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The Zacks Accident and Health Insurance industry is expected to benefit from an increase in underwriting exposure. Aflac Incorporated AFL, Unum Group UNM and Trupanion TRUP are expected to be driven by prudent underwriting standards. However, a rise in claims frequency could offset the positives.

The industry has been witnessing soft pricing over the past several quarters, which is not expected to change any time soon. Nonetheless, a rise in claims, with business activities returning to normal levels, is likely to favor pricing. Also, the increasing adoption of technology in operations will help the industry to function smoothly.

About the Industry

The Zacks Accident and Health Insurance industry comprises companies providing workers’ compensation insurance, mainly to employers operating 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’ pay. Claims are generally met by insurers or state-run workers’ compensation fund, benefiting both employers and employees. While it boosts employees’ morale and, in turn, productivity, employers stand to benefit from lower claim costs. As awareness about the benefits of having such coverage rises, the future of these insurers seems bright. Per Precision Reports, the global worker's compensation insurance market is expected to grow considerably between 2024 and 2032.

3 Trends Shaping the Future of the Accident & Health Insurance Industry

Pricing Pressure to Continue: The worker compensation industry has been witnessing pricing pressure over the past several quarters. Inflation, coupled with rising medical costs, will likely continue to put pressure on pricing. Per a report in Commercial Risks, AM Best expects sustained favorable loss development and beneficial loss frequency to put downward pressure on pricing. Efforts to retain market share will further increase pricing pressure, which might curb top-line growth. With commercial and industrial activities back on track, insurance coverage demand is likely to rise. SpendEdge estimates that workers’ compensation insurance pricing will increase at a five-year (2022-2026) CAGR of 5.3%. Also, per a CBIZ report, workers’ compensation pricing is expected to rise 2%.

Claims Frequency to Improve: Adoption of safety measures and improving working conditions are lowering claims. The accident and health insurance space has witnessed growth over the years, primarily driven by an 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 a better working environment and conservative reserve levels have been boosting the industry’s performance. Per U.S. Bureau of Labor Statistics data in an AmTrust Financial report, workers over the age of 55 will increase to about 25% in 2024 from 21.7% in 2014. Thus, claims could rise based on the degree of severity, the report states.

Increasing Adoption of Technology: The industry is witnessing accelerated adoption of technology in operations, including artificial intelligence. Electronic applications, e-signatures, electronic policy delivery, cloud computing and blockchain should help insurers gain a competitive edge. Per a CBIZ report, industry data reveals that artificial intelligence could reduce workers’ compensation claim expense by about 45%. Nonetheless, higher spending on technological advancements will result in escalated expense ratios.

Zacks Industry Rank Indicates Bright Prospects

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates encouraging near-term prospects. The Zacks Accident and Health Insurance industry, housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #103, which places it in the top 41% of the 251 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 top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. The industry’s earnings estimate for the current year has moved up 8% in a year.

Before we present a few stocks one can buy or retain, given their business advancement endeavors, 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 its sector and the Zacks S&P 500 composite over the past year. The stocks in this industry have collectively gained 33.6% year to date compared with the Finance sector’s increase of 15.8% and the Zacks S&P 500 composite’s increase of 21% over the same period.

Year to Date Price Performance

Current Valuation

On the basis of a trailing 12-month price-to-book (P/B), commonly used for valuing insurance stocks, the industry is currently trading at 1.93X compared with the Zacks S&P 500 composite’s 3.83X and the sector’s 8.77X.

Over the past five years, the industry has traded as high as 1.93X, as low as 0.58X and at the median of 1.16X.

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

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

3 Accident & Health Insurance Stocks in Focus

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

Aflac: This Columbus, GA-based company offers voluntary supplemental health and life insurance products and operates through Aflac Japan and Aflac U.S. Its top line benefits from strategic growth investments, robust persistency rates and enhanced productivity. Aflac brings new products and upgrades existing ones to address the changing needs of its customers as well as integrates digital solutions into its offerings to align with the ongoing trend of digitization. These, in turn, should support strong profit margins. The 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. It carries a Zacks Rank #2 currently.

AFL delivered a trailing four-quarter earnings surprise of 8.24% on average. The Zacks Consensus Estimate for 2024 and 2025 earnings indicates an 8.4 % and a 5.1% year-over-year increase, respectively. The expected long-term earnings growth is 6.3%. The consensus estimate for 2024 and 2025 earnings has moved 2 cents and 3 cents north, respectively, in the past 30 days. The stock has gained 36.8% year to date.

Price and Consensus: AFL

Unum Group: Chattanooga, TN-based Unum Group provides long-term care insurance, life insurance, employer- and employee-paid group benefits and related services. This Zacks Rank #3 insurer is poised to grow on the operational excellence of Unum U.S. and Colonial Life. Encouraging sales trends, strong persistency in group lines and growth of new product lines like dental and vision, coupled with favorable risk results, should benefit Unum U.S. and Colonial Life, the two largest operating segments. It has an impressive dividend track record, with 15 dividend hikes in the last 14 years and yields better than the industry. It estimates a 10-15% increase in dividends going forward.

Management estimates sales growth of 5-10% and premium growth of 5-7% in 2024 at Unum U.S. It expects sales growth in the range of 8-12% and premium growth in the band of 2-4% at Colonial Life for 2024.

The expected long-term earnings growth rate for Unum Group is 8%. The Zacks Consensus Estimate for 2024 and 2025 earnings indicates a year-over-year increase of 10.7% and 5.1%, respectively. UNM delivered a trailing four-quarter earnings surprise of 2.96%, on average. The consensus estimate for 2024 and 2025 earnings has moved 1.3% and 0.6% north, respectively, in the past 60 days. The stock has gained 30.2% year to date.

Price and Consensus: UNM

Trupanion: Headquartered in Seattle, WA, Trupanion is a provider of insurance for cats and dogs in the United States, Canada, Continental Europe and Australia. It operates in a total addressable market worth $34.1 billion, which is a large but underpenetrated market. This Zacks Rank #3 pet insurer is well-poised to grow, courtesy of its heightened focus on pets’ health and well-being in an underpenetrated pet insurance market, product launches, extended operating boundaries and a solid capital position. This pet insurer continues to invest in areas where it believes it can achieve high internal rates of return. Improving pricing should add to the upside.

The Zacks Consensus Estimate for 2024 and 2025 earnings indicates a 68.5% and 87.2% year-over-year increase, respectively. TRUP delivered a trailing four-quarter earnings surprise of 43.13%, on average. The consensus estimate for 2024 and 2025 earnings has improved 3 cents and 1 cent, respectively, in the past 30 days. The stock has gained 35% year to date.

Price and Consensus: TRUP

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