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On Feb 14, Zacks Investment Research upgraded AmTrust Financial Services Inc. (AFSI - Snapshot Report) by a notch to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

AmTrust has been experiencing rising earnings estimates on the back of robust fourth-quarter 2013 results. Improved market trends stemmed from incremental agency acquisitions and a healthy capital position, which in turn, paved the way for the recent approval of its first stock repurchase program since 2007.

Additionally, this specialty property-casualty insurer delivered positive earnings surprises in the last 4 quarters with an average beat of 16.5%. On Feb 13, AmTrust reported fourth-quarter 2013 operating earnings per share of $1.03, which outpaced the Zacks Consensus Estimate of 80 cents by about 29% as well as the year-ago quarter number of 70 cents by 47%.

Robust year-over-year growth of 84.6% in net earned premiums along with a 71.9% surge in service and fee income boosted the top line, margins and bottom line. Despite higher underwriting and acquisition expenses, combined ratio witnessed improvement. Moreover, capital position remained sturdy with appreciated cash position, book value per share and return on equity (ROE).

Going ahead, the recent acquisitions of Insco Dico Group and Sagicor Europe Ltd. are expected to be accretive to AmTrust’s earnings in 2014 and beyond. Moreover, the pending purchase of renewal rights and assets of the commercial lines insurance operations of Canopius Holdings Bermuda Ltd. (TWGP - Analyst Report), by mid-2014, is deemed positive. AmTrust’s creditworthiness,prudent risk management, diversified product portfolio and effective capital deployment also score well with the ratings agencies and investors.

Based on AmTrust’s fundamental strength and prudent capital management, the Zacks Consensus Estimate for 2014 rose 5.4% to $3.92 per share in the last 7 days. Meanwhile, the estimate for 2015 grew 1.6% to $4.45 during the same period.

Moreover, the Most Accurate estimate for AmTrust’s 2014 and 2015 earnings stands at $4.18 and $4.60 a share, resulting in an Earnings ESP of +6.6% and +3.4%, respectively. Furthermore, no downward revision in estimates was witnessed for both the years.

Other Stocks to Consider

Besides AmTrust, other top-ranked insurers in the industry include RLI Corp. (RLI - Analyst Report) and OneBeacon Insurance Group Ltd. (OB - Snapshot Report). Both these stocks sport the same Zacks Rank as AmTrust.

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