American Express Co.’s AXP wholly owned subsidiary, AMEX Assurance Company, was recently affirmed Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a+” by rating giant A. M. Best.
The ratings reflect AMEX Assurance’s impressive operating performance over the last few years. The consistent outperformance of the unit has mainly been supported by its strong earnings. The unit provides insurance products to American Express card members, which in turn, drives its robust income. The company’s inexpensive, direct marketing strategy has helped it to attract customers. Its tailor-made insurance offerings focus on travel related and other ancillary coverage, which has contributed largely to margin expansion.
Apart from its operating efficiency, the unit’s strong financial position owing to its conservative investment risk profile has worked as a catalyst behind this rating affirmation. Its favorable reserve development is another positive.
The outlook for the ratings remains stable, implying that the ratings are not likely to witness any revision in the near term. It also reflects that the unit’s financial and market trends are expected to remain stable in the coming period.
However, the unit remains exposed to a few factors that partially offset the aforesaid positives. The majority of AMEX Assurance businesses are targeted toward American Express cardholders. Given the sluggish growth in policyholders' surplus over the last five years, we do not expect the subsidiary to see much upside. Also, the unit has very little reserve as most of it has been used over the years on paying out dividends.
Zacks Rank and Stocks to Consider:
American Express presently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the same industry include Euronet Worldwide Inc. EEFT, ORIX Corporation IX and Blackhawk Network Holdings, Inc. HAWK. All of the stocks carry Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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