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Strong finish to '19 for health insurance stocks; P&C finds 'sweet spot'

Health insurance stocks rode a fourth-quarter surge to a positive finish for the third straight year, while property and casualty companies produced double-digit returns in 2019.

U.S. insurance stocks overall followed the wider gains seen over the course of the year, though they modestly underperformed the broader markets. The SNL Insurance Index produced a total return of 22.6%, while the S&P 500 returned 31.5% in 2019.

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The first nine months of the year were a bit tumultuous for the healthcare sector as politics drove those stocks. "Medicare for All" was the talk of the first 2020 Democratic presidential debates, and the rhetoric created more than a little uncertainty in the markets.

However, the tide turned by October 2019 after some front-runners eased off their push for an immediate change. Managed care stocks produced returns of more than 20% over the final three months of the year, according to CFRA Research analyst Colin Scarola.

"In early October, [the S&P Managed Healthcare Stocks Index] was at its lowest relative to the S&P 500, so now they've made up a lot of that ground," Scarola said in an interview. "They're still a little bit behind but ... actually had much faster earnings growth than the broader economy."

Online marketplace eHealth Inc. had the best performance among all health insurance-related stocks. It posted a 150.08% total return for the year, the third-best among all U.S. insurance companies. Health Insurance Innovations Inc., on the other hand, produced a negative return of 27.83%. Fellow insurance technology company Castlight Health Inc. fared even worse, recording a total negative return of 38.71% for the year.

Eight other health companies logged double-digit return increases for the year. WellCare Health Plans Inc. and Magellan Health Inc. were at the top of that list, returning 39.87% and 37.55%, respectively. Humana Inc. produced a 28.94% return, while UnitedHealth Group Inc. returned 19.99%.

The sector also received an early holiday gift on Dec. 16, 2019, when Congress announced it would eliminate three Affordable Care Act taxes as part of a year-end spending agreement. Also off the table were measures to lower prescription drug prices and end surprise medical bills.

Stephens analyst Scott Fidel said in a note that the federal government did not approve any adverse regulatory changes in 2019 and provided the sector "a $380 billion legislative bonanza." The Congressional Budget Office estimates that eliminating three taxes that help fund the Affordable Care Act would save the entire healthcare industry that sum.

Property and casualty carriers also had a positive year. Nearly a dozen companies produced total returns of 30% or better despite catastrophe loss bills from Hurricane Dorian and typhoons Faxai and Hagibis.

CFRA Research analyst Cathy Seifert attributed the growth to a healthy pricing environment and a strong economy unaffected by geopolitical risks, such as the U.S.-China trade war.

"The P&C space kind of really had a sweet spot this year and the performance of a lot of stocks reflected that," Seifert said in an interview.

Among those was Allstate Corp., which had a 38.82% return for 2019. Seifert said Allstate has been committed to providing a "catalyst" for its shares.

"Over the last 18 or so months, Allstate has made a concerted effort to ramp up growth, to shift its mix to faster-growing, less capital-intensive areas, and to also grow its services revenues, which is an interesting shift in their business mix," she said.

W. R. Berkley Corp. enjoyed a 43.96% return for the year, while Progressive Corp. ended up with a total return of 25.06%.

Seifert said Progressive had a strong start to 2019, but growth slowed as the year went on.

"There was a little bit of erosion in some claim trends and investors definitely took note of that," she said, "But Progressive is still a well-positioned stock."

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Leading the way overall among insurance companies was EverQuote Inc., which posted an eye-popping total return of 721.77% in 2019. California-based Palomar Holdings Inc., a specialty property insurer that went public in April 2019, had the second-highest return at 236.60%.

Mortgage insurers had a reversal of fortune compared to 2018 when they were among the biggest laggards. NMI Holdings Inc. had such a strong turnaround that it ended up producing the fifth-best total return for 2019 among all insurance companies at 85.88%.

It was a disastrous year for Atlas Financial Holdings Inc., which had the worst performance of all U.S. insurance stocks, reporting a negative return of 94.67%. The commercial auto insurer's shares lost more than half their value on March 5, 2019, after the company announced reserve strengthening and a review of its business operations.

Kingstone Cos. Inc. had a difficult 2019, recording a negative return of 54.75%. In April 2019, Kingstone said it had to strengthen its claims case and incurred but not reported reserves after reviewing its operations. The company in November 2019 reported an operating loss for the third quarter and warned that it expected to report a material weakness in internal controls related to reserving.