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Health insurers see stocks rise as pending mega-mergers face legal challenges

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Health insurers see stocks rise as pending mega-mergers face legal challenges

The stocksof several managed care insurers involved in a pair of major mergers rose duringthe week ended July 21 even as the U.S. Department of Justice filed lawsuits toblock the deals.

The S&P500 rose 0.16% to 2,165.17, while the SNL Insurance Index gained 0.22% to reach763.12 during the period.

The JusticeDepartment, together with eight states and the District of Columbia, has to stop the merger between and Humana Inc. Nine states and D.C. joined the department ina separate suit challengingthe planned Anthem Inc.and Cigna Corp. combination.

Aetna'sshares fell 0.28% to $118.30 during the period, while Humana's stock gained 7.96%to $171.53. On the same day the lawsuit was announced, Humana its guidance for 2016 due largelyto its Medicare Advantage and healthcare services segments. The company also announcedthat it is set to leave at least eight state individual markets in 2017 after strugglingto turn a profit on the Affordable Care Act-created health exchanges.Additionally, the U.S. Department of Defense announced that it has selected HumanaGovernment Business Inc. to provide managed care support to the department's TRICAREprogram in the East region. The total potential contract value, including all optionperiods, is estimated at $40.52 billion.

Anthemposted a 3.49% increase to $139.00, and Cigna saw a jump of 6.57% to $140.32. Cignahas warned that its mergerwith Anthem could fail and said it is evaluating its options given the concernsraised by the Justice Department. Cigna could collect a $1.85 billion terminationfee if the merger is blocked or if it is not completed by Jan. 31, 2017, thoughthat deadline could be extended to April 30, 2017.

S&PGlobal Ratings analyst James Sung said in an interview that he is re-evaluatingthe four insurers following the litigation news. "It looks like this mightdrag on for a longer period of time than expected given that all the parties aretrying to fight the lawsuit in court," the analyst said. Sungalso said that, from a credit perspective, all four companies will be fine on astand-alone basis given good business profiles and strong balance sheets.

In thelife space, MetLife Inc.announced that it will rebrandits U.S. retail business after it is separated from the company.

Sandler& O'Neill Partners analyst John Barnidge said in a research note that this wasanother step forward for the MetLife, adding that he expects the separation willbe most likely made through an IPO given the announced rebranding. Barnidge expectsa shelf filing from MetLife within the summer, saying that this may be a catalystfor the company's shares.

MetLife'sshares rose 1.43% to end the week at $43.22.

posted one of the highestgains among all insurers at 8.96% to $9.00. PrimericaInc. saw its shares drop 8.88% to $52.33, the biggest loss during theperiod.

Insurersthat reported earnings during the week saw some of the highest gains during theweek. Allied World Assurance Co. HoldingsAG saw its shares climb 15.41% to $41.19. The company second-quarter net income of $153.4million compared with $9.5 million a year ago.

, which reporteda year-over-year decrease in net income, posted share gains of 6.41% to $6.81. CompassPoint analyst Amy DeBone said in a research note that the market will appreciatethe company's improved trends compared with the first quarter. The analyst alsonoted the positive credit read-through as well as the higher-than-expected positivereserve development of $55 million.

S&P Global Ratingsand S&P Global Market Intelligence are owned by S&P Global Inc.