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Ratings agency A.M. Best upgraded its view on Insco Dico Group’s subsidiaries, all of which were acquired by AmTrust Financial Services Inc. (AFSI - Snapshot Report) last week for $88.7 million. AmTrust funded the deal with its present working capital.

Accordingly, A.M. Best lifted its financial strength rating (FSR) to “A” from “A-” and the issuer credit ratings (ICRs) to “a” from “a-” for Developers Surety and Indemnity Co. (Developers) and its sub-wing — Indemnity Co. of California (Indemnity). Both the companies are subsidiaries of Insco Dico Group and have been acquired by AmTrust. The outlook for all ratings remains stable.

The ratings validate the successful merger of Developers and Indemnity units with AmTrust. The deal not only boosts AmTrust’s strategy to tap the growing domestic surety bond market but also promises to enhance its operations with new insurance products, a value-added distribution network and unique industry expertise.

Armed with a strong capital and cash flow position, AmTrust has been aggressively growing on the back of suitable acquisitions. Earlier this week, the company also announced its intention to buy the renewal rights and assets of the commercial lines insurance operations of Tower Group International Inc. (TWGP - Analyst Report) for about $125 million.

In connection with this agreement, Tower Group also sought an alliance with Bermuda-based reinsurer — ACP Re Ltd, whereby the latter will merge with Tower Group for $172.1 million. Accordingly, the founder of AmTrust has built a trust, which is the controlling stake holder in ACP Re. The deal is likely to culminate by mid-2014, upon receipt of regulatory approvals.

Last month, the company also completed the acquisition of Sagicor Europe Ltd. These acquisitions are expected to be accretive to AmTrust’s earnings in 2014 and beyond.

Alongside, the recent approval of its first stock repurchase program since 2007, worth $150 million, justifies AmTrust’s adequate liquidity. Even the markets have apparently reacted positively to the company’s capital and operational developments.

Subsequently, AmTrust has received upward estimate revisions for both 2013 and 2014 in the last 30 days. Accordingly, the Zacks Consensus Estimate rose 2.9% and 5.1% to $3.19 per share and $3.72 a share in 2013 and 2014, respectively. Rising estimates also showcase an upward pressure on the stock in the near term, justifying its Zacks Rank #2 (Buy).

Other insurers that warrant a look include Allied World Assurance Co. Holdings AG (AWH - Snapshot Report) and Platinum Underwriters Holdings Inc. (PTP - Snapshot Report). Both these stocks sport a Zacks Rank #1 (Strong Buy).

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