One insurance company found itself among the latest lightning rods in the social media trading frenzy when Reddit users boosted shares of Clover Health Investments Corp. and, at least temporarily, flattened the bets of short sellers who had aligned their positions against the company.
Insurance stocks underperformed the broader market for the week ending June 11 as the S&P 500 rose 0.41% to 4,247.44, while the SNL U.S. Insurance Index tumbled 2.03% to 1,406.77.
Clover Health's shares began the week trading at $9 when the company's ticker popped up on a Reddit forum for retail trading. In January, traders on the now-notorious subforum WallStreetBets sent shares of video game retailer GameStop Corp. soaring and squeezed the positions of short sellers, ushering in the "meme stock" phenomenon.
On June 8, Clover Health saw its share price more than double to $22.15 on trading volume swelling to almost 20x the previous week's high mark. The company booked a $275.2 million net loss in its first full quarter as a public entity.
Analyst Kaenan Hertz called it another instance of investors' favoring insurtech companies without proper regard to financial basics.
"The capital markets right now are willing to provide these insurtechs the freedom to operate in a nonprofitable way," said Hertz, managing partner for Insurtech Advisors LLC. Those companies could benefit from inflated "meme" prices if they issue stock and raise money to keep themselves above water, he added.
On June 10, Clover Health filed for a share offering and private placement expected to raise about $443 million.
Its recent stock price explosion aside, Clover Health will need to find geographic diversification outside of its concentration in New Jersey and the scale to be able to negotiate rates in the Medicare and Medicaid marketplace — a challenging objective in government-sponsored health insurance plans, Hertz said in an interview.
"In the end, they need to differentiate themselves in a [marketplace] that's very commoditized," he said.
Clover Health's stock gave back some of its gains in the middle of the week, but still finished up 67%.
Several P&C companies that specialize in the Florida market saw their share prices grow nearly in sync amid the passage of a reform measure intended to curb the litigation abuse that has pressured insurance results.
Gov. Ron DeSantis on June 10 signed a reform bill that includes provisions to lift the annual cap on rate increases, rein in attorneys fees and reduce the time after a loss date that homeowners have to file roof repair or replacement claims. The state's extended period for which property owners can tie roof damage to storms has been an especially costly area of abuse, said Guy Fraker, the risk consultant who studied the state's property insurance market for state lawmakers.
The new law offers promising remedies to Florida's troubled insurance market, but the state will need its courts to judge the inevitable lawsuits in their favor, Fraker said in an interview. Florida jurisprudence has recently taken a positive turn in that regard, he said.
"There is reason to be optimistic," he said. "There are long-term solutions as long as the courts uphold them."
Shares of Florida-focused Heritage Insurance Holdings Inc. added 4.79% on the week, while HCI Group Inc. added 10.98% and United Insurance Holdings Corp. picked up 5.91%. FedNat Holding Co. did not prosper with its peers for the week; it shed 9.03% of its value.
Stock prices for the rest of the P&C sector had a down week. Chubb Ltd. lost 3.42%, and The Allstate Corp.'s shares gave up 3.30%. The Travelers Companies Inc. retreated 3.45%, and The Progressive Corp. registered one of the largest percentage declines of the week, sliding 6.74%.
Shares of many of the large life insurers also traded down during the period. MetLife Inc. slipped 3.68%, Prudential Financial Inc. registered a 2.68% decline, and Lincoln National Corp. fell 4.81%.
