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Accident and Health Insurers Near-Term Prospects Gloomy

Tanuka De

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, 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.

Let us take a look at the industry’s three major themes:

  • The demand for workers’ compensation insurance has been boosted by increase in employment in the manufacturing and construction sectors that have been gaining momentum. According to the Bureau of Labor Statistics, job opportunities in both these industries have risen at a rapid rate. Increased exposure to these sectors leads to higher premiums for industry players.

  • Pricing pressure might weigh on premiums. Though other business lines in the insurance industry will continue to witness improved pricing, workers compensation is likely to witness a decline in rates. The efforts to retain market share will lead to continued pricing pressure, which might curb bottom-line growth.  Also, higher spending on technological advancements will result in higher expense ratios. Nonetheless, adoption of technologies like cloud computing or blockchain should help insurers gain a competitive edge.

  • Rising medical costs remain a headwind for workers’ compensation insurance. However, increased underwriting exposure, sustained decrease in claims frequency rates (attributable to better working environment) and conservative reserve levels should drive the industry’s performance.

Zacks Industry Rank Indicates Bleak Prospects

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. The Zacks Accident and Health Insurance industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #180, which places it in the bottom 30% of more than 250 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 positioning in the bottom 50% of the Zacks-ranked industries is the result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are doubtful of this group’s earnings growth potential.
Before we present a few accident and health insurance stocks that investors may focus on, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Outperforms Sector, Lags S&P 500

The Accident and Health Insurance industry has underperformed the Zacks S&P 500 composite but outperformed its own sector over the past year. The stocks in this industry have collectively lost 1.1% in the past year while the Finance sector has declined 6.7%. The Zacks S&P 500 composite has decreased 0.7% over the same period.

One-Year Price Performance

Current Valuation

On the basis of trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 1.12X compared with the S&P 500’s 3.91X and the sector’s 2.69X.

Over the past five years, the industry has traded as high as 1.6X, as low as 1.1X and at the median of 1.39X.

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

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


Bottom Line

Continued economic improvement should keep supporting the industry’s performance. Also, prudent underwriting and intensive claims management practices with the help of technology position the industry well for growth. Nonetheless, pricing pressure and escalating medical costs remain concerns.

We are presenting one stock with a Zacks Rank #2 (Buy) and three stocks with Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AMERISAFE, Inc. (AMSF): This Zacks Rank #2 workers' compensation insurance provider in the United States offers benefits to injured employees for temporary or permanent disability, death, and medical and hospital expenses. The company delivered positive earnings surprise in the last four quarters with average beat of 34.67%. The company also witnessed its 2019 EPS estimate move 4.3% north in the last 30 days.

Price and Consensus: AMSF

Aflac Incorporated (AFL): This Columbus, GA-based company provides voluntary supplemental health and life insurance products and carries a Zacks Rank #3. The Zacks Consensus Estimate for current-year EPS indicates an increase of 4.3% from the year-ago reported quarter. The company delivered positive earnings surprise in the last 10 quarters with the average being 6.58%

Price and Consensus: AFL

Unum Group (UNM): The Zacks Consensus Estimate for current-year EPS of this Chattanooga, TN-based provider of financial protection benefit solutions in the United States indicates 3.7% year-over-year increase on 4.8% higher revenues. The expected long-term earnings growth of 9% betters the industry average of 6.6%. The stock carries a Zacks Rank #3.

Price and Consensus: UNM

Employers Holdings Inc. (EIG): This Reno, NV-based company provides workers' compensation insurance to small businesses in low-to-medium hazard industries. The company has a stellar record of delivering positive earnings surprise in the last 12 quarters with the average beat being 57.33%.  The stock carries a Zacks Rank #3.

Price and Consensus: EIG

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