Q3 2020 Amerisafe Inc Earnings Call
Five the same as the first two quarters of 2020 and the full year of 2019.
Frequency trends were favorable with reported claim counts in the quarter down 18% from the third quarter of 2019 and below our expectations for the accident year.
However, I will take this opportunity to circle back to industry mix.
Amerisafe operating model focuses on high severity low frequency industries there.
Severity for the current accident year has been within our expectation and we still have one quarter to go.
The timing of severe accident is not particular to any given quarter.
We continue to reach favorable outcomes for prior year claims attributable to our extensive claims management and aided by lower claim counts.
Case reserve changes led to overall favorable development of $14.4 million or 19.3 basis point decrease in the loss ratio.
Accident years to note for accident year, 2018, with 2.6 million a favorable development accident year, 2017 would $4.8 million of favorable development in accident year 2014, with 2.9 million a favorable development.
Before I turn the call over to Neil to discuss expenses and other financial metrics I would like to conclude my prepared remarks by reiterating our strong value to shareholders.
Earnings in our ability to pay dividends are founded in our long term commitment to underwriting discipline through out the insurance cycle.
We remain dedicated to our mission of providing quality insurance product walk profitably serving our stakeholders are now I'll turn the call over to Neil.
Thank you gentlemen, and good morning, everyone.
For the third quarter of 2020, Amerisafe reported net income of $23.4 million or $1.21 per diluted share compared with $21.4 million or $1.11 per diluted share in last year's third quarter.
Operating net income for the third quarter was $22.4 million or $1.16 per share an increase of seven cents or 6.4% from the third quarter of 2019.
Revenues in the quarter decreased to $83 million compared with $91.5 million in the third quarter of 2019 net.
Net premiums earned decreased 9.6% to 74.8 million when compared to last years third quarter.
Turning to our investment portfolio net investment income decreased 14.5% in the third quarter to $7.1 million compared with $8.3 million in the third quarter of 2019.
Last year's third quarter was a high point for investment income and the decrease was driven by lower interest rate on fixed income securities.
Particularly on cash and short term investments securities.
The tax equivalent yield on our investment portfolio was 2.8% at the end of the third quarter the.
The pre tax yield on the portfolio was 2.49% at the end of the quarter down 30 basis points from 2.79% one year ago.
There were no significant realized gains or losses for the portfolio during the quarter.
The investment portfolio remains high quality carrying an average double a credit rating with a duration of 3.81 and with 63% in municipal bonds, 15% in corporate bonds, 12% in us treasuries and agencies, 3% in equity securities and 7% in cash and as.
Their investments.
The 63% in municipal bonds includes taxable municipal bonds, which now make up 12% of the overall portfolio.
Approximately 57% of our bond portfolio is comprised of held to maturity securities which were in a net unrealized gain position of $34.8 million at quarter end. These.
These unrealized gains are not reflected in our book value as the bonds are carried at amortized cost less and allowance for credit losses.
Moving now to operating expenses, our total underwriting and other expenses were $13.9 million in the quarter compared with $19.3 million in the third quarter of 2019.
The decrease in expenses was due to a $5.7 million reduction in loss assessments due to the early termination of an assessment related to a state multiple injury Trust fund.
By category, the 2023rd quarter expenses included $7 million of salary and benefits $5.6 million in commissions and $1.3 million of underwriting and other costs.
As a result of the change in assessments and the associated expense benefit our expense ratio was 18.6% for the quarter compared with 23.3% in the third quarter of 2019.
Without the change in assessments the expense ratio for the quarter would have been 26.2%.
Our tax rate for the quarter was 18.5% compared to 19.6% for last year's third quarter. This is largely due to more tax exempt income on our investment portfolio than last year.
Return on equity for the third quarter of 2020 was 19.8% compared to 18.6% for the third quarter of 2019.
Operating ROE for the quarter was also 19.8%.
Now turning to capital management, and as announced in conjunction with our earnings release, the company's board of directors declared a special dividend of $3.50 per share for shareholders payable on November 18th 2020 to shareholders of record as of November 11, 2020.
This brings the total amount of special dividends paid out in the last eight years to $21.75 per share.
In addition, the company's board of Directors also declared a regular quarterly cash dividend of 27 cents per share payable on December 18th 2020 to shareholders of record as of December 4th 2020.
And finally, just a couple of other items booked value per share at September Thirtyth, 2020 was $24.93 up 11.8% from $22.29 at year end.
Our statutory surplus was $338 million at quarter end the amount of surplus was lower this quarter due to dividends paid up to the parent company for the special dividend.
And lastly, we will be filing our form 10-Q with the SEC tomorrow after the market closes.
That concludes my remarks, and we would now like to open the call up for the question and answer session operator.
Thank you.
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Ladies.