Q2 2021 Amerisafe Inc Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to the Amerisafe 2021 second quarter Earnings Conference call. Today's conference is being recorded at this time I will turn the conference over to Kathryn Shirley Chief Administrative officer. Please go ahead.
Good morning, welcome to the Amerisafe and 2021 second quarter Investor call.
If you.
The earnings release it is available on our website at Www Dot Amerisafe Dot com.
This call is being recorded a replay of today's call will be available details on how to access the replay are in 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 in the statements. If the underlying assumptions prove to be incorrect or as the results of risks uncertainties and other factors including factors.
Not retest and 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 Commission.
We do not undertake any duty to update any forward looking statement.
I will now turn the call over to GNL for Amerisafe.
Aerospace President and CEO.
Thank you Catherine and good morning, everyone I.
And I didn't really begin these calls with an update on the workers' compensation market.
And this quarter there are no substantial changes and the market for which to provide an update approved loss costs decreased decreases are averaging and mid single digits and competition is.
Strong and.
For Amerisafe, our combined ratio of $74.4 per cent for the quarter resulted from favorable case development from accident years, 2019, and prior and and competitive expense ratio.
Our long view approach to underwriting discipline and claims management continued to produce underwriting.
Lighting margins above the industry levels.
We are focused on remaining competitive and disciplined and our underwriting.
And the quarter. This resulted in flat policy count with pricing down from the prior year quarter.
R E L. C M was of $1.52.
New business buys in the quarter were less than the prior.
The year quarter, but we had strong renewal retention of 93, 9%.
Combined premium for policies written in the quarter was down 8.9% with average loss costs down 6.5%.
Audit premium and the quarter remained positive despite that the audited policy periods.
<unk> covered the full impact of the COVID-19 pandemic.
We view this as a strong economic sign for our insurers and their respective industries.
And total gross premiums written were down 8.2% from the prior year quarter.
Turning to losses, we experienced favorable case development.
Water from accident years 2015 through 2019 the.
This favorable case development comes from our focus on injured workers medical care and their potential to return to work starting from the first reported of injury until the claim is settled.
Experience and reserving and handling.
And claims for our claim staff is 1 of the many differentiators for Amerisafe as a reminder, our field case managers on average handle less than 50 indemnity claims. This is well below industry averages and allows for extensive claims management.
This quarter that focus decrease prior accident year losses incurred by 17.
$17.9 million or 25.6 basis points.
That same experience and consistency also contributed to our loss estimate for the current accident year of 72% for.
Frequency for the current accident year, we returned to pre pandemic levels as expected, we do not know if the delta variant surge will impact.
And Pat claim counts later in the year.
The Verity for the current accident year was also within our expectations the.
The pandemic did not materially impact severity and our book of business, we often refer to the number of large claims as a measure of severity at.
At the end of the second quarter, we had 3 claims with case and Kurt <unk>.
And dollars.
The timing of when these claims occur can be random so our offer as comparison 18 claims reported at the end of 2020 and 16 claims reported at the end of 2019.
I will now turn the call over to Neil to discuss investment expenses and capital Neil Thank you Danielle and.
And good morning, everyone for.
For the second quarter of 2021, Amerisafe reported net income of $23.8 million for $1.23 per diluted share compared with $23.9 million or $1.24 per diluted share and last year's second quarter.
Operating net income for the second quarter was 22.
And for $1.4 per share and increase of <unk> <unk> from the second quarter of 2020.
Revenues in the quarter decreased to $81.2 million compared with $89.1 million and the second quarter of 2020 net premiums earned decreased 8% to $69.9 million when compared to last.
Second quarter.
Turning to our investment portfolio net investment income decreased 8.1% from the second quarter to $6.7 million compared with $7.3 million and the second quarter of 2020.
The decrease was driven by lower interest rates on fixed income securities.
Last year, the tax equivalent yield on our investment portfolio was 260% at the end of the second quarter. The pre tax yield on the portfolio was 230% at the end of the quarter down from 255% 1 year ago.
Realized gains for the portfolio on securities sold during.
The quarter were $1.2 million compared with 163000 and during the second quarter of 2020.
The investment portfolio is high quality carrying an average double a minus credit rating with the duration of 367, and with 63% and municipal bonds, which includes 14.
Percent and taxable meetings.
20% and corporate bonds, 7% and U S treasuries and agencies, 5% and equity securities and 5% and cash and other investments.
Approximately 60% of our bond portfolio is comprised of held to maturity securities.
14 quarter, and a net unrealized gain position of $31.2 million at quarter and these unrealized gains are not reflected in our book value. As these bonds are carried at amortized costs.
Moving now to operating expenses, our total underwriting and other expenses were $18.5 million.
Which order compared with $21.1 million in the second quarter of 2020 the.
The decrease was largely due to lower loss based and premium based insurance related assessments.
By category. The 2021 second quarter expenses included $6.8 million of salaries and benefits.
And of the $5.3 million and commissions and.
And $6.3 million of underwriting and other costs.
As a result of the favorable decline and expenses our expense ratio for the quarter was 26, 4% compared with 27, 8% and the second quarter 2020.
Our.
Our effective tax rate for the quarter was 18, 5% the same rate is and last year's second quarter.
Return on equity for the second quarter was strong at 28% compared to 21, 3% for the second quarter of 2020, when the stock and bond markets recovered from the pandemic opt.
Operating Roe for.
For the quarter was 18, 3%.
Okay.
And capital management, our company paid its regular quarterly cash dividend of 29 <unk> per share and the second quarter.
This quarter the board declared a quarterly cash dividend of <unk> 29 per share payable on September 24, 2021 to.
Use of record as of September 10th 2021.
Our company continues to generate significant amounts of capital beyond that needed for our ongoing operations. Our current operating leverage measured by net written premiums to GAAP equity that ratio is 6.2 times our target for this.
The ratio is 1.1 times and we will continue to manage capital to work towards that long term target.
And finally, just a few other items to note.
Book value per share at June 32021 was $24.19.
Up 6.6% from $22.70 at year end.
Our statutory surplus was $407 million at quarter end up from $366 million at December 31, 2020.
And lastly, we plan to file our form 10-Q with the SEC tomorrow after the market close.
That concludes my remarks, and we would now like to open the call up for the question and answer session.
Operator.
Ladies and gentlemen, if you'd like to ask a question and you may signal by pressing star 1 on your telephone keypad, if you're using a speaker phone. Please make sure your mute function of turned off till of your signal and reach our equipment again. Please press star 1 to ask the question will pause a moment to give everyone the opportunity of the signal for questions.
We'll take our first question from Mark Hughes with Truest. Please go ahead.
Yes, Thank you and good morning, and good morning, Neil.
Good morning, Mark.
And you know did you give the LCM and I seem to have missed it again.
I did want to just be to mark.
And then.
And thinking back on the last quarter and looking back of my my note there and you seem to be fairly upbeat about the prospects for the.
The business.
Essentially the growth.
And the top line decline was a little bit less last quarter can you talk about what you might've seen between.
And then you know how the second quarter turned out kind of the down high single digits, and where you've been for some time now, but there seem to be some green shoots perhaps what's the what do you see.
Yeah, but you know that's of Great question, Mark certainly 1 quarter does not a trend make.
And then you were and.
I remain optimistic in terms of I think the back I think as a whole vaccination rollouts do provide a level of optimism not only for public health, but for the economy.
On the last quarter's call, we talked about the infrastructure Bill.
There's headlines.
And about that today that it seems to be making some progress and I haven't seen any real changes and the underlying metrics. So certainly there are things within that bill that we believe will be beneficial to amerisafe and 110 billion on the roads and bridges.
65 billion on broadband.
Hey.
I think theres, even maybe $17 billion instead of 1 port all the things that we think could fall within Amerisafe, our wheel house in terms of industries that we insure and could be beneficial to small and midsize employers so that level of optum.
Optimism really hasn't.
And I don't feel like has shifted from first quarter of the second quarters, certainly, we like everyone else and the country.
Learned about the Delta variant and the surge there both from a public health standpoint, and what it could mean.
To the industry I think the industry fared better than we hoped.
Hope, we were better than anticipated early on and the pandemic. So.
Pink.
We don't see the Delta variant for at least from an industry wide or from the business side of things hopefully not being that impactful, but again.
Certainly health concerns.
Also there was I believe some.
And then there's been about getting the economy of start you know getting the economies start it up and running agents being back out and the field.
And creating efficiencies and the pipeline.
And I don't know that that deteriorated all of that much from first quarter of the second quarter.
But we.
And we certainly were not able to.
Op grow policy, count and which we were able to do and the first quarter. We did not do that and the second quarter I don't know that Theres, a trend that I would point to there in terms of something that we saw a shift and the market that wasn't the case the level of competition has remained the same.
Don't see I mean, anecdotally, we may see something.
You can see irrational, but not you know throughout the marketplace irrational pricing.
So no I don't I don't I don't view that as a trend that's a very long answer to I think of simple question I apologize.
Yes, no that's true.
Very helpful.
And about the the.
The 2019 accident.
The year was this the first quarter the 2 drew from 20 million team.
It is it is and I've heard and I have those numbers here. So 2019 was for $5 million.
The 18 was 4 million 2017 was for 4 million.
And we think.
2016 was $2.3 million and then prior to that was $2.7 million.
This was the first quarter that we drew from 2019 and <unk>.
I look at the industry wide numbers that were published and.
And may I guess by and CCI, but even in that data.
And you saw deterioration from 19 to 20, so if you recall there was the.
The reported number of show deterioration calendar year and accident year deterioration from 18 to 19 and saw the same thing going from 19 to 20, both on a calendar year basis, and the accident year basis.
And so the workers comp and compensation industry as a whole is showing some deterioration in that experience.
Year over year, both calendar year and accident year.
So and we are.
We are going in the opposite direction of that so.
Do you have.
Bye.
And do you have the when you first opened and the 2018 accident year I don't know if it was and <unk> of last year, but.
Your first look at it and that's a $4.5 million for the 29.
And then.
The first go.
I don't know if I'm trying to read too much of it.
And I'm just sort of curious.
By channel when you first like the 2018, how did it look.
That's a great question I don't I don't have that I'll talk to my head and I apologize.
Yes, that's right.
And it's probably.
Not really.
The big data.
And it's probably not relevant for this too much volatility.
And so.
And just to be clear of the 3 large claims over 1 million that was year to date I think it was 1 of the first quarter.
Correct.
Great and then the final final question and there's some discussion last quarter about the.
The potential wage inflation, maybe being.
And for when you look at.
Well, maybe I'll ask of.
And this into 2 questions the way.
When you look at renewal premiums how is that the.
Are you seeing any impact of the potential wage inflation and then secondly, you talked about the next job being important for a lot of your so your construction.
Got it.
<unk>, how do you see that now.
Yeah, So I'll I'll speak to wage inflation first so we did see a payroll increase of about 2.9%.
And it's sort of 80.20 in terms of 80% of that was wage inflation and 20% of that being new employees.
And so we feel really confident and in those numbers and it really much pretty much was across our industry groups with the exception of oil and gas, which I don't think surprises anyone and that's a very small portion of our book.
And so that that that happened in the second we saw that and the second quarter.
To your question about the.
Well the next job be there.
We are keeping a close eye on the supply chain right because I do think there are.
Capital expenditures that are ready to be funded.
But there may be some delays in terms of the supply chain and everything that has to happen along the way.
And so we were keeping our eye on that on the on the flip side of that you know, we ensure the lumber industry and and that was a good industry for us and the second quarter. So we saw increased.
The increase flow from the lumber industry and the second quarter.
And Mark on your question about renewal.
Retention.
Hey, Leslie.
Retention for the quarter was strong at 93.9 for those that we offered renewal and that compares to $93.7 last year and the same quarter. So it tends to be running fairly strong and that 93% and 94%.
Pretty much for the last several years.
People staying with us once they understand the value of Amerisafe.
Very good thank you.
Thank you Mark.
Ladies and gentlemen, and as a reminder, star 1 for questions or comments. Please star 1.
We will take our next question from Matt <unk> with JMP. Please go ahead.
Good morning to now and the money now.
Good morning, Matt.
Mark Mark So most of my questions.
Yeah.
And you had some good ones.
Just wanted to follow up on the kind of that last point payroll inflation was the topic I wanted to talk about.
Can you just help us a little bit with the mechanics of kind of timing and terms of.
If you were to see it right and I'm thinking more <unk>.
Actual wage inflation as opposed to the number of jobs, increasing so just the kind of what's been talked a lot and the market in terms of just wages going up.
Yes.
Have you seen much evidence of that I think you kind of kind of answered that already and and secondly like.
And you really expect to yet if it's happening or is that more of a function that.
Really get caught on the audits.
And as the policies wrap up in the in the months following.
Yeah, I think youre thinking about it the right way, Matt and I think the way you would see it coming through and the premium dollars for.
For the obviously for a renewal.
Would be and the audits now I guess on of new business side. If if they are estimating that their payrolls are going to be higher that would come in in terms of new business premium and yes.
Whichever quarter, we write it and but certainly for the larger portion of our book, you're absolutely right that would not really be reflected and premiums.
But until that policy was audited at you know 18 months after the effective date.
Got it okay, just want to make sure the understanding that correctly.
Great well, that's all I got I had missed the LCM as well for what it's worth so I. Thank you.
And I said it is too early and people who are still dialing yeah.
And out of that.
[laughter], Oh, and congrats on and another nice quarter and thank.
Thank you Matt.
We see and it thanks, Matt.
Ladies and gentlemen, this does conclude today's question and answer session I would like to turn the conference back to Gino Frost for any additional or closing remarks.
What a difference.
<unk> a few months can make it has just been 3 short months ago I spoke of the optimism for public health and the economy do the vaccination Rollouts and now we're facing another COVID-19 surge and uncertainty is again at the forefront of forefront of economic news.
I believe the industries and employers, we ensure fared well economically and 2020.
From a continue to do so in the meantime, please stay safe and well. Thank you for joining us today.
Ladies and gentlemen, this does concludes today's conference and we appreciate your participation you may now disconnect.
[music].
And just.
[music].
Okay.
Okay.
[music].