Manulife Financial Corp. shares slid after research company Muddy Waters disclosed a short position it took in the Canadian insurer as it faces an outstanding legal dispute.
Hedge fund Mosten Investment LP sued Manulife, claiming that it should be able to deposit as much money as it can with the company and be entitled to at least 4% in annual interest due to an insurance contract the parties signed in 1997.
Muddy Waters said in a report that Manulife could face millions of dollars in losses should it lose the case, adding that it does not believe that the "material risks" to Manulife from such a verdict have been priced into its shares. Founder Carson Block expects a decision by the end of the year.
Manulife pushed back, saying in a press release that Muddy Water's report is a "short seller's attempt to profit at the expense of our shareholders," adding that Mosten's position is "legally unfounded."
CFRA analyst Cathy Seifert agreed, saying the matter is simply a short seller looking for an opportunity. She nevertheless has downgraded her call on Manulife's stock to "hold."
"This is a classic example of legacy terms coming back to haunt a company," Seifert said.
Manulife's shares were down 6.15% for the week ending Oct. 5. Other big life insurers shrugged off the news, with MetLife Inc. rising 1.09%, Prudential Financial Inc. going up 2.87% and Lincoln National Corp. increasing 2.72%.
Insurance stocks outperformed the broader market as the S&P 500 lost 0.98%, slipping to 2,885.57, while the SNL U.S. Insurance Index added 0.71% to 1,085.56.
RenaissanceRe Holdings Ltd. is also facing some turbulence from an investor, though in this case, it may have been a boon to the stock.
Long-time shareholder TimesSquare Capital Management LLC on Oct. 2 released a letter sent to RenaissanceRe's board in September urging it to consider strategic alternatives for the company, including a sale. In response, the reinsurer reiterated its commitment to its strategic plan but did say it was talking to TimesSquare Capital and that its views have been considered fully and shared with the board.
"Our board understands, and is committed to, its fiduciary duties to act in the best interests of all shareholders," RenaissanceRe said in a statement.
Buckingham Research analyst Amit Kumar said all publicly traded reinsurers should consider strategic alternatives at this point. They should be asking themselves if what they are doing is appropriate for their stock value and whether the industry will continue to face a glut of capital in 2019.
"For RenaissanceRe, the stock is not appropriately valued compared to its franchise quality, which is one of the highest," Kumar said, adding that the positive movement RenaissanceRe's stock saw this week could have been prompted by it undervalued. Shares were higher by 4.47% for the week.
Elsewhere in the reinsurance space, Maiden Holdings Ltd. shares surged 14.24% on Oct. 5 amid reports that the company is putting together a formal sale process. The stock finished the week up 15.44%.
Mortgage insurance stocks were lower, with MGIC Investment Corp. dropping 4.58%, Radian Group Inc. sliding 4.60%, NMI Holdings Inc. declining 5.21% and Essent Group Ltd. shedding 4.64% and Arch Capital Group Ltd. declining 3.72%.
Managed care stocks were mixed. UnitedHealth Group Inc. was up 1.19%, Anthem Inc. rose 0.68%, Aetna Inc. gained 0.43% and Cigna Corp. increased 3.57%, while Humana Inc. lost 2.18%, Centene Corp. decreased 0.56% and Molina Healthcare Inc. decreased 3.16%.