Amerisafe Inc. (AMSF - Free Report) has 32 years of operating history to its credit as a specialty provider of workers’ compensation insurance for small to midsize employers engaged in high-hazard industries. The line of business that the insurer follows has been profitable because it brings to the company higher premium owing to inherent workplace dangers associated with such policies.
Amerisafe also flaunts a competitive edge in focusing on specialized underwriting expertise as witnessed by its combined ratios, which are at more favorable levels than its peers. The company’s combined ratio has stayed below 100% since 2006, save 2011, signifying underwriting profitability.
The company also boasts an efficient operating platform. Through extensive cost-management initiatives, Amerisafe executes one of the most efficient operations in the workers’ compensation industry. This has in turn, enabled the company to maintain its operating return on equity at 14.3%, above the industry’s ROE of 12.8%.
Amerisafe’s focused loss control and safety programs plus active claims management have generated strong underwriting results.
Amerisafe has been delivering solid cash flow from operations over the past many years. Favorable cash flow generation alongwith absence of any long-term debt prepares the company to adopt a disciplined capital management strategy.
We also appreciate the company’s commendable capital management policy via acquisitions, steady dividend payments and extraordinary annual payouts since 2014 plus share buybacks, which have been able to yield a positive return on equity.
The company is also gaining on net investment income from increase in investment yields, led by a hike in Fed funds rate.
In the past six months, the stock has slipped 1.1% against the industry’s growth of 3.3%.
Amerisafe also carries an investment grade ratings from A.M.Best with a stable outlook by virtue of its strong level of risk-adjusted capitalization, a consistently profitable operating performance and its established position and experience in the workers’ compensation market for high-hazard risks.
Nevertheless, Amerisafe’s product concentration and persistent premium rate declines since 2015 are major headwinds faced by the company. The company has also been witnessing escalated expenses from the past many years, weighing on its margins.
Amerisafe currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the insurance space are Assurant, Inc. (AIZ - Free Report) , CNO Financial Group, Inc. (CNO - Free Report) and MGIC Investment Corp. (MTG - Free Report) , each with a Zacks Rank #2 (Buy).
Assurant and MGIC Investment surpassed earnings estimates in each of the trailing four reported quarters, the average being 10% and 34%, respectively.
CNO Financial beat estimates in two of the last four reported quarters, the average positive surprise being 11.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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