We have retained our recommendation on
) at Neutral based on the current sustainability factors, which
underscore improvement in premiums' growth amid
The company's second-quarter 2012 operating earnings per share
of 18 cents came in way behind the Zacks Consensus Estimate of 40
cents and the prior-year quarter's earnings of 24 cents.
Consequently, operating net income plunged 24.6% year over year
to $3.36 million.
Reported results reflect higher premiums written and earned
that shored up the top line. In addition improved investment
portfolio and capital position drove the book value of the
shares. However, the positives were substantially offset by
higher-than-expected tax, underwriting and loss and loss
adjustment expenses (LAE) along with lower investment yields.
These factors also hampered the underwriting results, return on
equity (ROE), combined ratio and other profitability metrics.
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. Meanwhile, sluggish investment yields
pose direct risks on the earnings potential. Higher LAE and
underwriting expenses also led to a surge in total expenses by
24.3% year over year in 2011, followed by a 14.9% growth during
the first half of 2012.
Nevertheless, Amerisafe's strong underwriting results are
reflected in its steady operating performance, stemming from
prudent management practices, better product pricing and demand
structure, effective loss control, safety measures and an active
claims management system. We believe that the company's
specialized knowledge and extensive experience of insuring
employers engaged in hazardous industries will help it serve its
policyholders better, leading to enhanced employer loyalty and
Moreover, the prudent capital management, expanded share
repurchase plan and affirmation of a strong financial strength
rating augur decent long-term growth, while retaining investors'
confidence. Going ahead, we believe that Amerisafe is well
positioned to capitalize on the changing market dynamics, wherein
the workers' compensation market remains firm, as carriers
re-evaluate their positions, thereby providing quite a boost to
the company's fundamental growth and competitive edge against
peers such as
SeaBright Holdings, Inc.
Employers Holdings Inc.
Amerisafe is slated to release its third quarter result after
the closing bell on November 1, 2012. Based on the pros and cons,
the Zacks Consensus Estimate pegs earnings for the third-quarter
of 2012 at 38 cents per share, which is about 16% higher than the
year-ago quarter. For 2012, earnings are expected to escalate
about 23% over 2011 to $1.40 per share.
Currently, Amerisafe carries a Zacks Rank #3, implying a
short-term Hold rating and indicating no clear directional
pressure on the stock in the near term.
AMERISAFE INC (AMSF): Free Stock Analysis
EMPLOYERS HLDGS (EIG): Free Stock Analysis
SEABRIGHT INSUR (SBX): Free Stock Analysis
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