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 driven by economic improvement. According to the Bureau of Labor Statistics, job opportunities in both these industries have increased at a rapid rate. Increased exposure to these sectors leads to higher premium for the industry players.
- Pricing pressure might weigh on premiums. 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.
- Rising medical costs remain a headwind for workers’ compensation insurance. However, increased underwriting exposure, sustained decrease in claims frequency rates and conservative reserve levels should drive the industry’s performance.
Zacks Industry Rank Indicates Solid 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 #98, which places it in the top 38% 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 the 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 0.9%.
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 increased 0.4% in the past year while the Finance sector has dipped 0.2%. The Zacks S&P 500 composite has increased 10.9% over the same period.
One-Year Price Performance
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 1.4X compared with the S&P 500’s 4.1X and the sector’s 2.6X.
Over the past five years, the industry has traded as high as 1.72X, as low as 1.17X and at the median of 1.4X.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
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.
Investors may focus on the following stocks that carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) 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 company delivered positive earnings surprise in the last four quarters with average beat of 26.47%.
Price and Consensus: AMSF
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 indicates 5% year-over-year increase on 2.6% higher revenues. The expected long-term earnings growth of 9% betters the industry average of 6.2%.
Price and Consensus: UNM
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 company has a stellar record of delivering positive earnings surprise in the last 10 quarters with the average beat being 52.70%
Price and Consensus: EIG
Trupanion, Inc. (TRUP - Free Report) : Headquartered in Seattle, WA, this company provides medical insurance for cats and dogs on monthly subscription basis in the United States, Canada, and Puerto Rico. The Zacks Consensus Estimate earnings per share for 2019 indicates a surge of 400% year over year on 21.5% higher revenues.
Price and Consensus: TRUP
Aflac Incorporated (AFL - Free Report) : This Columbus, GA-based company provides voluntary supplemental health and life insurance products. The Zacks Consensus Estimate for current-year EPS indicates an increase of 1.4% from the year ago reported quarter. The company delivered positive earnings surprise in the last eight quarters with the average being 6.69%
Price and Consensus: AFL