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4 Accident & Health Insurers to Watch as Underwriting Exposure Increases
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The Zacks Accident and Health Insurance industry is expected to ride on the increase in underwriting exposure. Aflac Incorporated (AFL - Free Report) , Unum Group (UNM - Free Report) , Employers Holdings (EIG - Free Report) and Trupanion (TRUP - Free Report) 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 favor pricing for this industry. Also, the increasing adoption of technology in operations will help the industry to function smoothly.
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 size of U.S. workers' compensation insurance industry was $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. Efforts to retain market share will further 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 5.3%. Also, per a CBIZ report, workers’ compensation pricing is expected to rise 2%.
Claims Frequency to Improve: 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 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 industry is witnessing accelerated adoption of technology in operations, including artificial intelligence. Electronic applications, e-signatures, electronic policy delivery, cloud computing and blockchain should help insurers gain a competitive edge. Per a CBIZ report, industry data reveals that artificial intelligence could reduce workers’ compensation claim expense by about 45%. 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 #34, which places it in the top 14% 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 7.1% 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 but 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 11.1% in the past year compared with the Finance sector’s increase of 8.6% and the Zacks S&P 500 composite’s increase of 21.1% 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 1.77X compared with the Zacks S&P 500 composite’s 3.39X and the sector’s 6.21X.
Over the past five years, the industry has traded as high as 1.87X, as low as 0.58X and at the median of 1.15X.
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 Zacks Consensus Estimate for 2024 earnings has moved 3 cents north in the past 30 days. The expected long-term earnings growth is pegged at 6.2%. The stock has gained 14.8% in a year. Aflac carries a Zacks Rank #2 currently.
Price and Consensus: AFL
Trupanion: Headquartered in Seattle, WA, this Zacks Rank #2 pet insurer is well-poised to grow, courtesy of a heightened focus on pets’ health and well-being in an underpenetrated pet insurance market, product launches, extended operating boundaries and a solid capital position. TRUP is poised well for growth in a total addressable market worth $34.1 billion. This pet insurer continues to invest in areas where it believes it can achieve high internal rates of return. Improving pricing should add to the upside.
The Zacks Consensus Estimate for 2024 has moved 2 cents north in the past 30 days and indicates a 57.7% year-over-year increase. The stock has lost 53.1% in a year.
Price and Consensus: TRUP
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 26.50% on average. The Zacks Consensus Estimate for 2024 earnings indicates a 1.5% year-over-year increase. The stock has lost 5.5% in a year.
Price and Consensus: EIG
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 7.3%, better than the industry average of 6%. The Zacks Consensus Estimate for 2024 earnings indicates a year-over-year increase of 1.8%. UNM delivered a trailing four-quarter earnings surprise of 5.62% on average. The stock has risen 12.7% in a year.
Price and Consensus: UNM
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4 Accident & Health Insurers to Watch as Underwriting Exposure Increases
The Zacks Accident and Health Insurance industry is expected to ride on the increase in underwriting exposure. Aflac Incorporated (AFL - Free Report) , Unum Group (UNM - Free Report) , Employers Holdings (EIG - Free Report) and Trupanion (TRUP - Free Report) 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 favor pricing for this industry. Also, the increasing adoption of technology in operations will help the industry to function smoothly.
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 size of U.S. workers' compensation insurance industry was $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. Efforts to retain market share will further 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 5.3%. Also, per a CBIZ report, workers’ compensation pricing is expected to rise 2%.
Claims Frequency to Improve: 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 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 industry is witnessing accelerated adoption of technology in operations, including artificial intelligence. Electronic applications, e-signatures, electronic policy delivery, cloud computing and blockchain should help insurers gain a competitive edge. Per a CBIZ report, industry data reveals that artificial intelligence could reduce workers’ compensation claim expense by about 45%. 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 #34, which places it in the top 14% 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 7.1% 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 but 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 11.1% in the past year compared with the Finance sector’s increase of 8.6% and the Zacks S&P 500 composite’s increase of 21.1% 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 1.77X compared with the Zacks S&P 500 composite’s 3.39X and the sector’s 6.21X.
Over the past five years, the industry has traded as high as 1.87X, 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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4 Accident & Health Insurance Stocks in Focus
We are presenting two Zacks Rank #2 (Buy) stocks 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 (Strong Buy) stocks here.
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 Zacks Consensus Estimate for 2024 earnings has moved 3 cents north in the past 30 days. The expected long-term earnings growth is pegged at 6.2%. The stock has gained 14.8% in a year. Aflac carries a Zacks Rank #2 currently.
Price and Consensus: AFL
Trupanion: Headquartered in Seattle, WA, this Zacks Rank #2 pet insurer is well-poised to grow, courtesy of a heightened focus on pets’ health and well-being in an underpenetrated pet insurance market, product launches, extended operating boundaries and a solid capital position. TRUP is poised well for growth in a total addressable market worth $34.1 billion. This pet insurer continues to invest in areas where it believes it can achieve high internal rates of return. Improving pricing should add to the upside.
The Zacks Consensus Estimate for 2024 has moved 2 cents north in the past 30 days and indicates a 57.7% year-over-year increase. The stock has lost 53.1% in a year.
Price and Consensus: TRUP
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 26.50% on average. The Zacks Consensus Estimate for 2024 earnings indicates a 1.5% year-over-year increase. The stock has lost 5.5% in a year.
Price and Consensus: EIG
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 7.3%, better than the industry average of 6%. The Zacks Consensus Estimate for 2024 earnings indicates a year-over-year increase of 1.8%. UNM delivered a trailing four-quarter earnings surprise of 5.62% on average. The stock has risen 12.7% in a year.
Price and Consensus: UNM
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