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Near-Term Outlook for Accident and Health Insurance Industry

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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 three major themes in the industry:

  • The demand for workers’ compensation insurance remains high with rising employment in the manufacturing and construction sectors that have been gaining momentum driven by economic improvement. According to Bureau of Labor Statistics, job opportunities in both these industries have increased at a rapid rate.
  • Weakness in premium revenue and higher spending on technological advancements have been leading to higher expense ratios. The efforts to retain market share will lead to continued pricing pressure, which might curb the bottom line growth. 
  • The rise in medical costs remains a headwind for workers’ compensation insurance. However, growth in underwriting exposure, a continued decline in claims frequency rates and conservative reserve levels should drive the industry’s performance.

Zacks Industry Rank Indicates Bright Prospects

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. The Zacks Accident and Health Insurance industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #19, which places it in the top 7% 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 top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. In a year’s time, the industry’s earnings estimates for the current year have gone up 18.9%.
Before we present a few accident and health insurance stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Lags S&P 500 and Sector

The Accident and Health Insurance industry has underperformed the Zacks S&P 500 composite as well as its own sector over the past year. The stocks in this industry have collectively declined 10.5% in the past year while the Finance sector has dipped 7.4%. Meanwhile, the Zacks S&P 500 composite has increased 2.3% over the same period.

One-Year Price Performance

Current Valuation

On the basis of trailing 12-month price-to-book (P/B) ratio, which is commonly used for valuing insurance stocks, the industry is currently trading at 1.32X compared with the S&P 500’s 3.8X and the sector’s 2.45X.

Over the past five years, the industry has traded as high as 1.97X, as low as 1.17X and at the median of 1.41X.

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 profitability growth. Nonetheless, pricing pressure and escalating medical costs remain concerns.

Investors may consider buying the following stocks that carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
AMERISAFE, Inc. (AMSF - Free Report) : This 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 Zacks Consensus Estimate for current-year EPS of this DeRidder, LA -based company has moved 8.1% north over the past 60 days.

Price and Consensus: AMSF

Employers Holdings Inc. (EIG - Free Report) : This Reno, NV-based company provides workers' compensation insurance to small businesses in low to medium hazard industries. The Zacks Consensus Estimate for current-year EPS has increased 14.8% over the past 60 days.

Price and Consensus: EIG

Unum Group (UNM - Free Report) : The Zacks Consensus Estimate for current-year EPS of this Chattanooga, TN-based provider of financial protection benefit solutions in the United States has moved 14.7% north over the past 60 days.

Price and Consensus: UNM

We also present one stock with Zacks Rank #3 (Hold) that investors may hold on to.

Aflac Inc. (AFL - Free Report) : This Columbus, GA-based company provides voluntary supplemental health and life insurance products. The Zacks Consensus Estimate for current-year EPS has moved 0.7% north over the past 60 days.

Price and Consensus: AFL

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