Shareholder activist Voce Capital LLC released a letter this week criticizing the CEO of Argo Group International Holdings Ltd. for extravagant spending and alleging that it affected company performance. Argo responded that Voce's letter contained "misleading" and "inaccurate" statements.

Despite the back-and-forth between the two companies, Argo's stock remained largely flat, ending the week up 1.03%.

Bob Farnam, an analyst for Boenning & Scattergood, said that part of the reason why the stock remained steady was that Voce's letter was probably good news for shareholders.

"If it means [Argo] is going to take a harder look at expenses, and then theoretically cut their expenses more, that's going to improve probability and probably their valuation," Farnam said.

Protective Insurance Corp. was among the biggest losers of the week after reporting earnings that reflected a $24.6 million net loss for the fourth quarter of 2018. Protective also lowered its quarterly dividend for class A and class B shares to 10 cents from 28 cents. The specialty insurer's stock dropped 9.64%.

Universal Insurance Holdings Inc. released earnings that reflected a $97.3 million net allocation to strengthen prior accident years' loss reserves due to an increase in severity and frequency of non-catastrophe claims. The company's stock plummeted Friday and ended the week down 18.99%.