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Will Aspen Insurance Keep Gaining Strength?

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Aspen Insurance Holdings Limited (AHL - Free Report) has been on an uptrend since the beginning of this month, reflecting investors’ enthusiasm about its developments so far.

Among others, A.M. Best Co. reiterated the financial strength rating (FSR) and issuer credit ratings (ICR) of Aspen Specialty Insurance Company (ASIC) and Aspen American Insurance Company (AAIC), the wholly owned subsidiaries of Aspen Insurance.

Both the subsidiaries carry FSR of A (Excellent) and ICR of ‘a’ with a stable outlook.

The rating affirmations came on the back of low underwriting and investment leverage, coupled with capital contributions from Aspen that have been supporting sturdy capitalization. The rating agency noted the subsidiaries remain focused in their concerted efforts to well position Aspen in the United States despite competitive challenges. With commercial line marketplace accepting rate increases, pricing pressure is also lowering.

However, ratings can be subject to a downgrade if the subsidiaries’ operating results deteriorate, and capitalization erodes with lowered support from Aspen Bermuda Limited, the Bermuda-based affiliate of the subsidiaries.

Rating affirmations or upgrades from credit rating agencies play an important role in retaining investor confidence in the stock and in maintaining credit worthiness in the market. Rating downgrades, therefore, adversely affect the business, apart from increasing the costs of future debt issuances. We believe that strong ratings will help Aspen retain investor confidence and enable it to write more businesses going forward, thereby boosting results.

With respect to its earnings performance, Aspen Insurance delivered positive earnings surprises in 3 of last 4 quarter with an average beat of 34.2%. However, this Zacks Rank #3 (Hold) properly and casualty insurer has not seen any estimate revisions over the past few weeks and the Zacks Consensus Estimate for the third-quarter 2013 has remained unchanged at 35 cents. The latest price appreciation is certainly encouraging, but make sure to keep a close watch of this firm in the near future before investing in it.

A.M. Best has also reaffirmed the ICRs of Donegal Group Inc. (DGICA - Free Report) , Argo Group International Holdings, Ltd. and RLI Corp. (RLI - Free Report) , among other property and casualty insurers. While Donegal Group and Argo Group retains the ICR of “bbb”, RLI Corp. retains the ICR of ‘a’.

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