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4 Accident & Health Insurance Stocks to Watch as Weak Pricing Persists

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The Zacks Accident and Health Insurance industry is expected to ride on prudent underwriting and increase in underwriting exposure. Aflac (AFL - Free Report) , Unum Group (UNM - Free Report) Amerisafe (AMSF - Free Report) , and Employers Holdings (EIG - Free Report) should continue benefiting from prudent underwriting standards. However, 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 remain muted for the remainder of the year. Nonetheless, rise in claims due to the pandemic is likely to increase pricing for this industry in the coming days. Also, increasing adoption of technology in operations will help in 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, largely to employers operating in hazardous industries, such as construction, trucking, logging and lumber plus 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. Thus, these coverages benefit both the employers and employees. While it boosts employees’ morale thus productivity, employers stand to benefit from lower claims costs. In fact, per reports by CBIZ, much of the workers’ compensation claims in 2020 were related to COVID-19.

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, 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 witnessed a slight price reduction in the first quarter of 2021. Per Willis Towers Watson Insurance Marketplace Realities, workers compensation might experience flat pricing in 2021. However, increase in claims due to the pandemic could put upward pressure on pricing.

Claims Frequency Might Rise: The accident and health insurance space has witnessed growth over the years, primarily driven by 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 better working environment and conservative reserve levels have been boosting the industry’s performance. The National Council on Compensation Insurance (NCCI) stated that workplace injury and illnesses are decreasing 2% to 3% annually in all demographics per a report by Willis Towers Watson. This should help insurers meet claims without putting margins under strain during this pandemic.

However, with the economy getting back in shape and business activities normalizing, claims should also increase. There are some essential services, which need to continue, and the related employees are at high risk of getting infected (as workers’ compensation includes claims due to exposure to coronavirus). Frequency of claims from such essential service industries are bound to rise. On the other hand, rise in unemployment and furlough will adversely impact new sales while premiums might be hampered due to decline in persistency.

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 Dull Prospects

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all-member stocks, indicates dull near-term prospects. The Zacks Accident and Health Insurance industry, housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #195, which places it in the bottom 22% 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 bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. The industry’s earnings estimates for the current year have decreased 0.2% since April 2021 end.

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 gained 47% in the past year while the Finance sector has increased 37.3%. The Zacks S&P 500 composite has gained 34% 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 1.1 compared with the Zacks S&P 500 composite’s 7.03 and the sector’s 3.41.

Over the past five years, the industry has traded as high as 1.6X, as low as 0.58X and at the median of 1.28X.

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


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


4 Accident & Health Insurance Stocks to Keep an Eye on

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

Employers Holdings: This Reno, NV-based provider of workers' compensation insurance to small businesses in low-to-medium hazard industries carries a Zacks Rank #2. The company should continue to benefit from solid presence in attractive markets and prudent underwriting. The company delivered a trailing four-quarter earnings surprise of 109.55% on average. The Zacks Consensus Estimate for 2021 and 2022 has moved up 6.7% and 2.7%, respectively in the past 60 days. The stock has rallied 32.4% year to date.

Price and Consensus: EIG


Unum Group: This Chattanooga, TN-based company provides long-term care insurance, life insurance, employer- and employee-paid group benefits and related services. Continued rollout of dental products and geographic expansion have been paying off for this Zacks Rank #3 company as the acquired dental insurance businesses are growing in the United States and the United Kingdom. Its expected long-term earnings growth is 3.3%. The stock has surged 39% year to date.

Price and Consensus: UNM

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. This Zacks Rank #3 company has seen upward estimate revisions for its 2021 and 2022 bottom line over the past 60 days by 6.5% and 0.4% respectively. The company delivered a trailing four-quarter earnings surprise of 19.69% on average. The expected long-term earnings growth is pegged at 5%, better than the industry average of 4.2%. The stock has rallied 28.8% year to date.

Price and Consensus: AFL


Amerisafe Inc:  This DeRidder, LA-based company is a specialty provider of workers’ compensation insurance. The company should continue to gain from high hazard niche focus, small to mid-size employer focus, high hazard underwriting expertise and intensive claims management. This Zacks Rank #3 company delivered a trailing four-quarter earnings surprise of 52.95% on average. The Zacks Consensus Estimate for 2021 has moved 1.7% north in the past 60 days. The stock has gained 10.9% year to date.

Price and Consensus: AMSF

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Aflac Incorporated (AFL) - free report >>

Unum Group (UNM) - free report >>

AMERISAFE, Inc. (AMSF) - free report >>

Employers Holdings Inc (EIG) - free report >>