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Aspen: A Strong Buy

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On Oct 5, Zacks Investment Research upgraded Aspen Insurance Holdings Ltd. (AHL - Free Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Aspen has been experiencing rising earnings estimates on the back of improved market trends post its second-quarter 2013 results. Moreover, strong capitalization and reduced pricing pressure served as impressive factors.

Additionally, this property-casualty insurer delivered positive earnings surprises in 3 of the last 4 quarters with an average beat of 34.2%. Aspen also outperformed the one-year S&P index, which posted a 15.7% increase against the healthy return of 16.6% clocked by the company.

On Jul 24, Aspen reported second-quarter 2013 operating earnings per share of 63 cents, which lagged the Zacks Consensus Estimate of 67 cents and the year-ago quarter number of $1.32.

While year-over-year growth of 5.3% in net written premiums boosted the top line, higher loss, loss adjusted and policy acquisition expenses reduced the underwriting income. Net investment income also decreased 60% over the prior-year quarter. Consequently, combined ratio, book value per share and return on equity (ROE) deteriorated from the year-ago quarter.

However, in the last couple of months, Aspen’s strategic focus on optimizing its business portfolio and initiatives to expand in the U.S. have been showing results. Alongside, prudent risk management and efficient deployment of excess capital reflect a healthy capital position and score well with the ratings agencies. These factors should help Aspen achieve ROE of 10% in 2014, auguring a durable long-term growth potential.

Based on Aspen’s fundamental strength and capital management, the Zacks Consensus Estimate for 2013 rose 5.4% to $3.14 per share in the last 60 days. Moreover, the Most Accurate Estimate for Aspen’s 2013 earnings stands at $3.95 a share, resulting in an Earnings ESP of 25.8%.

Meanwhile, the estimate for 2014 remained intact at $3.27 in the last 60 days. Furthermore, no downward revision in estimates was witnessed for both the years.

Other Stocks to Consider

Apart from Aspen, other outperforming insurers in the industry include Allied World Assurance Co. Holdings AG , Global Indemnity Plc and Montpelier Re . All these stocks carry a Zacks Rank #1 (Strong Buy).

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