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3 Stocks to Watch From the Prospering Accident & Health Insurance Industry

·7 min read

The Zacks Accident and Health Insurance industry is expected to ride on the increase in underwriting exposure. Aflac Incorporated AFL, Unum Group UNM and Amerisafe Inc. 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 and the same is expected to continue 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 amid coronavirus-induced challenges.


About the Industry

The Zacks Accident and Health Insurance industry comprises companies that provide workers’ compensation insurance, mainly to employers operating in hazardous industries, such as construction, trucking, logging and lumber plus manufacturing and agriculture. These insurer 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 thus productivity, employers stand to benefit from lower claims costs. As awareness about the benefits of having such an accident and health 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 down 2% to up 4% in 2022.  With commercial and industrial activities back on track, demand for insurance coverage is likely to be on the rise.

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 #107, which places it in the top 43% 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 0.2% in a year’s time.

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 lost 4.2% in the past year compared with the Finance sector’s decline of 15.5% and the Zacks S&P 500 composite’s decrease of 12.7% 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 1.04X compared with the Zacks S&P 500 composite’s 5.65X and the sector’s 2.91X.

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)



3 Accident & Health Insurance Stocks to Keep an Eye on

We are presenting two Zacks Rank #2 (Buy) stocks from the Zacks Accident and Health Insurance industry and one Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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 has been paying off as the acquired dental insurance businesses are growing in the United States and the United Kingdom. The Zacks Rank #2 insurer has an impressive VGM Score of A.

The expected long-term earnings growth rate for Unum Group is 11.9%, better than the industry average of 8.4%. The Zacks Consensus Estimate for 2022 and 2023 earnings indicates a year-over-year increase of 17% and 14%, respectively. UNM delivered a trailing four-quarter earnings surprise of 22.06% on average. The consensus estimate for 2022 and 2023 has moved 1.6% and 0.2% north in the past 30 days, reflecting analysts’ optimism. The stock has risen 10.5% 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. The Zacks Consensus Estimate for 2022 has moved 3.9% north in the past 60 days. AMSF delivered a trailing four-quarter earnings surprise of 4.16 on average. The stock has lost 17.4% in a year. Amerisafe carries a Zacks Rank of 2.

Price and Consensus: AMSF

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 12.05% on average and has an impressive VGM Score of A. The expected long-term earnings growth rate is pegged at 5%. The Zacks Consensus Estimate for 2022 has moved north by a cent in the past 30 days. The stock has lost 1.1% in a year. Aflac carries a Zacks Rank #3.

Price and Consensus: AFL



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