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On Mar 12, we upgraded our recommendation on Amerisafe Inc. (AMSF - Analyst Report) to Outperform based on the remarkable improvement in its operating and underwriting performance.

Why the Upgrade?

Amerisafe reported fourth-quarter 2012 operating earnings per share of 49 cents on Feb 27, which outpaced the Zacks Consensus Estimate of 39 cents and the prior-year quarter’s earnings of 32 cents. Total operating revenue also increased 14.3% year over year to $85.6 billion and also exceeded the Zacks Consensus Estimate of $83.0 billion.

Amerisafe witnessed quite a boost over the last 30 days, signifying noticeable growth ahead. The Zacks Consensus Estimate for 2013 rose 6% to $1.95 per share, whereas for 2014, it grew 5.7% to $2.22 per share. Meanwhile, the Most Accurate Estimate for Amerisafe’s 2013 earnings stands at $2.10, resulting in a positive ESP (read: Zacks Earnings ESP: A Better Method) of 7.7%.

Consequently, with the Zacks Consensus Estimates for both 2013 and 2014 showing strong upward pressure on the stock in the near term, the company now has a Zacks Rank #1 (Strong Buy).

What is the cause for the strong positive bias on the company? Apart from strong fourth quarter results, Amerisafe has employed a proactive and disciplined underwriting approach. Additionally, prudent capital management have contributed to the favorable growth of book value per share and return on equity, which are significant growth measures. The initiation of cash dividend further injects shareholders’ confidence in the stock.

Going ahead, we believe that Amerisafe is well positioned to capitalize on the changing market dynamics, wherein the workers' compensation market remains firm as carriers re-evaluate their positions, thereby enhancing the company’s fundamental growth. A strong financial strength rating further augurs decent long-term growth.

Other Stocks to Consider

Apart from Amerisafe, other stocks that are outperforming in the insurance sector include CNO Financial Group Inc. (CNO - Analyst Report), XL Group Plc (XL - Analyst Report) and Aegon NV (AEG - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

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