GoHealth Inc. is the latest insurtech company to initiate a reverse stock split, joining a growing list of embattled disruptors trying to cope with a changing marketplace.
The move was announced earlier this month and was likely made to avoid delisting insurtech from the New York Stock Exchange, said Kaenan Hertz, managing partner at Insurtech Advisors.
The vast majority of companies that initiate reverse stock splits will still see their stock fall for years to come, Hertz said in an interview.
“Some who can actually recover are starting to appreciate it, but GoHealth had no other real options,” he said.
GoHealth’s 1-for-15 reverse stock split went into effect at the start of trading on Nov. 18. Hertz said he was somewhat surprised by that decision because the ratio didn’t raise GoHealth’s stock to $20, where it becomes more attractive to institutional investors.
“If it drifts down, it’s probably only going to be worth a few dollars in the end, and if it’s a few dollars, institutional investors will definitely be less interested,” he said.
GoHealth ended the week at $7.02.
Fellow insurer Hippo Holdings Inc., which announced a reverse split in September, closed at $13.46 this week. Auto Insurance Root Inc. performed the reverse split in August. Shares ended the week at $7.05.
“Insurtechs are tinkering with the edge of survival this year,” Hertz said in a research note. “Many believed growth was the ultimate goal, but the winds have changed and markets and investors have changed their appetites.”
Overall, US equities lost ground in the week ending Nov. 18 as the S&P 500 fell 0.69% to 3,965.34. Insurance did slightly better, growing 1.03% this week to 592.48.
Auto insurers continue to monitor interest rate increases
Private auto insurers continue to push for more rate increases to address inflationary pressures, according to a report from UBS. With the exception of California, which has only very recently begun allowing rate increases for private cars, regulators are “generally accommodative” of increases, the report said.
Personal auto insurers have seen an underlying deterioration in claims ratios since the second quarter of 2021, due to increased claim frequency as mileage increases in the US and increased severity due to supply chain issues and labor restrictions.
The extremely favorable claims experience auto insurers had in 2020 contributes to the complication, according to UBS.
“There was little speed in the system to deal with the rapid rise in loss costs,” said UBS. “Insurers are filing rate hikes to address high loss costs, but depending on policy terms and the geographic spread of the business, some are likely to return to normalized margins more quickly than others.”
Digital advertising has also fallen below historic levels, though the report describes an acceleration for GEICO Corp. and State Farm Mutual Automobile Insurance Co..
Other companies, such as The Allstate Corp. and The Progressive Corp., have slowed their spending, according to the report. Allstate’s stock ended the week at $132.47 and Progressive finished at $128.36.