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Health stocks up as earnings season starts; Progressive slumps after Q3 results

The start of third-quarter earnings season saw managed care insurers rally strongly — and one major property and casualty insurer stumble.

The S&P 500 rose 0.54% to 2,986.20 for the week ending Oct. 18 while the SNL U.S. Insurance Index jumped 2.54% 1,077.36.

UnitedHealth Group Inc., which reports results well ahead of its managed-care peers, logged third-quarter earnings from operations of $5.01 billion, up from $4.59 billion a year earlier, led by double-digit growth rates in its Optum businesses.

CFRA Research analyst Colin Scarola said his long-term outlook for UnitedHealth is "more favorable" compared to others in the sector. He noted that UnitedHealth's earnings are increasingly powered by segments other than the "politically scrutinized" health plan industry, especially the "rapidly growing" Optum. He anticipates that the company will grow EPS "materially faster" versus peers.

UnitedHealth continues to generate strong results in spite of a "noisy" political environment, Oppenheimer analyst Michael Wiederhorn said. Company management is bullish on growth, though it takes a "predictably conservative" tone toward what may happen after the 2020 election, he added.

UnitedHealth soared 10.48% on the week.

Centene Corp. recently disclosed a collaboration with pharmacy benefit manager RxAdvance Corp. and Walgreens Boots Alliance Inc. division Walgreens Inc. to build a new pharmacy benefit model.

Cantor Fitzgerald analyst Steven Halper reiterated his overweight rating for Centene, saying the partnership could forge a way to improve the pharmacy experience for members.

Also, the company's pending acquisition of WellCare Health Plans Inc. obtained regulatory approvals from the insurance departments of Arizona, Connecticut, Georgia, Ohio and Texas.

Centene was up 5.90%, while WellCare rose 3.78%

Molina Healthcare Inc. revealed this week that it will acquire certain assets of YourCare Health Plan Inc., a not-for-profit subsidiary of Monroe Plan for Medical Care, for approximately $40 million. Stephens analyst Scott Fidel said in a note that he thinks the deal most probably mirrors the start of a "more active" mergers and acquisitions phase for the company.

Molina finished the week up 8.41%.

Elsewhere in the managed care industry, Humana Inc. rose 8.64%, Anthem Inc. added 4.99% and Cigna Corp. jumped 9.50%.

Progressive Corp. this week announced net income attributable to the company of $841.7 million in the third quarter, a decrease from $928.4 million a year ago. For September, net income attributable to the company climbed to $280.9 million from $250.0 million.

Janney Montgomery Scott analyst Larry Greenberg said September's underwriting results were worse than expected. Progressive's combined ratio was 92.3% for the month; its underlying loss ratio included $39.9 million of reserve strengthening for the current accident year.

Buckingham Research Group analyst Amit Kumar, who reiterated his neutral rating on the company, said Progressive's personal auto accident-year losses are outpacing earned premiums.

"Personal auto underlying margins are no longer expanding," he said in a note.

Progressive slumped 6.67%, making it one of the biggest losers this week.

Allstate Corp. did not announce catastrophe losses for September, which signals that its losses came in below $150 million, according to Sandler O'Neill analyst J. Paul Newsome. The analyst lowered his estimate for Allstate's third-quarter catastrophe losses to $525 million from $674 million. Allstate shares edged up 0.44%.

Everest Re Group Ltd. ticked up 0.23% and RenaissanceRe Holdings Ltd. fell 0.80% in the same week they disclosed their third-quarter catastrophe loss estimates. Everest Re expects to record $280 million in pretax catastrophe losses, net of reinsurance recoveries and reinstatement premiums, while RenaissanceRe is anticipating that losses from catastrophe events will have a net negative impact of approximately $155 million on its results.