Amerisafe Looks Like a Safe Bet - Analyst Blog

On Mar 28, we issued an updated research report on Amerisafe Inc. AMSF. This specialty provider of workers compensation insurance has been witnessing significant and steady improvement in its core fundamentals over the past couple of years. This is also reflected in its enhanced financials and underwriting results in 2013.

Moreover, Amerisafe delivered positive earnings surprise in 3 of the last 4 quarters with an average beat of 22.1%. The company's fourth-quarter earnings topped the Zacks Consensus Estimate by a substantial 63.6% and the year-ago quarter number by 83.7%.

The latest reaffirmation of Amerisafe's financial strength by A.M. Best further reflects the company's strong risk-based capitalization and consistently improving operating and competitive leverage. It appears the company's established market presence and enriched experience in the niche workers compensation market are now bearing fruits.

Even pre-tax underwriting profits soared to $32.7 million in 2013, compared with $7.2 million of profits in 2012 and a loss of $1.0 million in 2011, reflecting strong underwriting discipline. Other significant growth measures such as return on equity (ROE), combined ratio and net loss ratio have also witnessed a noticeable improvement in the past year, thereby shoring up optimism for future growth prospects.

Improved operating leverage and liquidity also enabled this Zacks Rank #1 (Strong Buy) stock to efficiently deploy excess capital, by hiking regular cash dividends by 50% in Feb 2014 – within a year of initiation – along with an expanded share buyback program, thereby boosting investor confidence.

Overall, a favorable risk-reward balance in the near term has led to positive estimate revisions for 2014 and 2015. As a result, the Zacks Consensus Estimate for 2014 and 2015 are pegged at $2.67 and $3.19 per share, up 1.5% and 8.1%, respectively, in the last 30 days.

Moreover, the Most Accurate Estimate for Amerisafe's 2014 and 2015 earnings stands at $2.70 and $3.32 a share, resulting in an Earnings ESP of +1.1% and +4.1%, respectively.

Key Picks in the Sector

Along with Amerisafe, other top-ranked stocks in the insurance sector include AmTrust Financial Services Inc. AFSI, OneBeacon Insurance Group Ltd. OB and Global Indemnity Plc GBLI. All the stocks sport a similar Zacks Rank #1.