U.S. insurance stocks broadly tracked the wider market throughout a turbulent 2018, but it was a particularly difficult year for investors in the mortgage insurance sector.
The SNL Insurance Index fell 7.3% for the year to Dec. 26, while the S&P 500 was down 5.9%. But investors in mortgage insurers absorbed losses of more than 20% as shares were rocked by policy changes from government-sponsored enterprises and costly decisions on the use of unlocked capital from U.S. tax reform.
In March, government-sponsored enterprise Freddie Mac announced a new alternative to private mortgage insurance for certain home loans. Even though the pilot program, called IMAGIN, targeted more obscure and less profitable loans, shares in the mortgage insurance sector plummeted.
The fear, Keefe Bruyette & Woods equity analyst Tommy McJoynt-Griffith said, was that Freddie's program would gain steam and eventually steal market share from mortgage insurers.
"It gave the appearance of essentially stealing some market share from the [mortgage insurers] by competing with them directly," McJoynt-Griffith said in an interview. "A lot of pressure on the stock came in the first half of the year."
Just one month later, MGIC Investment Corp. announced it would cut its borrower-paid premium rates by as much as 11%, effectively passing on the savings of a lower corporate tax rate to consumers. That added to the downward momentum of shares in the sector, which would not recover fully by year-end, McJoynt-Griffith said.
"It seemed like they recovered a little bit, but really ... they have fallen along with the rest of the market and with financials in particular," he said.
For the year to Dec. 27, MGIC shares lost 27.88% of their value, while shares of Essent Group Ltd. and Radian Group Inc. fell 23.53% and 23.08%, respectively.
On the positive side of the spectrum, managed care companies outperformed the wider insurance sector for the second year in a row. Leading all U.S. insurers tracked by S&P Global Market Intelligence in 2018 was eHealth Inc., whose share price more than doubled to $36.88 from $16.54 at the beginning of the year.
The company has carved out a niche in the managed care industry, serving as part healthcare information technology company and part health insurance broker. It operates an online comparison and enrollment service for health insurance plans, with a focus on the Medicare Advantage market. The company also took advantage of a White House policy allowing short-term plans to last as long as a year, up from three months.
RBC Capital Markets equity analyst George Hill initiated coverage of eHealth in late December, describing it as a unique way to invest in convergence of Medicare Advantage growth, vertical integration in healthcare, increasing choice and consumerism in healthcare, and increased technology utilization in healthcare.
Hill wrote in a research note that eHealth could deliver about 20% annual revenue growth with faster earnings growth for the next several years.
"It's been a fantastic year, a record year for us in Medicare Advantage," eHealth CEO Scott Flanders said in an interview. "It's been the one bright spot in the whole healthcare system all year."
Flanders said that while he would prefer that consumers purchased traditional Affordable Care Act plans, short-term plans are better than not having insurance at all.
Another company whose shares benefited during the year from the expansion of short-term plan availability was Health Insurance Innovations Inc. Its shares were up almost 150% at one stage in September, but gave back most of those gains in the following months and were up just 6.69% for the year to Dec. 27.
Elsewhere in the managed care industry, Molina Healthcare Inc. gained 48.28% for the year to Dec. 27. WellCare Health Plans Inc. rose 14.32%, Anthem Inc. 14.85%, Humana Inc. 13.19% and Centene Corp. 8.80%.
Note: The figures in this chart are through Dec. 26. S&P Global Market Intelligence classifies eHealth Inc. as an insurance technology company, and it is therefore excluded from the analysis that generated the chart material above.