A.M. Best Avers Amerisafe's Credibility - Analyst Blog

Ratings agency – A.M. Best reaffirmed the debt and credit ratings of Amerisafe Inc. AMSF and its subsidiaries, reiterating the company's financial strength and fundamental growth outlook.

Accordingly, A.M. Best reasserted the issuer credit ratings (ICR) of “bbb” on Amerisafe, and the same of “a” was reiterated on its property-casualty (P&C) divisions. 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.

Rationale

A.M. Best avowed its confidence in Amerisafe's core fundamental growth, which stems from strong risk-based capital and operating leverage. This is also reflected by the latest dividend hike by 50% as well as extension of share buyback program in Oct 2013, auguring modest long-term growth.

Moreover, efficient pricing discipline and claims managementhave helped the company retain a sturdy market position within workers' compensation specialty insuranceand competitive edge, over the past couple of years. Additionally, a prudent underwriting approach and superior risk management have helped Amerisafe deliver favorable reserve trends in the latest 5-year period.

Consequently, Amerisafe witnessed remarkable operating performance in 2013. Operating earnings of 90 cents per share surpassed the Zacks Consensus Estimate of 55 cents and the prior-year quarter figure of 49 cents. Higher premiums, investment income and underwriting results drove the results and improved the book value per share, combined ratio, loss ratios and return on equity (ROE).

Although market uncertainty may continue to hurt payrolls, improved pricing and reserves is likely to generate incremental returns in the future as well.

Apart from Amerisafe, other better-ranked insurance stocks include Unum Group UNM, ACE Ltd. ACE and Navigators Group Inc. NAVG. All these stocks carry a Zacks Rank #2 (Buy).