4 Casualty and Health Insurance Stocks to Watch Despite Price Pressures

4 Casualty and Health Insurance Stocks to Watch Despite Price Pressures

The Zacks Accident and Health Insurance industry is expected to benefit from the increase in underwriting exposure. Aflac Incorporated go down, Unum Group UNM, Employers Holding EIG and AMERICIF The AMSF should continue to benefit from prudent underwriting standards. However, the high frequency of claims can affect the positives.

The industry has seen low prices over the past few quarters, and they are not expected to change anytime soon. However, rising claims, as business activities return to normal levels, will likely lead to an increase in prices for the industry. The increasing adoption of technology in operations will also help in the smooth functioning of the industry.

About the industry

The Zacks Accident and Health Insurance industry includes companies that provide workers’ compensation insurance, primarily to employers working 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’ salaries. Claims are generally satisfied by insurance companies or a state-run workers’ compensation fund, benefiting both employers and employees. While it boosts employee morale, and thus productivity, employers will benefit from lower claims costs. With increasing awareness of the benefits of obtaining such coverage, the future of these insurance companies looks bright. According to reports published in IBISWorld, the US workers’ compensation insurance industry is expected to grow by 0.9% to reach $55 billion in 2023 based on revenue

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

Pricing pressure to continue: The workers’ compensation industry has seen pricing pressure over the past few quarters. Given this weak pricing, efforts to retain market share will lead to increased pricing pressure, which could limit overall revenue growth. As commercial and industrial activities get back on track, demand for insurance coverage is likely to rise. SpendEdge estimates that workers’ compensation insurance rates will rise at a five-year (2022-2026) compound annual growth rate of 5.25%. According to a report published in Business Insurance, this type of business should continue to remain profitable in 2023 while prices continue to trend downward.

Claims frequency is on the rise: The accident and health insurance industry has seen growth over the years, primarily driven by increased benefits offered by employers. The right type of workers’ compensation policy translates into personalized care for injured workers, increased productivity, higher employee morale, lower employee turnover, lower claims costs, and less financial anxiety amid rising medical costs. Increased underwriting exposure and continued decline in claims repeat rates attributed to better business environment and conservative reserve levels have enhanced the industry’s performance. According to U.S. Bureau of Labor Statistics data in the AmTrust Financial report, the percentage of workers over the age of 55 will rise to about 25% in 2024 from 21.7% in 2014. Therefore, claims could rise based on severity, the report states.

Increased adoption of technology: The industry is witnessing an accelerated adoption of technology in operations. Telemedicine has gained rapid pace amid the pandemic. Carriers began selling policies online that attracted technology-savvy residents. Due to the current pandemic, many organizations are working remotely to comply with social distancing norms. Electronic applications, electronic signatures, electronic policy delivery, cloud computing and blockchain technology are supposed to help insurance companies gain a competitive advantage. However, higher spending on technological advancement will lead to escalating expense ratios.

The Zacks Industry Rank indicates bright prospects

The group’s Zacks Industry Rank, which is essentially the average Zacks rating of all member stocks, indicates encouraging near-term prospects. The Zacks Casualty & Health Insurance industry, which is within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #4, which places it in the top 2% of 250 Zacks industries. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s position within the top 50% of Zacks-ranked industries is a result of positive earnings outlooks for the constituent companies as a whole.

Looking at the overall earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Industry earnings estimates for the current year have risen 16.5% in one year.
We bring you some stocks that one can buy or hold, given their efforts in developing their business. But before that, it’s worth taking a look at the industry’s performance and current valuation.

The industry is outperforming the sector, underperforming the S&P 500

The Health & Casualty Insurance industry has outperformed its own sector, but underperformed the Zacks S&P 500 Composite Index over the past year. Shares in this industry have collectively gained 13.1% in the past year compared to the Finance sector’s 4.8% increase and the Zacks S&P 500 Composite’s 15.3% increase over the same period.

One-year price performance

Current rating

On a trailing 12-month price-to-book (P/B) basis, which is typically used to value insurance stocks, the industry is currently trading at 1.9X compared to the Zacks S&P 500 Composite’s 5.69X and 3.03X for the sector.

Over the past five years, the industry has traded as high as 1.94X, as low as 0.58X and at a median of 1.15X.

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

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

4 accident and health insurance stocks to achieve better returns

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

Employers Holding: This Reno, Nevada-based workers’ compensation insurance provider to small businesses in low- to moderate-risk industries carries a Zacks Rank #1. EIG should continue to benefit from a strong presence in attractive markets and prudent underwriting.

Employers Holdings delivered a 4Q earnings surprise of 26.50% on average. The Zacks Consensus Estimate for 2023 and 2024 has moved up 0.6% and 2%, respectively, over the past 30 days. The consensus estimate for 2023 and 2024 indicates an increase of 17.8% and 4.4% year-on-year, respectively.

Price and consensus: EIG

Amerisavi: DeRidder’s company, Amerisafe, based in Los Angeles, specializes in workers’ compensation insurance. AMSF should continue to leverage its focus on specialized high-risk areas, focus on small to medium-sized employers, high-risk underwriting expertise, and extensive claims management. Amerisafe’s debt-free balance sheet provides significant financial flexibility to fund operations, meet financial obligations, and weather shocks or unexpected expenses.

The Zacks Consensus Estimate for 2023 has moved 2 cents north in the past 30 days. AMSF delivered a Q4 earnings surprise of 14.03% on average. The stock has lost 1.1% in a year.

Price and consensus: AMSF

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

The AFL delivered a fourth-quarter earnings surprise of 14.50% on average. The long-term earnings growth rate is expected to reach 6.6%. The Zacks Consensus Estimate for 2023 and 2024 calls for an increase of 16% and 1.2% year over year, respectively. Consensus estimates for 2023 and 2024 have moved 2.7% and 1% north in the past seven days, respectively, reflecting analysts’ optimism. The stock has lost 1.1% in a year.

Price and consensus: AFL

Unum Group: Chattanooga, Tennessee-based Unum Group, a Zacks Rank #3, provides long-term care insurance, life insurance, employer- and employee-paid group benefits and related services. Continued dental product introductions and geographic expansion have paid off with the growth of acquired dental insurance businesses in the US and UK.

Unum Group’s expected long-term earnings growth rate is 7.1%, which is better than the industry average of 6.9%. The Zacks Consensus Estimate for 2023 and 2024 earnings calls for annual increases of 24.8% and 2.2%, respectively. UNM delivered a fourth-quarter earnings surprise of 5.62% on average. The consensus estimate for 2023 has moved 0.3% north in the past 30 days.

Price and consensus: UNM

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Aflac Incorporated (AFL): Free Stock Analysis Report

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Employers Holdings Inc (EIG): Free Stock Analysis Report

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