Root Stocks Continue to Fall Despite Reverse Split; United Insurance up despite exits

Root Inc. underwent a reverse stock split that took effect Aug. 15, but that move apparently did little to assuage the company’s steady decline in share price.

The insurtech went public in late 2020 with its shares trading at $27 each. But shares of Root closed at around $17 at the end of the day on August 12, the last trading session before the 1-for-18 reverse stock split went into effect.

The whole thesis behind an inverted stock split is to push the stock price up enough that it “become attractive again” to institutional investors, Kaenan Hertz, managing partner at Insurtech Advisors, said in an interview. But that’s not true for Root right now, he said.

Although the stock price rose in the first three trading days following the reverse split, it has since lost ground and closed at $13.37 on August 26.

Several other insurance technology companies, including Hippo Holdings Inc. and GoHealth Inc., have also announced that their shares may be subject to reverse splits.

Hippo plans to hold a special meeting on August 31 to discuss a stock split that would be in the range of 1 for 20 to 1 for 30. GoHealth did not reveal many details about its intention to conduct a similar move. SelectQuote Inc. is also on Hertz’s radar as an insurtech that could possibly undergo a reverse stock split, although it has yet to announce any such plans.

Hertz believes that reverse stock splits of these insurtechs “likely won’t resolve the downward pressure” on their prices until institutional investors are willing to buy those stocks in a meaningful way.

The lock-up period, the time during which certain shareholders agree to give up their right to sell their shares of a public company, will end for some of these insurtechs in the near future, Hertz also noted. When that happens, there will be potential for an “equity deluge” that could drive stock prices down again unless there are investors willing to buy that ability.

Hippo stock rose 12.70% for the week ending August 26. GoHealth stock ended down 6.69%, while SelectQuote stock price rose 2.26%.

Orderly flow

Shares of United Insurance Holdings Corp. skyrocketed after it announced that personal lines insurance subsidiary United Property & Casualty Insurance Co. had filed withdrawal plans in Florida, Louisiana and Texas regarding non-renewed personal lines insurance policies in those states. Louisiana has already granted regulatory approval for the move, but decisions are still pending in Florida and Texas. The company also plans to file an exit plan in New York.

“These plans would effectively place United P&C in an orderly run-off as long as United P&C remains in compliance with each state’s rules and regulations,” United Insurance said in a press release.

Demotech has also notified United P&C of its intention to withdraw the company’s financial stability rating.

United Insurance Holdings ended the week as one of the biggest gainers of any insurance industry, with its stock price jumping 17.65%.

Another Florida-based insurer, Heritage Insurance Holdings Inc., also saw its shares gain ground, up 5.56%.

Unlike its peers operating in the Sunshine State, FedNat Holding Co. snagged a spot among the week’s biggest losers with its stock down 10.95%.

Shares tumbled in the final session of the week ending Aug. 26, leading to a full-week loss for the S&P 500 of 4.04%, ending at 4,057.66. The S&P 500 US Insurance Index fell 3.47% to 554.09.

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