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Amerisafe Banks on Solid Underwriting Results, Fundamentals

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On Nov 21, we issued an updated research report on Amerisafe Inc. (AMSF - Free Report) .

The specialty provider of workers’ compensation insurance recently released third-quarter with earnings of 93 cents per share beating the Zacks Consensus Estimate by 4.5% on the back of solid operating and financial performance.

Amerisafe has been benefiting from its strong underwriting results since 2011. Both revenues and margins improved on a year-over-year basis buoyed by its organic and inorganic growth strategies. In the third quarter of 2016, the company’s bottom line fell nearly 1.2% while the top line grew 0.7% on higher premiums. The company’s steady operating performance driven by management practices, favorable frequency trends, better product pricing, effective loss control and an active claims management system highlight its long-term growth potential.

Meanwhile, solid operating and financial performance in the last couple of years helped the company establish a significant position in the Workers' Compensation Market. It also boasts specialized knowledge and extensive experience of insuring employers engaged in hazardous industries.

Amerisafe also exhibits strong fundamentals. A consistent improvement in the ROE signals at the company’s future earnings visibility. Further, the company’s combined ratio reflects a year-over-year improvement of 600 basis points in the first nine months of 2016.

We also appreciate the company’s capital management policy by the way of acquisitions, continued dividend payouts and share buybacks, which have been able to generate positive return on equity. Its return on equity (ROE) improved 280 basis points to 16.3% at the end of the first nine months of 2016.

However, the persistently soft interest rate has been limiting the company’s net investment income for long. During the first nine months of 2016, Amerisafe’s net investment declined nearly 2% from the prior-year period. Also, the company’s product concentration and adverse reserve development have imparted volatility to earnings.

Zacks Rank and Stocks to Consider

Amerisafe presently carries a Zacks Rank #3 (Hold).

Better-ranked stocks from the insurance industry that warrant a look include Alleghany Corporation (Y - Free Report) , First American Financial Corporation (FAF - Free Report) and Arch Capital Group Ltd. (ACGL - Free Report) . Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alleghany Corporation deals with Property & Casualty reinsurance and insurance businesses in the U.S. and internationally. The company recorded positive surprises in three of the last four quarters, the average beat being 20.52%.

First American Financial is a leading provider of title insurance and settlement services to the real estate and mortgage industries in the U.S. The company beat estimates in all the trailing last four quarters with an average beat of 14.32%

Arch Capital offers property, casualty, and mortgage insurance and reinsurance products worldwide. It posted positive surprises in all of the last four quarters, with an average beat of 9.27%.

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