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Home » Coronavirus hits insurance stocks, but maybe not for the reasons you think – San Francisco Chronicle
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Coronavirus hits insurance stocks, but maybe not for the reasons you think – San Francisco Chronicle

Many insurance stocks are getting hit hard by the coronavirus, but not always for the reasons you think.

Shares in U.S. health insurance companies have fared worse than the overall market since the S&P 500 index reached an all-time high a week ago. The index is down 8% since then, including a 0.4% decline Wednesday.

Major health insurance stocks are down about 12% to 14.5%, thanks to a combination of heightened coronavirus fears and “Bernie Sanders solidifying his front-runner status (for the Democratic nomination) over the weekend,” said Michael Newshel, an analyst with Evercore ISI.

On Tuesday, the Centers for Disease Control and Prevention warned Americans to prepare for a wider spread of the coronavirus, possibly a pandemic. “If there is widespread infection, there could be an uptick in outpatient doctor visits and hospitalizations, akin to a severe flu season,” Newshel said. Sanders, meanwhile, has proposed creating a single-payer national health insurance program and doing away with private health insurance.

Health insurance stocks had been generally outperforming the market since 2010 thanks to increased coverage under the Affordable Care Act. Asked which is the bigger threat to the industry — coronavirus or Bernie Sanders — Newshel said, Sanders “is having a bigger impact” this week, “but the actual threat of single-payer being passed is near zero. The negative impact from the coronavirus is more realistic, but in terms of magnitude, it’s a more manageable situation. It’s not the existential threat that Bernie Sanders is.”

The H1N1 virus, which peaked in the fourth quarter of 2009, shaved a few percent off earnings that year, some more or less depending on the company, he added.

Life insurance stocks have also fallen further than the overall market in the past week, but not because the coronavirus is expected to kill a large number of people with insurance policies. Rather, it’s because of their large investment portfolios.

These companies invest the premiums they collect in stocks, and a larger part in bonds. “They are very leveraged to the direction of the capital markets. When markets go down, they go down,” said Morningstar analyst Brett Horn.

As stock prices plunged in the past week, bond prices have risen as investors piled into the perceived safety of U.S. Treasurys. When bond prices go up, their yields go down. The yield on the 10-year Treasury hit a record low of 1.31% on Wednesday.

Although the value of their bonds has gone up, “when you have new money come in, the potential return is lower” because interest rates are lower, said Meyer Shields, an analyst with Keefe, Bruyette & Woods. “Insurance companies make a lot less money on investing when rates are lower.” It takes much longer for insurance pricing to make up for that.

Property/casualty companies — which insure homes, autos and business assets — also have investment portfolios, but they play a smaller role in their financial performance. “They don’t tend to be as capital-market leveraged as life insurers,” Horn said.

More Information

Shares in some insurance stocks have been hit hard since the S&P 500 index reached an all-time high on Feb. 19. Some sectors fared worse than others.

Sector/

Company

Price change, Feb. 19-26

Health insurance

Anthem

-11.8%

Cigna

-14.7

CVS*

-12.7

HCA Healthcare

-14.5

Humana

-13.2

UnitedHealth Group

-13.9

Life insurance

American International Group**

-8.9

Aflac

-9.7

MetLife

-9.4

Manulife

-11.7

Primerica

-11.5

Prudential

-12.0

Property/casualty

Allstate

-6.9

Chubb

-3.8

Hartford

-6.3

Progressive

-2.2

Travelers Companies

-4.4

S&P 500 index

-8.0

*CVS owns Aetna, a health insurer **AIG sells both life and property insurance

Source: Chronicle research

Stocks in these companies are more in line with the overall market in the past week; some have even done better.

American International Group, which sells both life and property/casualty insurance, “came out in the last couple days and said they would buy back $500 million in stock,” Horn said. That helped stem the fall in AIG’s stock price.

Commercial property/casualty companies could see some losses from the coronavirus, if an epidemic in the United States forces businesses to shut down and they file claims for business interruption. Some policies may not cover shutdowns caused by an epidemic, only those caused by fires, quakes or other physical losses, Shields said.

After the SARS epidemic in 2003, “some companies said we didn’t intend to offer coverage for that so they changed their wording” to exclude epidemics, he said.

Kathleen Pender is a San Francisco Chronicle columnist. Email: [email protected] Twitter: @kathpender

Source: Google Insurane

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