Q1 2021 Amerisafe Inc Earnings Call
Good day, everyone and welcome to the Amerisafe 2021 first quarter earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Vincent Gagliano Chief Risk Officer. Please go ahead.
Good morning.
Welcome to the Amerisafe 2021 first quarter Investor call.
If you have not received the earnings release it is available on our website at Www Dot Amerisafe Dot com.
This call is being reported a replay of today's call will be available details on how to access the replay are and the earnings release.
During this call we will be making forward looking statements. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties.
Actual results may differ materially from the results expressed or implied and these statements if the us.
Underlying assumptions prove to be incorrect or as the results of the risks uncertainties and other factors, including factors discussed in today's earnings release and the comments made during this call and and the risk factors section of our form 10-K form 10, Qs and other reports and filings with the securities and exchange can be.
And we do not undertake any duty to update any forward looking statements.
I will now turn the call over to day, now Frost Amerisafe President and CEO.
Thank you Vincent and good morning, everyone.
Since our February earnings call the level of competition and Workers' compensation has not changed approved loss costs continued to decrease, albeit at a slower rate of decline there.
And there are reports of agents seeing slight rate increases and workers compensation. However, I believe this is isolated to a particular states and the industry groups.
Amerisafe has not experienced the ability to raise rates within our classes of business.
Overall insurance carriers are reporting shrinking workers' compensation premiums and part due to pricing and in part due to declining payrolls.
Certain industries have not yet rebounded from the pandemic related unemployment levels and continue to experience lower payrolls.
The economic conditions impacted our insured payrolls, but I conclude to a lesser degree given the industries we insure.
Our high hazard industries were deemed essential during the pandemic and much of the work was performed outdoors and.
Driven by increasingly positive economic conditions, we have some optimism for the second half of the year.
The increasing number of vaccinations provide optimism for public health and for the economic outlook.
In addition in addition, the potential for an infrastructure bill being passed could positively impact the industries. We insure for example.
The current proposed bill includes spending on highways bridges, and roads, which are right and the merits of wheelhouse.
We also saw other positive signs in the quarter, we wrote four four per cent more policies and the quarter compared to the first quarter of 2020, we saw improvement and our new business and continue to experience strong policy retention of $93 four per cent for those pas true for which we offered renewal.
Offsetting the policy growth was average loss cost declines of seven 7%.
<unk> for the quarter was the $1 54, compared to $1 57, and the first quarter of 2020, continuing our pattern of being slightly lower each quarter from the prior year.
As a result of voluntary premiums written and the quarter, we were down 3% compared to the first quarter of 2020.
Additionally, we experienced less robust audit premium and other adjustments the first quarter of 2021 audit and other premium adjustments were 300000 compared to $3 6 million and the first quarter of 2020.
Still audit premium for the quarter was positive which speaks to my earlier comment on our ensures the ability to work during the pandemic.
It is an important distinction that generally audit premium and the first quarter of 2021 reflects the difference and estimated payroll activity for annual policies written and the fourth quarter of 2019.
Therefore, the audit premium and we recognized our audits conducted during the quarter, which was impacted by the slowing of work activity during the pandemic related recession.
Overall gross premiums written for the quarter were down six 4% from the first quarter of 2020.
Moving onto the losses, the loss and LAE ratio for the quarter was 55, 9%.
Our loss estimate for accident year, 2021, and 72% down one half percentage point from the accident year 2020, we spoke about this estimate and our February call. The.
The decline and the estimate is and recognition of favorable severity trends, we experience and more recent accident years.
I acknowledge frequency declined, particularly in 2020, however, our book of business is low frequency high severity.
And on three months of data and our assumptions regarding 2021, we believe the estimate for 2021 to be appropriate.
And the quarter, we also experienced favorable case development, particularly in accident years, 2015, 2016, 2017 and 2018. This favorable case development resulted in $11 4 million of favorable loss development decrease and the loss and LAE ratio by 16, one percentage points.
We continue to closely monitor the impact of the pandemic on the cost of claims delayed procedures changes and methods of delivery and the potential for medical inflation or just some of the factors, which influence severity. Both on the current accident year and any open claims from prior accident years.
We continue to focus on getting injured workers, the maximum medical improvement back to work and settling claims quickly.
And now I'll turn the call over to Neil to discuss expenses, the balance sheet and other financial metrics.
Thank you Danielle and good morning, everyone.
For the first quarter of 2021, Amerisafe reported net income of $19 3 million or <unk> 99 cents per diluted share compared with $10 8 million or <unk> 56 cents per diluted share and last year's first quarter.
Operating net income for the first quarter was $14 7 million or <unk> 76 per share of decrease of 12 cents from the first quarter of 2020.
Revenues in the quarter were impacted by $5 5 million and unrealized gains on equity securities and therefore increased to $83 4 million compared with $79 2 million and the first quarter of 2020.
Net premiums earned decreased 10, 4% to $70 7 million when compared to last year's first quarter.
Turning to our investment portfolio net investment income decreased 15% and the first quarter to $6 6 million compared with $7 7 million and the first quarter of 2020 the.
The decrease was driven by lower interest rates on fixed income securities, particularly on overnight investments and short term investment securities.
If you recall for most of the first quarter last year of pre pandemic, the fed funds rate and overnight investments, we're earning one five to one six per cent compared to just five basis points and the first quarter of 2020 one.
Because of cash and overnight investments are at such low yields right. Now we hold just two eight per cent of the portfolio and cash and overnight investments at quarter end compared to six 6% last year at this time.
The technical net yield on our investment portfolio was $2 seven and 7% of at the end of the first quarter.
The pretax yield on the portfolio was $2 four 6% at the end of the quarter down from two 7% one year ago.
Realized gains on Securities sold were 300000, compared with $1 million during the first quarter of 2020.
The investment portfolio is high quality carrying an average double a credit rating with the duration of $3 99, and with 66% and municipal bonds, which includes 15% and taxable muni bonds, 18% and corporate bonds and 9% of U S treasuries and agencies, 4% and equity securities and three.
Per cent and cash and other investments.
Approximately 60% of our bond portfolio is comprised of held to maturity securities, which winter and we're in a net unrealized gain position of $28 6 million at quarter and these unrealized gains are not reflected in our book value as the bonds are carried at amortized cost.
Moving now to operating expenses, our total underwriting and other expenses were $19 million and the quarter compared with $21 3 million and the first quarter of 2020.
The decrease was largely due to lower loss based and premium based insurance related assessments.
By category. The 2021 first quarter expenses included $6 6 million of salaries and benefits $5 5 million and commissions and $6 9 million of underwriting and other costs.
As a result of the favorable decline and expenses our expense ratio for the quarter was held to 26, 8% compared with 26, 9% and the first quarter of 2020.
Our tax rate for the quarter was 18, 3% compared to $18 four per cent for last year's first quarter.
Return on equity for the first quarter of 2021 was $17 four per cent compared to 10% for the first quarter of 2020.
Operating ROE for the quarter was 13, 9%.
And capital management, our company paid its regular quarterly cash dividend of 29 cents per share in the first quarter, which represented a seven 4% increase over last year's amount.
This quarter the board declared a quarterly cash dividend of 29 cents per share payable on June 25th 2021 to shareholders of record as of June 18th 2021.
And finally, just a couple of other items to note books.
Book value per share at March 31, 2020, one was $23 16 sets up 2% from $22.70 at year end.
Our statutory surplus was 384 million at quarter end up from 366 million at year end.
And lastly, we will be filing our form 10-Q with the SEC today after the market close.
And that concludes my remarks, and we would now like to open the call up to the question and answer session operator.
Thank you participants if you'd like to ask the question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off the lot of you're saying the tradeshow equipment again press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to say.
And all.
We will take the first question at this time it comes from Mike Carlotti. Please go ahead.
Hey, Thanks, good morning.
Good morning, Matt Good morning.
And so now I sensed a little bit of a little bit of.
Cautious optimism in your opening comments about the direction of economy and.
And your workforce getting back to work of your insured workforce.
Could you help me through I want to make sure I'm thinking about a few things right.
First of all can you help us through as AD hours worked go up whether thats.
The existing workers working more hours or your existing insured hiring more workers and them working.
Is it normal to expect a little bit of a delay and.
And seeing that premium I'm thinking about like they're working on the spot and so you might see those losses, but some of that premium might come through and and audit function later on and there'll be a little bit of a mismatch is that something we should be cognizant of.
No that's of Great question, Matt you know Youre, absolutely right because the the if it's and and so the annual policy, we're going to estimate the annual premium at the beginning of the policy period, if the if the agent and the insurer it hadn't anticipated that increase in activity will be built into the estimated annual premium so as the throughout the policy period of the insurance.
Working and if they're working those additional hours.
You know the we could have losses, but the part of the premium well went out and get recognized until we do that and audit.
Okay, and then and then kind of another.
And a lot of people have an eye on and just inflation like what inflation is doing and so to the extent of Theres just wage inflation and so I'm not talking more hours worked but just workers getting paid more.
Is that is that favorable to your loss ratio and the sense that youre not necessarily picking up exposure and just getting paid more for it.
That's exactly right and so yeah, we we like wage inflation and that means we collect more premium even if it means we're paying out a little bit more on the identity side, it's definitely a win for us in terms of just the the revenue.
Okay, Great and then.
Yeah look we've been I guess 15 months are give or take pandemic.
You know what as you see it or are there things that have happened during the pandemic, whether it's things amerisafe has adapted to or that you're injured workers have come to adapt to whether it be zoom medical calls are probably a lot of things I haven't even thought of.
Do you see anything being a lasting impact of the recession.
Good or bad.
That's a great great aspect, you know I don't know about lasting impact of the recession. There are certainly lessons that we took as a company and as of the organization from everything that happened in 2020.
To me a great example is even though I think we're all tired of virtual meetings and zoom meetings and we.
And we were we're anxious to get back in the room with people and it also provides the opportunity right. So we're able to coordinate getting an agent of T. S M and underwriter of safety professional even of claims professional all on the same call and making building those relationships and making those connections and I think that was beneficial to us.
And particularly in the first quarter of this year and you know and if we can carry that forward as people maybe are still maybe they're back at work they're back in their offices, but yeah theres still reluctant to have visitors I think that's a great way for us to build relationships and as you know Amerisafe model is built on relationships with our agents and their <unk>.
Clients and injured workers. So I think that's gonna be of really.
For us going forward as the lesson, we can take with us and.
You mentioned telemedicine and you agree of again and I think that will definitely impact workers compensation on a go forward basis.
And because we were forced into it to some degree of right with everyone and everything shut down maybe we would've been slow adopters to begin with but we were forced into it I think it will have a lasting impact on workers compensation and it'll be interesting to see and these initial stages as the economy gets back up and the medical profession is recovering from everything that <unk>.
Happened.
And what how that gets the scribes and the reason I use the word prescribed because as an insurance carrier, we really can't dictate Ah.
And whether certain visits happened and there are certain services are provided and telematic versus in person, it's really going to be dictated by the medical community and so it'll be interesting to see how they respond on a go forward basis is that something that they want to happen and you know there's always a fee component to that and are they going to get paid more or less the same.
And for those tele the the telemedicine visits so.
And to be determined and which is one of the things I mentioned in my earlier comments one of the things, we're really keeping our eye on it because that could have the potential to add some medical inflation or it may actually end up being a wash and the and it'll be interesting to see how it plays out.
Okay, Great and then the last quick one and I apologize I am sure you mentioned debt and I missed it but the the.
LCM for the quarter.
One and 54.
Alright, great. Thank you so much congrats on the nice start to the year.
Thank you Matt Thanks for that.
Okay.
And you find the your question has been answered you may remove yourself from the queue by pressing star two and once again and participants if you would like to ask the question at this time Thats Star one.
And we'll take the next question it comes from Mark Hughes. Please go ahead.
Yes, Thank you and good morning.
Good morning, Mark.
Did you give us the number of large claims and the quarter.
And I didn't Mark we had won so which can be exciting to say well, we had one and if I recall last year at this time, we had widened and we ended the year with 18 and.
And I you know I always have to remind myself, we and not a lumpy business there doesn't seem to be a rhyme or reason to win those large claims happen as far as timing and the with throughout the year. So at the end of the quarter. There was one but there was one at the end of the first quarter and 2020 as well.
Well so far so good.
And so I did and I feel and grateful I am grateful.
And you might have touched on this the.
Kind of frequency and won two large claims aside the.
Clearly 2020 frequency was below what would have been expected how is that trended. When you think about the last few months and even the end of 2020 2020.
Yeah, you know our frequency was obviously down in 2020 reported claim counts were down if you look at the 10-Q, you'll see reported claim counts were down slightly and 2021 as well I just I keep focusing on the fact that we're not frequency driven where severity driven so it really is going to matter what Hal.
And with average severity in 2020, one and with three months of data I can say Oh, it's in line with my expectations is three months of data.
Yes, yes, okay.
And then the.
New business was up can you talk about that how much of that was.
Brokers are.
Maybe being we're up and running more.
The underlying business activity and more small business more construction could you maybe give a little depth on the.
Absolutely I do all the I'll start with your question about the brokers and agents I do think brokers and agents are getting you back into the flow of things of getting things going again as I mentioned, we've really been focusing on building those relationships, taking that time that everybody was going and what's happening and and and reintroducing.
And ourselves in terms of working and how they can work with the underwriter and their safety professional and their claims person and just building those relationships. So they can translate that to their clients, which is the amerisafe proposition right. The the services that we offer and we did see new debt and improvement and new business and the quarter and it was coming from.
The roofing is yeah roofing is our single largest class of I guess trucking now is considered law of one class of business, but roofing and within the construction classes or is or is it really how long he's been a really good class of business for us and we saw improvements and roofing and the first quarter and Unfortunately I can't tell you if that's <unk>.
Maintenance roofing or if that's new construction and I can just tell you it's roofing and so we saw improvement and roofing, we saw improvement in our manufacturing with another.
The positive for us and the quarter.
And then I should've asked in terms of claims was there any of them.
Ah indication that there might have been any catch up and claims did you.
Some of these were late reported claims.
No you know we don't have a lot of true late reported claims and our and our line of businesses again, where severity driven and so they're gonna tell us really quickly when they've had a severe injury. So late reported doesn't really impact us as much and then it's not like we have carpal tunnel claims and those types of things.
Yeah exactly okay, I mean, when you put it together and do you think Oh.
And I think Matt.
Brian the similarly, and just turning a corner if you're down 3% on the voluntary basis all of the Premier and would begin.
And I believe maybe next quarter and Ruth and good either since you're talking about what Q.
Well.
000 hold back the <unk> 20 policies.
And where they do you think they have the same impact here that the once those good order. The do you probably face less upside or was that already captured at this time last year.
No I think that will have the same impact.
Okay Alright.
And I'll get back to my earlier question, which was do you feel like we.
Turn and some kind of the corner here.
Given the scenario, but we definitely feel like yeah, I definitely feel like there are some positive signs that I can point to right.
And whether we have turned the corner and not time will tell I wish I had that the crystal ball that told me that I believe you know with the rollout of the vaccinations. There is a sense of optimism I think in businesses and the economy and you know and that's contagious. So hopefully it converts into reality that there are there are.
Capital expenditures and people do.
Start new contracts and do start building things and maybe there will maybe there will be an infrastructure bill.
I mean, there's things that we can point to that are positive signs and so yeah. We're where we are I think Matt towards we're cautiously optimistic.
Yeah, Okay, yeah, so far so good.
[laughter] that's the also.
And you're right these things out and so far so good.
[laughter] Okay great.
Thank you Mark Thanks, Mark.
Yeah.
Once again the participants if you would like to ask a question Thats Star one on your telephone keypad and we'll take the next question at this time.
Caller. Please go ahead.
This is Randy binner from B Riley and lot of that.
Next caller.
Hi, Randy Hi, Randy Hey, sorry, I didn't catch the danger of their.
So I'm, mostly interested and the same thing.
The the other analysts are interested and and so.
I guess my my question I'm always was though as we as we hear from the larger writers of comp.
And you know and folks who are maybe a couple of steps farther back from comp. There's a there's kind of of confidence that Oh, yeah, you know comps kind of turned the corner and next year, because it's gotta, but it just seems like there was kind of a lack of evidence and so is that just.
No you don't want to speak to what other people say, but as of right is there is that is that sense of the market is going to turn just because it's kind of over due to.
Just be curious or is it different and for general Workers' comp, where it's part of the package or it's part of the non hazard class like is there of different narrative out there for other quarters of the workers comp industry.
And I guess, it really depends on what you mean by the market's turning because we and workers' compensation as a line where the ear mono line of our multiline. It's is still generating a profit I mean, I think even with the estimates that and CCI and a M best and put out its still below 100.
So in terms of in terms of of profitability. It's still there I think it's deteriorating I think like again I think both a M best and and see I have projected that the combined ratio is going to go up a point or two with the but then reason and so and that aspect of the industry is still profitable if you mean turn the.
Reaching a turn in terms of out of a price premium growth right and if that's what you're referring to yeah. There's a couple of things going on and when I was talking to Matt and Mark I was yeah. We were focused on our I would focus on the payrolls and work activity and the economy and all of those things that I said apply but at the same time loss costs are still the.
Of climbing and we're still battling the fact that rates are going down and and that's that's yeah. That's shrinks premium dollars and the latest rate filings range from I think of 20% and Virginia down and they said the decline of <unk> 20 per set two of high of almost 6% for her why.
And there I think there maybe four of five six states that had increases and just last what I would call and loss cost regardless of what carriers are charging but on loss cost of himself. So carriers are still trying to <unk>.
And in that regard catch the falling knife right. The way the rates are still going down and so even if we.
And have positive signs like I pointed to earlier in the economy or the work force.
And that's still going to be a hurdle that's going to happen in 2020, one that's not going away.
I guess the other the other kind of observation I would have if you can help with and.
And this one might be tricky too, but yeah, I would generally think of the kind of excess reserve pool.
Along with the current accident your loss pick is both kind of trended downward and so those are offsetting items.
You know what would that generally the the natural way, we'd kind of transition to the other side of the market from your view, what and when you know pricing and as you get higher again.
That's definitely a sign that everyone looks far right are you starting to see deterioration and loss reserves are you seeing adverse development and it'll be interesting to see how 2020 impact of that for workers comp as a whole what do you think about the industry as a whole you know with frequency going down so much and 'twenty 'twenty and what does that mean in terms of people.
And the redundancies and deficiencies and does that somehow mask for another year.
The things that were coming to fruition and I think a little it'll be we'll know more about that come the end of 2021 going into 2020. Two if we start seeing companies change their current accident loss pick recognize the development from earlier and more recent acts in years, if they recognize the development for 2020 one adverse development.
Net or whatever the case maybe more.
At a different rate than they normally do I think that'll be another sign that maybe there's some to your point deterioration and those excess reserves.
Alright, I'll leave it there thanks so much.
Thank you.
Yeah.
And it appears there are no further questions at this time, GNL Frost and I'd like to turn it back over to you for any closing remarks.
Okay, great. Thank you.
I am somewhat amazed how of small doses of vaccine has the potential to and the global pandemic return to normalcy and boost the economy. Nevertheless, I'm happy to find elements of good news to point to because of our employees our operations and our earnings over the 35 year history Amerisafe continues to respond to the needs of our agents.
And their clients and injured workers through the peaks and valleys and everything in between thank you for joining us today.
Yeah.
That concludes today's conference. Thank you for your participation you may now disconnect.
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