Q4 2022 Amerisafe Inc Earnings Call
Please standby.
Good day and welcome to the Amerisafe 2022 fourth quarter earnings Conference call Today's conference is being recorded.
At this time I would like to turn the conference over to Kathryn Shirley. Please go ahead.
Good morning, welcome to the Amerisafe 2022 fourth quarter Investor call. If you've not received 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 these statements if the underlying assumptions prove to be incorrect or as the result of risks uncertainties and other factors, including factors discussed in today's earnings release and the comments made during this call and in 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'll now turn the call over to GNL for all Amerisafe, President and CEO .
Thank you Catherine and good morning, everyone. We are pleased to report continued strong results for the fourth quarter and the full year of 2022.
For the year, we reported a combined ratio of 83, 6% gross premiums written decline of less than a point despite rate pressure as well as costs continue to trend down and in operating operating ROE of 16, 5%.
Our balance sheet remains strong with roughly $1 billion and investments in cash a strong reserve position and no outstanding debt.
We continue to see strong retention and policies for which we offer renewal with 94.6% retention in the fourth quarter.
Our overall pricing as measured by E. L. C. M was at 151 for the fourth quarter.
As we look ahead competitive pressures and loss cost declines are expected to remain a headwind, though we expect wage growth to be largely a largely mitigating factor in the near term.
You mean, the wage growth a little further when looking at this metric on a year over year basis. The results will be muted given the strong wage growth we saw in 2022.
Additionally, I'd like to note that payroll growth is primarily coming from existing employees.
Moving to losses, the accident year loss ratio remained steady at 71% throughout the year.
During the quarter, we experienced $10 million in favorable prior year development, primarily from accident years 2017 to 2020.
For the full year, we released roughly $40 million in favorable development as active claims handling resulted in lower claims severities.
As outlined on our call a year ago, we focused on using the drop in reported claims to find avenues to resolve and close open claims.
For 2022, we ended the year with 13 severe claim compared to 19 at year end 2021, and 18 818 at year end 2020.
In this instance, I define as severe claim as those with case reserves incurred in excess of a million dollars.
As it relates to loss trends frequency and severity or both within our expectations. We expect medical inflation to begin to tick up in the back half of the year as our experience in certain pockets of the health market are exhibiting very early indicators.
Bringing all the pieces of the loss ratio together and given the information we have now we expect to hold our accident year loss ratio steady at 71% in the first quarter of 2023.
Finally, as it relates to capital management Amerisafe Board of Directors has approved a nine 7% increase in the regular quarterly dividend to <unk> 34 cents.
With our long tenure of experience in the high hazard niche, we are well positioned to retain our policyholders and compete for new business, while delivering robust returns to our shareholders with that I'd like to turn the call over to Andy to discuss the financials. Thank you Jim and good morning to everyone for the fourth quarter of 2020 to Amerisafe reported net income of <unk>.
<unk> 8 million or $1 eight per diluted share and operating income net income of $16 1 million or <unk> 84 per diluted share. This compares favorably with Q4 'twenty one net income of $3 5 million or <unk> <unk> per diluted share and a net operating loss of 9000 with the difference primarily driven.
And by large claims in the prior year for the full year net income was $55 6 million and net operating income was $59 3 million compared with $65 8 million and $54 7 million in 2021, respectively. The decline in net income was driven by roughly $24 million above <unk>.
<unk>, sorry in our unrealized equity securities position.
Gross written premiums were $55 6 million in the quarter and $276 1 million for the full year, both relatively flat on a year over year basis. During the quarter voluntary premiums decreased four 5%, which was largely offset by payroll audit and related premium adjustments of $2 3 million for the full year voluntary.
Premiums declined by five 9%, partially offset by audit and related premium adjustments of $14 million rates remained pressured as the industry continues to experience declines in approved loss costs.
The accident year loss ratio was 71% for both the fourth quarter and full year. The net loss ratio for the quarter was 55, 3% and 56, 1% for the full year, which reflects $10 4 million in favorable loss development in the quarter and $40 6 million for the full year.
Our total underwriting and other expenses were $17 4 million in the quarter, resulting in an expense ratio of 26, 4% compared with 24, 7% in the fourth quarter of 2021 for the full year underwriting and other expenses were $72 million or 26, 5% compared with $26.
1% in the prior year the increase in the expense ratio was largely due to lower earned premium as underwriting and other expenses for the full year were largely unchanged.
Turning to our investment portfolio the investment portfolio.
High quality carrying an average double a minus credit rating with a duration of four two years. The composition of the portfolio is 60% and municipal municipal bonds, which includes 15% in taxable munis, 22% in corporate bonds, 3% in U S treasuries and agencies, 7% in equity securities and 7%.
Cash and other investments approximately 60% of our portfolio is comprised of held to maturity securities.
In the fourth quarter net investment income increased 25, 8% to $7 6 million from $6 1 million in the prior year quarter. The increase was driven by yields on money market funds and bank accounts as well as higher reinvestment rates on fixed maturity securities for the full year net investment income grew 7% to 27.
$2 million from $25 4 million in 2021 yield on new investments increased approximately 291 basis points driving our tax equivalent book yield to 338% or 71 basis points higher than the previous year.
Our capital position is strong with a high quality balance sheet solid loss reserve position and conservative investment portfolio and total operating return on average equity was 16, 5%.
With that I would like to open the call for the question and answer portion of the call operator.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again. Please press star one to ask a question.
Well pause for just a moment.
We'll go to our first question from Mark Hughes with choice.
Yeah. Thank you good morning.
Good morning, Mark.
You come in above inflation GNL.
You are seeing in certain pockets could you maybe amplify amplify on that a little bit it seems like the.
Medical inflation at least the last measure was.
Yes, Doug decelerated, a little bit, but you're clearly seeing something different I wonder if you could do.
Talk a little more about that.
Certainly you certainly if you think about.
The the medical costs associated with our types of claims severe injuries, obviously things such as durable medical equipment do you mean.
I mean, it makes up a lot.
A significant portion of our costs medical costs that we pay out and some good supply chain issues and things happening post pandemic health crisis, and we've definitely seen an increase in those costs and hopefully with supply chain issues that will tamper it down to some degree, but we've certainly seen inflation on durable medical equipment and then over the <unk>.
Last couple of calls Ive, just talk about the absolute cost.
Particular, what I would call home health nursing.
L P and CNA is that we would like we like to put in home environment to help with our injured workers that have a long term health component.
Obviously, I think we've all read about the wage pressure that the health care industry is experiencing in that regard and so that impactful to us so maybe not medical inflation as a whole like.
We followed the same trends that the industry ever.
We went out just following but there are certainly pockets of those costs that we are keeping our eye on.
Understood and then on loss costs. Thank you Brad good question.
Last couple of quarters.
Recent state by state trends anything new you're seeing there still are.
As you.
Negative as it had been.
Right I think the last number coming out of <unk> was expected to be down loss cost of coal for the entity I states being down seven 3% for 2023, but if I look at the latest chart that just shows the most recent rate filings by state just to give you an order of magnitude there are only two.
That are showing increases that's Hawaii, Minnesota.
And then the the decreases range from nine 1% to 16, 8%.
That's a very wide swing.
The 16, 8% was D C, but using all use Georgia as an example, one of our larger states, Georgia was down 13, 7% in their last rate filing our loss cost filing I mean, there's so those are significant drivers.
Yeah. So it's fair to say, it's not getting any better.
If you look at those numbers.
Yeah. It's better means are we going to see where you think the increases no are we seeing a.
Slowing rate of decrease perhaps.
Yeah, Yeah, okay.
You used the word muted.
Your script and he did.
Did not pick up what that was referring to.
Yeah, no problem I was referring to wage growth. So just tagging onto the conversation. We just had about loss costs. So we have this expectation that.
All other things being equal we're going to be facing rate decreases in 2023, what we think will help mitigate that to some degree is the fact that we continue to see wage growth.
That sort of mitigates the I don't want to say it completely offsets we will see what happens in 2023, but certainly the fact that we've seen wage growth and it's been relatively strong I think does mitigate that factor to some degree I mean.
That's what we've sort of those grants the last few quarters, you know, even though we've been down slightly on a voluntary debt basis with payroll audits in audit premium.
Been relatively flat.
Yes, yes.
Anything youre seeing in your end markets construction.
Construction activity.
No change in tone.
It's very interesting if I base. It just also the payrolls that are reported to us on a monthly basis I would say.
Work activity is robust we're seeing wage growth. We're seeing you know we see about 2% of that is probably coming from new employees, but it hasn't you know the last few quarters have been very strong. So if I look at just the data that I'm, receiving I would say.
All is well I read the same headlines everybody else reads about is there going to be a recession is there there is a potential for a recession I think there was a headline in the Wall Street Journal today about our rental commercial rental properties we.
We just haven't really seen it and I'm gonna come and knock on wood here, we really just haven't seen it come across it in our book of business that's slowing down.
I appreciate it the same effects there.
Hum.
Thanks [laughter].
Maybe one more.
Any development on the large fourth quarter claim did that help.
In the fourth quarter.
No no.
Yeah, Youre right. So if you're looking at the comparative fourth quarter 2021 is when we reported that the catastrophic claims.
I can say as I sit here today, I would say I'm very comfortable with the reserves that we established at the end of the year in 2021 and Theres been no development in regards to those reserves.
Okay. Thank you very much.
Oh.
Okay.
Thank you, we will turn the call back over to management.
Thank you for joining US today, we are pleased with the outcome of 2022, and we look forward to continued success in 2023 happy Mardi Gras.
This does conclude today's conference call you may now disconnect.
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