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Managed care stocks made strong gains on earnings results

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Managed care stocks made strong gains on earnings results

Managed care companies led the gainers among public insurers for the five trading days ending Jan. 18 as stocks climbed following encouraging financial reports at the start of the group's earnings season.

The S&P 500 went up 1.81% for the week to 2,798.03, and the SNL Insurance Index edged up more than 2% to about 1,089.

UnitedHealth Group Inc. shares gained 6.35% from the Jan. 12 closing price, including a significant lift after the company's Jan. 16 earnings report, which disclosed an improved outlook for 2018 after taking into account the reduced tax rate under federal tax reform legislation.

Molina Healthcare Inc., Anthem Inc. and Cigna Corp. were also among the share price leaders for the week. The lower domestic corporate tax rate has brightened researchers' outlooks along with companies' share prices, said Cantor Fitzgerald analyst Steven Halper.

"Some of that is due in part to analysts starting to factor in lower tax rate assumptions in our models," Halper said in an interview.

Shares of eHealth Inc. grew more than 8% for the week and received a bump following the release of preliminary fourth-quarter results that exceeded analysts' expectations.

The company, which operates an online platform for health insurance plan quotes, had been reporting challenges that it faced during the quarter, especially around submitted applications, Halper said. The forecast earnings beat probably surprised investors, he said.

"The numbers didn't seem great, but it's all probably relative to investor expectations," he said.

Shares of Radian Group Inc. picked up after the company announced an increase in reinsurance to 65% from 35% of its first single-premium mortgage insurance quota share agreement. The deal resulted in Radian holding about $450 million in assets over the threshold needed for the upcoming Private Mortgage Insurer Eligibility Requirements, or PMIERs 2.0.

Compass Point analyst Chris Gamaitoni noted that the company's shares had underperformed since competitor MGIC Investment Corp. announced its update on PMIERs in December 2017, likely reflecting investor concerns about Radian's ability to comply with the regulation. Gamaitoni anticipated a favorable reaction in the markets after the disclosure.

"We believe this announcement removes that overhang from the stock and should lead to a clearer path for a higher stock price," the analyst wrote in a research note the day after the announcement. The analyst held his "buy" call on the company's shares with a $29 price target. Radian's shares closed up about 2% on Jan. 18 as the broader markets declined. The company posted a week-over-week climb of about 1.55% to $22.26.

MGIC Investment's shares jumped after its Jan. 18 earnings release. The insurer reported net income of 7 cents per share for the period, which included a 36 cents-per-share adjustment to account for a write-down of deferred tax assets due to the cut in the corporate rate. Without the adjustment, MGIC would have exceeded the S&P Capital IQ consensus estimate of 29 cents. The company's share price improved 3.12% to $15.20 for the week.

Aflac Inc.'s share price rebounded following a Jan. 12 downturn that came after the disclosure of a draft class-action lawsuit on behalf of former sales associates who claimed the company misrepresented job expectations and encouraged unethical sales practices. The company rallied from an estimated 7% decline to finish the five-day period down 3.22% to $87.82.