3 stocks to watch from the thriving accident and health insurance industry

Zacks’ accident and health insurance business should benefit from increased underwriting exposure. Afla Incorporated AFL, Unum Group A dish Amerisafe Inc. AMSF should continue to benefit from prudent underwriting standards. However, an increase in claims frequency could weigh on the positives.

The industry has seen declining prices over the past few quarters and the same is expected to continue for the rest of the year. Nevertheless, an increase in claims due to the return to normal business activities should lead to higher prices for this industry in the coming days. Additionally, the growing adoption of technology in operations will help the industry run smoothly amid the coronavirus-induced challenges.

About the industry

The Zacks accident and sickness insurance industry includes companies that provide workers’ compensation insurance, primarily to employers operating in hazardous industries, such as construction, trucking, logging and lumber, as well as manufacturing and agriculture. These insurers also offer collective, individual or voluntary supplementary insurance products. Workers’ compensation is a form of accident insurance paid for by employers without affecting employee compensation. Compensation claims are usually satisfied by insurance companies or state-run workers’ compensation funds. Thus, these coverages benefit both employers and employees. While it boosts employee morale and therefore productivity, employers should benefit from lower claims costs. As awareness of the benefits of having such accident and sickness insurance coverage increases, the future of accident and sickness insurers looks bright.

3 trends shaping the future of the accident and health insurance industry

Price pressure to continue: The workers’ compensation industry has been under pricing pressure in recent quarters. Given this low prices, efforts to maintain market share will once again put pressure on prices, which could slow sales growth. According to the Willis Towers Watson Commercial Lines Insurance Price Survey, Workers’ Compensation likely saw a slight price reduction in 2021. According to the survey, Workers’ Compensation prices labor could decline from 2% to increase from 4% in 2022. With the recovery of commercial and industrial track activities, the demand for insurance cover is likely to be on the rise.

The frequency of complaints could increase: The accident and health insurance space has grown over the years, mainly driven by an increase in benefits offered by employers. The right kind of workers’ compensation policy results in personal care for injured workers, increased productivity, better employee morale, lower turnover, lower claim costs, and less financial worries in a context of rising medical costs. Growing underwriting exposure, continued declines in claims frequency rates due to a better working environment and conservative reserve levels drove industry performance. With fewer workplace accidents and occupational diseases, insurers could respond to claims without putting a strain on their margins during this pandemic. However, with the normalization of business activities and the return of people to their workplaces, complaints could increase.

Increase in technology adoption: The industry is witnessing an accelerated adoption of technology in operations. Telemedicine has accelerated amid the pandemic. Carriers have 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 standards. Electronic applications, electronic signatures, electronic policy delivery, cloud computing and blockchain should help insurers gain a competitive advantage. Nevertheless, higher spending on technological advancements will lead to higher spending ratios.

Zacks’ Industry Rankings Indicate Bright Prospects

The group’s Zacks Industry Rank, which is essentially the average of all members’ Zacks Stock Rankings, indicates an encouraging near-term outlook. The Zacks Accident and Health Insurance industry, housed within the broader Zacks Finance sector, currently holds a Zacks industry ranking of #107, placing it in the top 43% of most of 250 Zacks industries. Our research shows that the top 50% of industries ranked by Zacks outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the top 50% of industries ranked by Zacks is the result of a positive earnings outlook for the constituent companies overall. Looking at revisions to aggregate earnings estimates, it appears analysts are gradually gaining confidence in the earnings growth potential of this group. The industry’s profit estimate for the current year rose 0.2% year-on-year.

We present a few stocks that one can buy or hold, given their business advancement efforts. But before that, it’s worth taking a look at the industry’s current performance and 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. Shares in this industry have collectively lost 4.2% over the past year compared to the 15.5% decline in the financial sector and the 12.7% decline in the Zacks S&P 500 composite over the same period.

Year-over-year price performance

Current assessment

Based on a 12-month price-to-book (P/B) ratio, commonly used to value insurance stocks, the sector is currently trading at 1.04X versus the Zacks S&P 500 composite’s 5.65X. and 2.91X of the sector. .

Over the past five years, the industry has traded as low as 1.6X, as low as 0.58X and at the median of 1.15X.

Price-to-book ratio (P/B) (TTM)

Price-to-book ratio (P/B) (TTM)

3 accident and health insurance stocks to watch

We feature two Zacks Rank #2 (Buy) stocks from the Zacks Accident and Health Insurance sector and one Zacks Rank #3 (Hold) stock. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Unum Group: Unum Group, based in Chattanooga, Tennessee, offers long-term care insurance, life insurance, employer- and employee-paid benefits and related services. Continued dental product rollout and geographic expansion has paid off as the acquired dental insurance business expands in the US and UK. Zacks Rank #2 insurer has an impressive VGM score of A.

The expected long-term earnings growth rate for Unum Group is 11.9%, above the industry average of 8.4%. The Zacks consensus estimate for 2022 and 2023 revenue points to a year-over-year increase of 17% and 14%, respectively. UNM delivered a four-quarter earnings surprise of 22.06% on average. The consensus estimate for 2022 and 2023 has moved 1.6% and 0.2% north over the past 30 days, reflecting analysts’ optimism. The stock rose 10.5% in one year.

Pricing and Consensus: UNM

Amerisafe: Amerisafe, based in DeRidder, Los Angeles, is a specialty provider of workers’ compensation insurance. AMSF should continue to leverage its focus on high-risk niches, its focus on small and medium-sized employers, its expertise in high-risk underwriting and its intensive claims management.

A debt-free balance sheet provides Amerisafe with significant financial flexibility to fund operations, meet financial obligations, and weather shocks or unforeseen expenses. The Zacks consensus estimate for 2022 has moved 3.9% north over the past 60 days. The AMSF delivered a four-quarter earnings surprise of 4.16 on average. The title lost 17.4% in one year. Amerisafe carries a Zacks rank of 2.

Pricing and Consensus: AMSF

Afla Incorporated: This Columbus, Georgia-based company offers voluntary supplemental health and life insurance products and operates through Aflac Japan and Aflac US Aflac’s acquisition of Argus will provide it with a platform to develop the company’s dental and vision products network and further strengthen its US segment.

The AFL has posted a four-quarter earnings surprise of 12.05% on average and boasts an impressive VGM score of A. The expected long-term earnings growth rate is pegged at 5%. The Zacks consensus estimate for 2022 has moved north by one cent over the past 30 days. The title lost 1.1% in one year. Aflac wears a Zacks rank #3.

Price and Consensus: AFL

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