American Safety Insurance Holdings: Cheap and Undiscovered (ASI)

Feb.15.06 | About: American Safety (ASI)

If you found our post on Meadowbrook Insurance Group (NYSE:MIG) — a small cap insurance company trading at book value — intriguing, you might want to give this stock a few minutes of your time. Formed in 1986 and based in Bermuda (with an office in Atlanta), American Safety Insurance Holdings (NYSE:ASI) is a multi-line specialty insurance company in the specialty risk and alternative insurance market. Specialty risks, while harder to underwrite, can be less sensitive to pricing pressure as compared to traditional risk categories.

You can’t complain about the valuation. The stock is priced below book value, with a price/book ratio of 0.93. It has a trailing PE of 8.24 and a forward PE of 7.25.

Management is motivated with 8% insider ownership (Reuters), though we would be even more excited if there was significant insider buying. Only 30% of shares outstanding are held by institutions. Royce is a large owner, with ASI shares in several of its funds.

ASI has a strong record of growing revenue and net income for the past few years, though you have to look behind the numbers and learn about ASI’s involvement with a real estate project in Florida. After acquiring a bankrupt project in foreclosure and developing it, the project eventually proved profitable, but it does deserve a lot of the credit for recent sales and profit growth. Management has said that the real estate days are behind the company and its attention is now being focused on the insurance lines it knows best.

ASI 1-yr chart: