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Health insurers' shares fall during week of deal announcements

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Health insurers' shares fall during week of deal announcements

A group of managed care companies' shares fell during the same week several multibillion-dollar deals were announced in the insurance space.

The SNL Insurance Index fell 1.06% to 1,039.35, while the S&P 500 slightly dropped 0.20% to 2,636.98 during the week ended Dec. 7.

Following nearly a month of rumors that pharmacy giant CVS Health Corp. would purchase Aetna Inc., the two announced CVS' bid for the health insurer for about $69 billion, the largest managed care deal in at least two years.

If the deal wins shareholder and regulatory approval, it would create one-stop minor medical care facilities and allow consumers to receive common medical treatments, fill prescriptions and manage their health insurance plans in one location. The two companies would integrate Aetna's sprawling insured member base with CVS' concentrated retail and pharmacy network.

Shares of Aetna Inc. fell 1.36% to $178.85 per share from $181.31 per share on more than double the average volume in the same week the deal was announced.

Cantor Fitzgerald equity analyst Steven Halper said the deal is projected to take a full year to complete. There is some doubt among investors that the deal will clear the regulatory hurdles it faces, he said in an interview.

"You have a year's time to capture the spread" of investor sentiment, Halper said. "The regulatory process probably hasn't even started yet. We assume it will be a long, drawn out process."

The deal would have repercussions across the wider industry, according to Moody's. The combination of CVS and Aetna would negatively affect other healthcare companies by creating another healthcare services giant to compete against.

Moody's expects future deals to continue matching nontraditional pairings of entities across the insurance and healthcare spaces, eventually pressuring healthcare utilization and pricing of hospital-based drugs that are typically excluded by conventional pharmacy benefit managers.

Elsewhere in the health insurance space, Anthem Inc.'s shares dropped 3.74% in the week. Among all managed care companies tracked by S&P Global Market Intelligence, shares of Triple-S Management Corp. and Molina Healthcare Inc. saw the highest declines of 5.78% and 4.67%, respectively.

In the same week, the delivery-care unit of UnitedHealth Group Inc. announced its bid to acquire DaVita Medical Group from DaVita Inc. for $4.9 billion cash.

Analysts said the deal would take UnitedHealth further into the clinical care space. UnitedHealth's noninsurance division, Optum, already owns surgical centers, the third-largest pharmacy benefit manager in the U.S. and an array of software and information products.

If the deal closes, DaVita Medical Group would be merged with Optum's division OptumCare, which provides physician-led primary, specialty, in-home, urgent- and surgery-care delivery through affiliated physicians and care facilities. DaVita Medical Group operates and manages about 300 clinics, 35 urgent care centers and six outpatient surgery centers in six states across the U.S.

Shares of UnitedHealth fell nearly 3% to $220.12 per share during the week.

In the life insurance arena, The Hartford Financial Services Group Inc. agreed to sell its runoff life and annuity businesses to a group of investors, essentially pulling Hartford out of the life insurance business completely.

The company is selling the businesses to Cornell Capital LLC, Atlas Merchant Capital LLC, TRB Advisors LP, Global Atlantic Financial Group Ltd., Pine Brook and the J. Safra Group.

Chairman and CEO Christopher Swift said the sale should help grow the insurer's return on equity to 10% in 2018.

The Hartford's shares fell more than 4% to $54.77 per share on more than double the average volume during the week.