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P&C stocks pull back as insurers disclose Q3 cat loss estimates

Shares of property and casualty insurers declined this week as companies released estimates of third-quarter catastrophe losses from hurricanes and western wildfires expected to dent financial results.

The broader markets were modestly higher for the week ending Oct. 16. The S&P 500 edged up 0.19% to 3,483.81, while the SNL U.S. Insurance Index ticked down 0.33% to 1,092.84.

Several of the largest P&C companies reported cat loss impacts estimated in excess of $200 million each, including a $339 million pretax loss forecast from Allstate Corp.

The drone of bad weather news during the quarter discouraged investors and held shares down to discounted values relative to the more positive outlook of the business environment, Piper Sandler analyst Paul Newsome said in an interview.

"Investors see the hurricanes, and they know there are losses but don't know what the losses will be" and thus hold off on buying P&C stocks, Newsome said. "Then another hurricane happens."

Although the catastrophe news continued into the fourth quarter, when the disasters subside, investors will notice a bright future ahead due to rising premium rates and improving profitability, the analyst said.

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Progressive Corp. released third-quarter results showing expanded net profit margins benefiting from pandemic-depressed nationwide driving patterns reducing accident losses. The auto insurance sector will eventually face a return to normal driving volumes that analysts expect will push losses back up while insurers drop prices to compete for market share.

Progressive's share price slipped with the broader markets following the release of its quarterly earnings report; it finished the week with a 3.36% decline. Allstate's shares edged down 0.30%. Chubb Ltd. posted a modest loss of 0.99%, and Travelers Cos. Inc. shed 2.17%.

In the managed care space, UnitedHealth Group Inc. kicked off third-quarter earnings season, booking a year-over-year decline in earnings from operations. UnitedHealth offered an optimistic earnings picture for the rest of this year, while lowering its earnings outlook for 2021.

The company's shares traded down after posting its results. While healthcare usage began to return to normal levels, favorable trends are expected for the rest of 2020, Cantor Fitzgerald analyst Steven Halper said in an interview.

"All the managed care companies are going to be a little bit optimistic for the fourth quarter," Halper said. Costs from the pandemic and the return of deferred treatments cloud the earnings future past that period, he added.

UnitedHealth continues to be undervalued, Halper wrote in an Oct. 14 research note in which he maintained his "overweight" rating for the company's shares. He also increased his price target to $360 from $350.

For the week, UnitedHealth's stock was up 0.63%. Anthem Inc.'s shares climbed 0.84%, Cigna Corp. picked up 0.85% and Humana Inc. saw a 0.99% rise.

In reinsurance, Watford Re Ltd.'s shares jumped after Enstar Group Ltd. made a purchase offer that exceeded the per-share price Watford agreed to with Arch Capital Group Ltd. The share prices of the rival suitors scarcely responded to the news. Enstar's price advanced 0.72% for the week, and Arch Capital fell 2.16%.