November 27, 2022

The Zacks Accident and Health Insurance industry is expected to ride on prudent underwriting and increase in underwriting exposure. Aflac Incorporated AFL, Unum Group UNM Amerisafe AMSF, Employers Holdings Inc. EIG and Trupanion Inc. TRUP should continue benefiting from prudent underwriting standards. However, a rise in claims frequency could weigh on the positives.
The industry has been witnessing soft pricing over the past several quarters and the same is expected to remain muted for the remainder of the year. Nonetheless, a rise in claims due to business activities returning to normal levels is likely to increase pricing for this industry in the coming days. Also, the increasing adoption of technology in operations will help in the smooth functioning of the industry.



– Zacks

About the Industry

The Zacks Accident and Health Insurance industry comprises companies that provide workers’ compensation insurance, largely to employers operating in hazardous industries, such as construction, trucking, logging and lumber plus manufacturing and agriculture. These companies also offer group, individual or voluntary supplemental insurance products. Workers’ compensation is a form of accident insurance paid by employers without affecting employees’ pay. Claims are generally met by insurance companies or state-run workers’ compensation fund. Thus, these coverages benefit both employers and employees. While it boosts employees’ morale and thus productivity, employers stand to benefit from lower claims costs. As awareness about the benefits of having such insurance coverage rises, the future of accident and health insurers seems bright.

3 Trends Shaping the Future of Accident & Health Insurance Industry

Pricing Pressure to Continue: The worker compensation industry has been witnessing pricing pressure over the past several quarters. Given this soft pricing, the efforts to retain market share will again induce pricing pressure, which might curb top-line growth. Per Willis Towers Watson’s Commercial Lines Insurance Pricing Survey, workers’ compensation likely witnessed a slight price reduction in 2021. Per the survey, pricing at workers compensation could be between a decrease of 2% and an increase of 4% in 2022.  However, an increase in claims due to the pandemic could put upward pressure on pricing.
Claims Frequency Might Rise: The accident and health insurance space has witnessed growth over the years, primarily driven by an increase in benefits offered by employers. The right kind of workers’ compensation policy translates into personal care for injured workers, increased productivity, higher employee morale, lower turnover, reduced claims costs and less financial worry amid rising medical costs. Increasing underwriting exposure, sustained decrease in claims frequency rates attributable to a better working environment and conservative reserve levels have been boosting the industry’s performance. With workplace injury and illnesses decreasing, insurers could meet claims without putting margins under strain during this pandemic. However, with business activities getting normal and people returning to their workplaces, claims could be on the rise.
Increasing Adoption of Technology: The industry is witnessing accelerated adoption of technology in operations. Telemedicine has gained pace amid the pandemic. Carriers started selling policies online that appeal to the tech-savvy population. Given the current pandemic, several organizations are working remotely to comply with social distancing norms. Electronic applications, e-signatures, electronic policy delivery, cloud computing and blockchain should help insurers gain a competitive edge. Nonetheless, higher spending on technological advancements will result in escalated expense ratios.

Zacks Industry Rank Indicates Bright Prospects

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all-member stocks, indicates encouraging near-term prospects. The Zacks Accident and Health Insurance industry, housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #71, which places it in the top 29% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential.
We present a few stocks one can buy or retain, given their business advancement endeavors. But before that it’s worth taking a look at the industry’s performance and current valuation.

Industry Outperforms Sector and S&P 500

The Accident and Health Insurance industry has outperformed both the Zacks S&P 500 composite and its own sector over the past year. The stocks in this industry have collectively gained 19.7% in the past year compared with the Finance sector’s increase of 11.2%. and the Zacks S&P 500 composite’s increase of 12.3% over the same period.

One-Year Price Performance

 

Current Valuation

On the basis of a trailing 12-month price-to-book (P/B) ratio, commonly used for valuing insurance stocks, the industry is currently trading at 1.07 compared with the Zacks S&P 500 composite’s 6.49 and the sector’s 3.32.
Over the past five years, the industry has traded as high as 1.6X, as low as 0.58X and at the median of 1.19X.
 

Price-to-Book (P/B) Ratio (TTM)

Price-to-Book (P/B) Ratio (TTM)

 

5 Accident & Health Insurance Stocks to Keep an Eye on

We are presenting a Zacks Rank #2 (Buy) stock from the Zacks Accident and Health Insurance industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Employers Holdings: This Reno, NV-based provider of workers’ compensation insurance to small businesses in the low-to-medium hazard industries carries a Zacks Rank #2. EIG should continue to benefit from a solid presence in attractive markets and prudent underwriting.
Employers Holdings delivered a trailing four-quarter earnings surprise of 6.88% on average. The Zacks Consensus Estimate for the current year has moved 2 cents up in the past seven days. The stock has rallied 18.2% in a year.

Price and Consensus: EIG

We are also presenting four stocks with a Zacks Rank #3 (Hold) each from the same industry.
Unum Group: Chattanooga, TN-based Unum Group provides long-term care insurance, life insurance, employer- and employee-paid group benefits and related services. Continued rollout of dental products and geographic expansion has been paying off as the acquired dental insurance businesses are growing in the United States and the United Kingdom.
The expected long-term earnings growth rate for Unum Group is 11.1%, better than the industry average of 8.%. The Zacks Consensus Estimate for 2022 and 2023 earnings indicates a year-over-year increase of 7.8% and 23.7%, respectively. UNM delivered a trailing four-quarter earnings surprise of 6.62% on average. The stock has risen 8.6% in a year.

Price and Consensus: UNM

Aflac Incorporated: This Columbus, GA-based company offers voluntary supplemental health and life insurance products and operates through Aflac Japan and Aflac U.S. Aflac’s Argus buyout will provide it with a platform to build the company’s network of dental and vision products and further strengthen its U.S. segment.
AFL delivered a trailing four-quarter earnings surprise of 18.2% on average and has a VGM Score of B. The expected long-term earnings growth rate is pegged at 5%. The stock has rallied 28.4% in a year.

Price and Consensus: AFL

Amerisafe:  DeRidder, LA-based Amerisafe is a specialty provider of workers’ compensation insurance. AMSF should continue to gain from its high hazard niche focus, small to mid-size employer focus, high hazard underwriting expertise and intensive claims management.
A balance sheet with no debt provides Amerisafe plenty of financial flexibility to fund operations, meet financial obligations and weather shocks or unexpected expenses. AMSF delivered a trailing four-quarter earnings surprise of 34.70% on average.

Price and Consensus: AMSF

Trupanion: This Seattle, WA-based pet insurer provides medical insurance for cats and dogs on a monthly subscription basis in the United States, Canada, and Puerto Rico. Trupanion is well poised to benefit from a large but underpenetrated addressable market of $34.1 billion, banking on the strength of its product portfolio, driving retention ratio, international expansion and continued strategic investments.
TRUP delivered a trailing four-quarter earnings surprise of 42.06% on average and has a Growth Score of B.

Price and Consensus: TRUP


 

5 Stocks Set to Double

Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Aflac Incorporated (AFL): Free Stock Analysis Report
 
Unum Group (UNM): Free Stock Analysis Report
 
AMERISAFE, Inc. (AMSF): Free Stock Analysis Report
 
Employers Holdings Inc (EIG): Free Stock Analysis Report
 
Trupanion, Inc. (TRUP): Free Stock Analysis Report
 
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Zacks Investment Research

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