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Virus spikes, slowed reopenings drag on insurance stocks; broader market up

Insurance stock prices ticked down this week even as the wider market gained ground amid concerns about increasing novel coronavirus infections and the effect they could have on the health of the U.S. economy.

The S&P 500 rose 1.76% for the week ending July 10 to close at 3,185.04, while the SNL U.S. Insurance Index declined 0.45% to 993.42. Stocks gained steam on the final trading day of the week after Gilead Sciences Inc. announced that its remdesivir treatment seems to reduce the risk of death for COVID-19 patients.

CFRA Research analyst Cathy Seifert said the increase in coronavirus cases has raised fears for insurers, particularly those in P&C lines, about the prospect of a longer economic crisis that could include new lockdown orders.

"If we end up going into another lockdown, what does this mean for auto insurance usage?" Seifert said in an interview, adding that insurers might have to consider further premium credits should driving decrease again from another aggressive lockdown.

"There are certain regions that are just out of control, so I think that casts a pall over almost anything else that's going on," she said.

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A majority of states reported a rise in positive tests this week, and total cases in the U.S. topped the 3 million mark. Several states have slowed down their reopening plans, while harder-hit ones like Arizona, California, Florida and Texas have shut down or limited certain areas of commerce, such as bars or indoor dining.

Seifert also said the insurance market was moved by a pair of M&A deals announced this week: Allstate Corp.'s pending acquisition of National General Holdings Corp. for approximately $4 billion cash, and KKR & Co. Inc. agreeing to buy Global Atlantic Financial Group Ltd., also for around $4 billion.

Seifert said the deals, particularly Allstate's, have "lit a bit of a fire" under the smaller insurers in the market, fueling hopes that other companies will do the same.

National General's share price rose sharply, soaring 61.87%, while Allstate was one of the week's biggest decliners, falling 7.57%.

The deal, Seifert said, may have given Allstate "a little bit of a bump" in market share and increased exposure to the independent agent market, but investors would have preferred something more like buying a specialty or supplemental insurer.

"Instead, they sort of ... went back to the drawing board and paid up to get a 1% increase in market share," she said.

Seifert in a note maintained her "buy" rating and target price of $118 on Allstate, saying that the auto insurance market will further consolidate "with Allstate at the top of that pyramid."

The rally on July 10 helped some P&C insurers finish higher for the week, including Cincinnati Financial Corp., up 8.65%; Kemper Corp., up 6.73%; and Chubb Ltd., up 2.28%. Reinsurance-focused Alleghany Corp. was down marginally, and Reinsurance Group of America Inc. lost 6.90%.

Managed care companies like UnitedHealth Group Inc., Anthem Inc., Humana Inc. and Molina Healthcare Inc. all lost ground. Life insurer Genworth Financial Inc. tumbled 8.33%, to post one of the worst losses of the week.