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Health stocks gain ground while life insurers slide in up-and-down week

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Health stocks gain ground while life insurers slide in up-and-down week

A number of healthcare-related stocks rallied this week, while big names in the life industry slumped.

The insurance industry tracked closely with the broader markets, which sold off sharply midweek but rallied in the final two days. The S&P 500 declined 0.33% for the week ending Oct. 4 to 2,952.01, while the SNL U.S. Insurance Index dipped 0.36% to 1,051.75.

Stephens analyst Scott Fidel said the uptick in share prices for companies such as UnitedHealth Group Inc., Molina Healthcare Inc. and Anthem Inc., stemmed from a recent release of 2020 data for Medicare Advantage and Medicare Part D markets by the Center for Medicare and Medicaid Studies.

"Medicare Advantage is the single most important secular growth driver for the industry," Fidel said. "It's one of the primary reasons that investors want to have exposure to managed care."

CMS expects 10% growth in Medicare Advantage enrollment for 2020, according to Fidel, who said that may be a bit "optimistic." Giving a more competitive pricing environment, growth of 6% to 8% is more realistic, he said.

"There's optimism on the growth side of [Medicare Advantage], but there are some more concerns around whether pricing is any more competitive and whether that presents a risk to medical loss ratios next year," Fidel said.

The week saw several companies announce expansions of their Medicare Advantage footprints. UnitedHealth said it is adding more than 100 new plans to reach an additional 1.2 million people in 100 new counties. The company's shares finished the week up 2.11%.

Humana expanded its Medicare Advantage presence in New Jersey to 13 of the state's 21 counties and is also introducing an HMO plan in the Garden State. Humana edged down 0.61%.

Molina was among the best-performing stocks with its shares rising 4.92%. Anthem added 1.72% and WellCare Health Plans Inc. ticked up 1.13%.

Online health brokers once again moved in diametrically opposite directions. Health Insurance Innovations Inc., which led all U.S. financial stocks in September with a 35.9% return, was the big gainer for the week as it climbed 8.33% on the week. EHealth Inc., meanwhile, was one of the worst-performing insurance stocks with its shares falling 9.38%.

Many major life insurers saw their shares lose ground. Unum Group declined 7.94%, Lincoln National Corp. fell 7.21%, Athene Holding Ltd. dropped 5.71%, Voya Financial Inc. dipped 3.82% and MetLife Inc. shed 4.12%.

"There was a sell-off in all equities and insurance companies are certainly not immune to what happens with the rest of the equity market," Sandler O'Neill Partners analyst Paul Newsome said.

Slower economic growth and lower interest rates are impacting insurance carriers across the board, according to Newsome.

"The slow economy generally means lower premium growth because there's less to insure," he said. "And lower interest rates mean that their investment portfolio will return less over time."

In the property and casualty segment, it was announced this week that Mercury General Corp. agreed to pay $41.2 million to the California Department of Insurance to settle a case and a related false advertising action. The company finished the week down 2.54%.