5 Stocks To Watch From The Thriving Accident & Health Insurance Industry

The Zacks Accident and Health Insurance industry is expected to ride on the increase in underwriting exposure. Aflac Incorporated (AFL) , Unum Group (UNM) , Trupanion (TRUP) , Employers Holdings (EIG) and AMERISAFE (AMSF) 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, which is not expected to change any time soon. Nonetheless, a rise in claims, with 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 amid coronavirus-induced challenges.


About the Industry

The Zacks Accident and Health Insurance industry comprises companies that provide workers’ compensation insurance, largely to employers operating in hazardous industries. These players 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, benefiting both employers and employees. While it boosts employees’ morale, thus, productivity, employers stand to benefit from lower claims costs. As awareness about the benefits of having such coverage rises, the future of these insurers seems bright. Per reports published in IBISWorld, the U.S. workers' compensation insurance industry is estimated to grow 3% to $48.3 billion in 2022 based on revenues.


3 Trends Shaping the Future of the 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, 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 witnessed a slight price reduction in 2021. Per the survey, pricing at workers' compensation could be down 2% to up 4% in 2022.  With commercial and industrial activities back on track, the demand for insurance coverage is likely to be on the rise. SpendEdge estimates workers compensation insurance pricing to increase at a five-year (2022-2026) CAGR of 5.25%.

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. Per The U.S. Bureau of Labor Statistics data in an AmTrust Financial report, workers over the age of 55 will increase to about 25% in 2024 from 21.7% in 2014. Thus, claims could rise based on the magnitude of severity, the report states. Also, with business activities getting normal, claims may 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 appealed 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 #19, which places it in the top 8% 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. The industry’s earnings estimate for the current year has moved up 3.9% in a year.

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 16.1% in the past year against the Finance sector’s decline of 12.4% and the Zacks S&P 500 composite’s decrease of 18.1% over the same period.


One-Year Price Performance

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Current Valuation

On the basis of a trailing 12-month price-to-book (P/B), commonly used for valuing insurance stocks, the industry is currently trading at 1.56X compared with the Zacks S&P 500 composite’s 5.49X and the sector’s 3.41X.

Over the past five years, the industry has traded as high as 1.6X, as low as 0.58X and at the median of 1.15X.


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


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

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5 Accident & Health Insurance Stocks to Keep an Eye on

We are presenting one Zacks Rank #1 (Strong Buy) stock, one Zacks Rank #2 (Buy) stock and three Zacks Rank #3 (Hold) stocks from the Zacks Accident and Health Insurance industry. You can see the complete list of today’s Zacks #1 Rank 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 #1. EIG should continue to benefit from a solid presence in attractive markets and prudent underwriting. It carries a VGM Score of B.

Employers Holdings delivered a trailing four-quarter earnings surprise of 25.31% on average. The Zacks Consensus Estimate for 2022 and 2023 bottom line has moved 14% and 20.8% in the past 60 days. The consensus estimate for 2022 and 2023 indicates a 3.5% and 18.4% year-over-year increase, respectively. The stock has gained 8.3% in a year.


Price and Consensus: EIG

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Unum Group: Chattanooga, TN-based Unum Group provides long-term care insurance, life insurance, employer- and employee-paid group benefits and related services. The continued rollout of dental products and geographic expansion have been paying off as the acquired dental insurance businesses are growing in the United States and the United Kingdom. This Zacks Rank #2 insurer has an impressive VGM Score of B.

The expected long-term earnings growth rate for Unum Group is 12.2%, better than the industry average of 8.6%. The Zacks Consensus Estimate for 2022 and 2023 earnings indicates a year-over-year increase of 43.5% and 0.6%, respectively. UNM delivered a trailing four-quarter earnings surprise of 34.9% on average. The consensus estimate for 2022 and 2023 has moved 1.8% north in the past 60 days, respectively, reflecting analysts’ optimism. The stock has risen 67.8% in a year.


Price and Consensus: UNM

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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 4.8% on average. The expected long-term earnings growth rate is pegged at 5%. The Zacks Consensus Estimate for 2023 indicates a 2.3% year-over-year increase. The stock has gained 22.6% in a year. Aflac carries a Zacks Rank #3.


Price and Consensus: AFL

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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.

The Zacks Consensus Estimate for 2022 indicates a 2.1% year-over-year increase and has moved 7.5% north in the past 60 days. Amerisafe carries a Zacks Rank #3. The stock has lost 2.1% in a year.


Price and Consensus: AMSF

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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. This Zacks Rank #3 pet insurer is well poised to benefit from a large but underpenetrated addressable market of $34.1 billion, banking on the strength of its product portfolio, which drives retention ratio, international expansion and continued strategic investments.

The Zacks Consensus Estimate for 2023 indicates a 21.2% year-over-year increase. TRUP delivered a trailing four-quarter earnings surprise of 22.76% on average and has a Growth Score of B. The stock has lost 65.9% in a year.


Price and Consensus: TRUP

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