Shares of embattled Bright Health Group Inc. went on a roller-coaster ride this week and finished lower despite a reverse stock split going into effect.

The Minneapolis-based managed care insurtech's stock value rallied sharply on May 26 but still closed down more than 29% on the week. Bright Health's shares have dropped more than 70% since the start of the year, following a difficult 2022 in which the company exited its Medicare Advantage business outside of California and ceased offering individual and family plans.

After first-quarter earnings came in below consensus estimates, Bright Health's board approved a 1-for-80 reverse stock split that took effect May 22.

Bright Health is one of the few companies still trying to be a healthcare provider in the Medicare-managed care space, said Kaenan Hertz, managing partner at Insurtech Advisors. The insurer also operates and owns health clinics under its NeueHealth business.

"That is a challenging and difficult thing to do," Hertz said. "Not to mention that they have been burning through their cash reserves which has forced them to retreat."

Fellow managed care insurtech GoHealth Inc.'s stock has risen more than 77% since the start of 2023, while Oscar Health Inc. is up about 180%.

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Bright Health on April 28 announced it was looking at strategic alternatives for its California Medicare Advantage business and shifting its focus to NeueHealth. Insurtechs like Bright Health that have been deemed marketers and providers operate in a difficult, hyper-competitive market, according to Hertz.

"These startups didn't understand the actual underwriting of the products, and so they took a lot of underwriting losses and spent a fortune to build up their technology stacks," Hertz said. "In the end, they didn't necessarily provide that much of a different experience to customers in the way [that] steers people away from traditional providers."

Fellow managed care insurtech GoHealth Inc. initiated a 1-for-15 reverse stock split in November 2022, and its shares have stabilized to some degree. But Bright Health will likely not see the same kind of recovery, said Hertz, as it was considered a "penny stock" trading at less than $5 a share prior to the reverse split and had been threatened with delisting.

Bright Health did not respond to requests for comment regarding the potential sale of its California Medicare Advantage business or the reverse stock split.

The S&P 500 gained 0.32% for the week ending May 26 and finished at 4,205.45. The S&P 500 U.S. Insurance index tumbled 4.27% to 552.56.

AIG exits reinsurance

American International Group Inc. made a splash this week when it announced the sale of Validus Reinsurance Ltd. to RenaissanceRe Holdings Ltd. for $2.96 billion. The deal consists of $2.74 billion in cash and $250 million of RenaissanceRe common shares and is expected to close later in the year.

AIG acquired the Bermuda-based reinsurer in 2018 for $5.56 billion. The deal largely removes AIG from the reinsurance business, Piper Sandler analysts Paul Newsome and Andrew Lambrecht said in a note.

"We believe this will reduce much of AIG's remaining catastrophe exposure, but will also take AIG out of a business that was experiencing a very hard market with rising prices," they wrote.

Following the sale announcement, the Piper Sandler analysts increased their 2024 EPS estimate for AIG to $7.40 from $7.35.

Wells Fargo analyst Elyse Greenspan was less bullish on the transaction, acknowledging both benefits and potential pitfalls. Though the financial side of the deal may be attractive, Greenspan was not excited about the timing.

"The less favorable aspect of the deal is that it is occurring in the midst of a generational hardening of property [catastrophe] market pricing, so we believe it may compete somewhat with organic growth," Greenspan wrote in a research note.

AIG closed the week up 0.39%, while RenaissanceRe fell 4.98%.

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