The Zacks Accident and Health Insurance industry is expected to benefit from an increase in underwriting exposure. Aflac Incorporated AFL, Unum Group UNM, Trupanion TRUP and Employers Holdings, Inc. EIG are expected to be driven by prudent underwriting standards. However, a rise in claims frequency could offset the positives.
The industry has been witnessing soft pricing over the past several quarters, and this is not expected to change any time soon. Nonetheless, a rise in claims of lower severity, with business activities returning to normal levels, is likely to favor pricing. Also, the increasing adoption of technology in operations will help the industry 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 Precision Reports, the global worker's compensation insurance market is expected to grow considerably between 2024 and 2032.
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. Inflation, coupled with rising medical costs, will likely continue to put pressure on pricing. Per a report in Commercial Risks, AM Best expects sustained favorable loss development and beneficial loss frequency to put downward pressure on pricing. Efforts to retain market share will further increase pricing pressure, which might curb top-line growth. With commercial and industrial activities back on track, demand for insurance coverage is likely to rise. SpendEdge estimates that workers’ compensation insurance pricing will 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 adoption of safety measures and improving working conditions are lowering claims. 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 #29, which places it in the top 12% of the 251 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 2025 has moved up 8.4% in a year.
Before we present a few stocks one can buy or retain, given their business advancement endeavors, 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 its sector and the Zacks S&P 500 composite over the past year. The stocks in this industry have collectively gained 30.6% year to date compared with the Finance sector’s increase of 18.7% and the Zacks S&P 500 composite’s increase of 27.7% over the same period.
Year to Date 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 1.94X compared with the Zacks S&P 500 composite’s 8.85X and the sector’s 3.99X.
Over the past five years, the industry has traded as high as 2.12X, as low as 0.58X and at the median of 1.18X.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
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.
Employers Holdings: Based in Henderson, NV, Employers Holdings is the 19th largest provider of workers' compensation insurance to small businesses in the low-to-medium hazard industries and carries a Zacks Rank #2. EIG should continue to benefit from a solid presence in attractive markets and prudent underwriting. Its multiple distribution channels provide competitive advantages.
EIG delivered a trailing four-quarter earnings surprise of 10.7%, on average. The consensus estimate for 2024 and 2025 earnings has moved 2 cents and 5 cents north, respectively, in the past 60 days. It has a VGM Score of B. The stock has gained 30.1% year to date.
Price and Consensus: EIG
Unum Group: Chattanooga, TN-based Unum Group provides long-term care insurance, life insurance, employer- and employee-paid group benefits and related services. This Zacks Rank #2 insurer is poised to grow on the operational excellence of Unum U.S. and Colonial Life. Encouraging sales trends, strong persistency in group lines and growth of new product lines like dental and vision, coupled with favorable risk results, should benefit Unum U.S. and Colonial Life, the two largest operating segments. It has an impressive dividend track, marking the 15th dividend hike in the last 14 years and yields better than the industry. It estimates a 10-15% increase in dividends going forward.
In 2024, Unum Group expects sales growth in the range of 7-10%, premium growth in the band of 5-7% and adjusted operating return on equity (ROE) between 12% and 14% from core business. Unum estimates 10-15% growth in after-tax adjusted operating EPS in 2024. For the long term, Unum Group expects sales growth in the range of 8-12%, premium growth in the range of 4-7% and adjusted operating earnings per share growth between 8% and 10%. Also, Colonial Life expects sales growth in the range of 8-12%, premium growth in the range of 2-4% and adjusted operating ROE in the range of 20-22% in 2024
The expected long-term earnings growth rate for Unum Group is 8.2%. The Zacks Consensus Estimate for 2024 and 2025 earnings indicates a year-over-year increase of 11.5% and 5.7%, respectively. UNM delivered a trailing four-quarter earnings surprise of 3.17%, on average. The consensus estimate for 2024 and 2025 earnings has moved 1 and 3 cents north, respectively, in the past 30 days. The company has a VGM Score of B. The stock has gained 62.2% year to date.
Price and Consensus: UNM
Aflac: This Columbus, GA-based company offers voluntary supplemental health and life insurance products and operates through Aflac Japan and Aflac U.S. The top line benefits from strategic growth investments, robust persistency rates and enhanced productivity. Aflac introduces new products and upgrades existing ones to address the changing needs of its customers as well as integrates digital solutions into its offerings to align with the ongoing trend of digitization. This, in turn, should support strong profit margins. The 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. It carries a Zacks Rank #3 currently.
AFL delivered a trailing four-quarter earnings surprise of 8.06% on average. The Zacks Consensus Estimate for 2024 earnings indicates a 16.7% year-over-year increase. It has moved about 2% up in the past 30 days. The expected long-term earnings growth rate is pegged at 6.8%. The stock has gained 25.2% year to date.
Price and Consensus: AFL
Trupanion: Headquartered in Seattle, WA, Trupanion is a provider of insurance for cats and dogs in the United States, Canada, Continental Europe and Australia. It operates in a total addressable market worth $34.1 billion, which is a large but underpenetrated market. This Zacks Rank #3 pet insurer is well-poised to grow, courtesy of its heightened focus on pets’ health and well-being in an underpenetrated pet insurance market, product launches, extended operating boundaries and a solid capital position. 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 and 2025 earnings indicates an 80.6% and 87.2% year-over-year increase, respectively. TRUP delivered a trailing four-quarter earnings surprise of 63.89%, on average. The consensus estimate for 2024 has improved by 2 cents in the past 30 days. The expected long-term earnings growth rate is pegged at 45.1%, better than the industry’s average of 20%. It has a Growth Score of A. The stock has gained 67.2% year to date. It has a VGM Score of A
Price and Consensus: TRUP
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
