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4 Accident & Health Insurance Stocks to Watch Despite Pricing Pressure (Revised)

The Zacks Accident and Health Insurance industry is expected to ride on the increase in underwriting exposure. Aflac Incorporated AFL, Unum Group UNM, Employers Holdings EIG and AMERISAFE AMSF should continue to benefit 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.


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 fund, benefiting both employers and employees. While it boosts employees’ morale and, in turn, productivity, employers stand to benefit from lower claim 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 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 to 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 degree of severity, the report states.

Increasing Adoption of Technology: The adoption of state-of-the-art technologies to modernize operations, a trend that gained momentum during the pandemic, continues. Insurance companies are progressively offering their policies for online purchase to attract tech-savvy customers in the digital era. The ease of electronic applications, digital signatures, and online claims processing through cloud computing and advanced software applications has been driving higher sales for insurers. However, the increasing investment in technology may lead to higher 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 #13, which places it in the top 5% 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 16.5% 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, Underperforms S&P 500

The Accident and Health Insurance industry has outperformed its own sector but underperformed the Zacks S&P 500 composite over the past year. The stocks in this industry have collectively gained 13.1% in the past year compared with the Finance sector’s increase of 4.8% and the Zacks S&P 500 composite’s increase of 15.3% over the same period.

One-Year Price Performance


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 1.9X compared with the Zacks S&P 500 composite’s 5.69X and the sector’s 3.03X.

Over the past five years, the industry has traded as high as 1.94X, 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, two Zacks Rank #2 (Buy) stocks and one Zacks Rank #3 (Hold) stock 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.

Employers Holdings delivered a trailing four-quarter earnings surprise of 26.50% on average. The Zacks Consensus Estimate for 2023 and 2024 bottom line has moved 0.6% and 2% higher, respectively, in the past 30 days. The consensus estimate for 2023 and 2024 indicates a 17.8% and 4.4% year-over-year increase, respectively.

Price and Consensus: EIG

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 2023 has moved 2 cents north in the past 30 days. AMSF delivered a trailing four-quarter earnings surprise of 14.03% on average. The stock has lost 1.1% in a year.

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 14.50% on average. The expected long-term earnings growth rate is pegged at 6.6%. The Zacks Consensus Estimate for 2023 and 2024 indicates a 16% and 1.2% year-over-year increase, respectively. The consensus estimate for 2023 and 2024 has moved 2.7% and 1% north in the past seven days, respectively, reflecting analysts’ optimism. The stock has lost 1.1% in a year.

Price and Consensus: AFL

Unum Group: Chattanooga, TN-based Unum Group, carrying a Zacks Rank #3, 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 7.1%, better than the industry average of 6.9%. The Zacks Consensus Estimate for 2023 and 2024 earnings indicates a year-over-year increase of 24.8% and 2.2%, respectively. UNM delivered a trailing four-quarter earnings surprise of 5.62% on average. The consensus estimate for 2023 has moved 0.3% north in the past 30 days.

Price and Consensus: UNM


(We are reissuing this article to correct a mistake. The original article, issued on November 6, 2023, should no longer be relied upon.)

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

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