Rating Action on Amerisafe - Analyst Blog


A.M. Best Co. affirmed the issuer credit ratings ("ICR") of "bbb" and debt rating of "bb+" on Amerisafe, Inc. ( AMSF ). Concurrently, it also confirmed the financial strength rating of A (Excellent) and ICR of "a" on the subsidiaries of Amerisafe including American Interstate Insurance Company, Silver Oak Casualty, Inc. and American Interstate Insurance Company of Texas. The outlook for all ratings remains stable.

The rating affirmation was based on favorable capitalization, strong operating profitability for a prolonged period of time, established market presence and sufficient experience in the workers' compensation market. Amerisafe's strong underwriting results are reflected in its steady operating performance stemming from prudent management practices, decent pricing structure, effective loss control, safety measures and an active claims management system, which have generated a positive calendar year reserve development trends during the five-year period.

However, lack of product diversification and unfavorable loss reserve development are some of the negatives for the company. Nonetheless, the agency experts expect Amerisafe will continue posting strong operating figures. This will in turn result in favorable ratings.

The company registered an operating margin of 12.9% in the first quarter ended 2012 up130 basis points from the year-ago quarter. This indicates an improving financial condition and its ability to meet its expenses. Amerisafe also reported a favorable Return on Equity of 7.85% higher than the sector average of 7.77% and way ahead of 4.08% for its closest peer SeaBright Holdings, Inc. ( SBX ).

The ratings are subject to upgrade provided Amerisafe posts strong underwriting and operating results. But if the company fails to report steady operating performance it may see a rating downgrade.  

With an improving combined ratio of 96% as on March 31, 2012 against 98.3% reported in the year-ago quarter and a sound financial position, the company is well positioned to get higher ratings from the rating agencies. Amerisafe currently retains a Zacks #1 Rank, which translates in to a short-term Strong Buy rating.

AMERISAFE INC (AMSF): Free Stock Analysis Report
SEABRIGHT INSUR (SBX): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: AMSF , SBX



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