4 Accident & Health Insurers to Watch as Exposure Increases – May 25, 2023

The Zacks Accident and Health Insurance industry is expected to ride on the increase in underwriting exposure. Aflac (AFL Free Report) , Unum Group (UNM Free Report) , Employers Holdings (EIG Free Report) and AMERISAFE (AMSF Free Report) 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. 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 providing workers’ compensation insurance, mainly to employers operating in hazardous industries. These companies 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 insurers or state-run workers’ compensation funds, benefiting both employers and employees. While it boosts employees’ morale, and, in turn, 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 US workers’ compensation insurance industry is estimated to grow 0.9% to $55 billion in 2023 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 increase pricing pressure, which might curb top-line growth. 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%. Per a report published in Business Insurance, this line of business should continue to remain profitable in 2023 while rates continue to trend downward.

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 US 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 the accelerated adoption of technology in operations. Telemedicine has gained pace amidst 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 Rosy 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 #21, 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 outperform 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 11.9% 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 8.5% in the past year against the Finance sector’s decline of 6.3% and the Zacks S&P 500 composite’s decrease of 2.8% over the same period.

One-Year Price Performance

Current Valuations

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 1.64X compared with the Zacks S&P 500 composite’s 5.54X and the sector’s 3.01X.

Over the past five years, the industry has traded as high as 1.73X, 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)

4 Accident & Health Insurance Stocks for Better Returns

We are presenting one Zacks Rank #1 (Strong Buy) stock, one Zacks Rank #2 (Buy) stock and two 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.

Unum Group: Chattanooga, TN-based Unum Group, sporting a Zacks Rank #1, 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 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 6.8%, better than the industry average of 2.4%. The Zacks Consensus Estimate for 2023 and 2024 earnings indicates a year-over-year increase of 19.3% and 4.6%, respectively. UNM delivered a trailing four-quarter earnings surprise of 18.61% on average. The consensus estimate for 2023 and 2024 has moved 9.4% and 7.9% north in the past seven days, respectively, reflecting analysts’ optimism. The stock has risen 25.6% in a year.

Price and Consensus: UNM

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. It carries a Zacks Rank #2.

The Zacks Consensus Estimate for 2023 and 2024 has moved 11.1% and 1.2% north, respectively, in the past 30 days. AMSF delivered a trailing four-quarter earnings surprise of 24.03% on average. The stock has gained 4.7% in a year.

Price and Consensus: AMSF

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 #3. 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 35.63% on average. The Zacks Consensus Estimate for 2023 and 2024 bottom line has moved 2.6% and 2.4%, respectively, in the past 30 days. The consensus estimate for 2022 and 2023 indicates a 6.8% and 9.6% year-over-year increase, respectively. The stock has lost 13.3% in a year.

Price and Consensus: EIG

Aflac Incorporated: This Columbus, GA-based company offers voluntary supplemental health and life insurance products and operates through Aflac Japan and Aflac US 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 US segment.

The AFL delivered a trailing four-quarter earnings surprise of 8.23% on average. The expected long-term earnings growth rate is pegged at 5%. The Zacks Consensus Estimate for 2023 and 2024 indicates an 8.6% and 3.7% year-over-year increase, respectively. The consensus estimate for 2023 and 2024 has moved 3.6% and 0.7% north in the past 30 days, respectively, reflecting analysts’ optimism. The stock has gained 9.6% in a year. Aflac carries a Zacks Rank #3.

Price and Consensus: AFL