Last week, ratings agency – A.M. Best asserted the debt and credit ratings of Amerisafe Inc. (AMSF - Analyst Report) and its subsidiaries, upholding the company’s financial strength and fundamental growth outlook.
Accordingly, A.M. Best affirmed issuer credit ratings (ICR) of “bbb” on Amerisafe, while an ICR of “a” was reiterated on the property-casualty (P&C) divisions of the company. These include American Interstate Insurance Co., Silver Oak Casualty Inc. and American Interstate Insurance Co. of Texas, together known as Amerisafe.
The ratings agency also affirmed the financial strength rating (FSR) of “A” on these P&C subsidiaries. Meanwhile, the outlook for all ratings remains stable.
A.M. Best exhibited confidence in Amerisafe’s core fundamental growth, which is cushioned by strong risk-based capital and operating leverage. Moreover, specialty provider of workers’ compensation insuranceallowed the company retain a sturdy market position and competitive edge based on its efficient pricing discipline and claims management.
Alongside, a prudent underwriting approach and focus on controlling loss through safety programs helped Amerisafe deliver favorable reserve trends in the latest 5-year period. Consequently, Amerisafe witnessed remarkable operating performance in 2012.
Operating earnings of $1.48 per share surpassed the Zacks Consensus Estimate of $1.37 based on higher premiums and lower underwriting expenses that drove the top line, underwriting profit, book value per share, combined ratio and return on equity (ROE).
On the contrary, the ratings agency has displayed some concerns regarding the earnings volatility, which is caused by the consistent adverse loss reserve development. Further, lack of product diversification acts as a deterrent factor for growth of the company. Although the pricing environment and industry demand has witnessed some improvement, Amerisafe is expected to face uncertainty in the upcoming quarters as the market weakness continues to hurt payrolls.
Yet, prudent capital management, expanded share repurchase plan, dividend initiation and affirmation of a strong financial strength rating augur decent long-term growth. These factors also validate the Zacks Rank #1 (Strong Buy) on Amerisafe.
Apart from Amerisafe, other stocks that are outperforming in the insurance sector include Progressive Corp. (PGR - Analyst Report) , XL Group Plc (XL - Analyst Report) and Navigators Group Inc. (NAVG - Snapshot Report) . All these stocks carry a Zacks Rank #1 (Strong Buy).