Q3 2023 AMERISAFE Inc Earnings Call
Please standby.
Speaker 1: Good day and welcome to the Amerisafe 2023 third quarter earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Catherine Shirley. Please go ahead.
Good day and welcome to the Amerisafe 2023 third quarter earnings Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Kathryn Shirley. Please go ahead.
Speaker 2: Good morning, welcome to the Amerisafe 2023 third quarter investor call. If you have not received the earnings release, it is available on our website at Amerisafe.com.
Good morning, welcome to the Amerisafe Twenty-twenty, three third quarter Investor call.
If you've not received the earnings release it is available on our website at Amerisafe Dot com.
Speaker 2: 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.
This call is being recorded a replay of today's call will be available.
Sales on how to access the replay are in the earnings release.
During this call we will be making forward looking statements.
Speaker 2: These statements are based on current expectations and assumptions that are subject to various risks and uncertainties.
These statements are based on current expectations and assumptions that are subject to various risks and uncertainties.
Speaker 2: 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 risk, uncertainty, and other factors, including factors discussed in the earnings relief.
Actual results may differ materially from the results expressed or implied in these statements.
Underlying assumptions prove to be incorrect or as a result of risks uncertainties and other factors, including factors discussed in the earnings release.
Speaker 2: in the comments made during today's call, and in the risk factors section of our Form 10-K , Form 10-Q , and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements. I will now turn the call over to Janelle Frost, Amerisax President and CEO .
And the comments made during today's call and in the risk factors section of our Form 10-K Form 10-Q, and other reports and filings with the Securities and Exchange Commission.
We do not undertake any duty to update any forward looking statements I will now turn the call over to jail for Amerisafe President and CEO.
Speaker 3: Thank you, Catherine, and good morning, everyone. During the third quarter, Momentum and our top line grew with increased enforced policy count, as well as an increase in audit premiums.
Thank you Catherine and good morning, everyone.
During the third quarter momentum in our top line grew with increased enforced policy count as well as an increase in audit premium.
Speaker 3: However, our expense ratio was elevated due to some infrequent items during the quarter, which Andy will provide more details about.
However, our expense ratio was elevated due to some infrequent items during the quarter, which Andy will provide more detail on.
Speaker 3: The overall workers' compensation market has remained fairly stable from the last quarter, with declining rates partially offset by wage inflation.
The overall workers compensation market has remained fairly stable from the last quarter with declining rates, partially offset by wage inflation.
Speaker 3: Our underwriting discipline is demonstrated in our ability to maintain strong margins throughout many market cycles. In the third quarter, we reported a combined ratio of 90.6% and a return on average equity of 11.8%.
Our underwriting discipline as demonstrated in our ability to maintain strong margins throughout many market cycles in the third quarter. We were we reported a combined ratio of 96% and a return on average equity of 11, 8%.
Speaker 3: Our top line increased 3.9% compared with the third quarter of 2022, with voluntary premium for policies written in the quarter growing 1.1% in 2020.
Our top line increased three 9% compared with the third quarter of 2022 with voluntary premium for policies written in the quarter growing one 1%.
Speaker 3: We continue to see strong retention in policies for which we offer renewal with a 95% retention for the quarter.
We continue to see strong retention and policies for which we offer renewal with a 95% retention for the quarter.
Speaker 3: Moving on to losses, the accident year loss ratio remains steady at 71%.
Moving on to losses, the accident year loss ratio remained steady at 71%.
Speaker 3: During the quarter, our claims handling practices drove better than expected outcomes, resulting in favorable prior year development of 10.2 million or 15.2 loss ratio.
During the quarter, our claims handling practices drove better than expected outcomes, resulting in favorable prior year development of $10 2 million or 15.2 loss ratio points. These reserves were primarily released from accident years, 2019, 'twenty 'twenty and 2021.
Speaker 3: These reserves were primarily released from accident years 2019, 2020, and 2021.
Speaker 3: As it relates to loss trends, frequency and severity were both in line with our expectations. Trending lower when compared with previous year at nine months.
As it relates to loss trends frequency and severity were both in line with our expectations trending lower when compared with previous year at nine months.
Speaker 3: It's been a while since I used the word lumpy in my prepared remarks, but when reporting favorable claims trends before the end of an accident year, I am reminded that there is no seasonality to when severe claims happen.
It's been awhile since I use the word lumpy in my prepared remarks, but when reporting favorable claims trends before the end of an accident year I'm reminded that there's no seasonality to when severe claims happen.
Speaker 3: While the market remains challenging, we continue to utilize our focus on high hazard risk to precision company for outperformance within the industry.
While the market remains challenging we continue to utilize our focus on high hazard risks precision company for outperformance within the industry high retention with policyholders demonstrating our strong position, while we work to attract new business delivering robust returns to shareholders.
Speaker 3: High retention with policyholders demonstrating our strong position while we work to attract new business, delivering robust returns to Cheryl.
Speaker 3: Before returning the call over to Andy, I wanted to discuss our special dividend. The company's board of directors declared a special dividend at $3.50 for shareholders of record as of December 1, 2023. This dividend reflects the operational excellence of Amerisave and our commitment to shareholder value creation through capital deployment and returning excess capital when appropriate.
Before returning the call over to Andy I wanted to discuss our special dividend. The company's board of directors declared a special dividend of $3.50 for shareholders of record as of December one 2023.
This dividend reflects the operational excellence of Amerisafe, and our commitment to shareholder value creation through capital deployment and returning excess capital when appropriate.
Speaker 3: With that, I'll turn the call over to Andy to discuss the financials. Thank you, Janelle. Good morning, Ted.
With that I'll turn the call over to Andy to discuss the financials. Thank you Danielle and good morning to everyone.
Speaker 3: For the third quarter of 2023, Amerisafe reported net income of $10 million or 52 cents per diluted share and operating net income of 11.7 million or 61 cents per diluted share.
For the third quarter of 2023, Amerisafe reported net income of $10 million or <unk> 52 per diluted share and operating net income of $11 7 million or 61 cents per diluted share during the third quarter of 2022 net income was $11 4 million or <unk> 59 per diluted share and operate.
Speaker 4: During the third quarter of 2022, net income was $11.4 million.
Speaker 4: $0.59 per diluted chair, an operating net income of 14.1 million or seven.
Net income of $14 1 million or 73 cents per diluted share.
Speaker 4: The lower net income was primarily driven by certain items in the quarter, driving the expense ratio higher as well as less tax exempt interest income, driving a high tax rate compared to the 3rd quarter of 2020.
The lower net income was primarily driven by certain items in the quarter driving the expense ratio higher as well as less tax exempt interest income driving a high tax rate compared to the third quarter of 2022.
Speaker 4: Gross written premiums were 70.8M in the quarter versus 68.2M in the 3rd quarter of 2022. 3.9% on the year over.
Gross written premiums were $70 8 million in the quarter versus $68 2 million in the third quarter of 2022 three.
Three 9% on a year over year basis.
Speaker 4: They will audit and related premium adjustments, increased premiums written by 5.6M as compared to an increase of 3.4M in the 3rd quarter.
Our audit and related premium adjustments increased premiums written by $5 6 million as compared to an increase of $3 4 million in the third quarter of 2022, while audit premium was strong this quarter. We continue to expect some flattening out in coming periods.
Speaker 4: While Audipurim was strong this quarter, we continued to expect some flattening out in coming periods.
Speaker 4: We did premiums increased 1.6 million for the quarter compared to the prior year quarter, primarily due to costs related to additional reinsurance coverage. Our total underwriting and other expenses were 22.4 million in the quarter, a 14% increase compared with a 19.6 million recognized in the prior year quarter.
Premiums increased $1 6 million for the quarter compared to the prior year quarter, primarily due to costs related to additional reinsurance coverage, our total underwriting and other expenses were $22 4 million in the quarter, a 14% increase compared with the $19 6 million recognized in the prior year quarter.
Speaker 4: This increase resulted in expense ratio of 33.6% compared with 28.9% in the third quarter of 2022. The increase was primarily due to a 1.6 million reduction in re-insurance profit sharing commission due to adverse development from an older tree.
This increase resulted in expense ratio of 33, 6% compared with 28, 9% in the third quarter of 2022. The increase was primarily due to a $1 6 million reduction in reinsurance profit sharing commission due to adverse development from an older treating a 600000 increase in commission expense.
Speaker 4: 600,000 increase in commission expense and 400,000 increase in regulatory assessments and fees.
And 400000 increase in regulatory assessments and fees are.
Speaker 4: Our tax rate was 19.2% compared to 15.5% for last year's third quarter, largely due to a lower proportion of tax-exempt income versus underwriting income in the quarter compared with last year.
Our tax rate was 19, 2% compared to 15, 5% for the last for last year's third quarter, largely due to a lower proportion of tax exempt income versus underwriting income in the quarter compared with last year.
Speaker 4: Turning to our investment portfolio. In the third quarter, net investment income increased 16.1% to 8.1 million from 7 million in the prior year quarter. The increase was driven by higher yields on cash as well as higher investment rates on fixed maturity security.
Turning to our investment portfolio in the third quarter net investment income increased 16, 1% to $8 1 million from $7 million in the prior year quarter. The increase was driven by higher yields on cash as well as higher investment rates on fixed maturity securities for the quarter yield on new investments increased approximately 230 basis points driving our.
Speaker 4: For the quarter, yield on new investments increased approximately 230 basis points, driving our tax equivalent bulk yield to 3.77% or 60 basis points higher than the third quarter of 2022. Realize gains for the portfolio on security sold were 5.1 million in the quarter, compared with 600,000 during the third quarter of 2022, primarily related to realize gains on the equity security.
Tax equivalent book yield to 377% or 60 basis points higher than the third quarter of 2022.
Realized gains for the portfolio on securities sold were $5 $1 million in the quarter compared with 600000 during the third quarter of 2022, primarily primarily related to realized gains on the debt and equity securities.
Speaker 4: The investment portfolio is a high quality carrying a double A minus credit rating with a duration of 4.3 years. The composition of the portfolio is 56% in municipal bonds, 27% in corporate bonds, 4% in US treasuries and agencies, 6% in equity securities and 7% in cash and other investments.
The investment portfolio is a high quality carrying a double a minus credit rating with a duration of four three years. The composition of the portfolio is 56% in municipal bonds, 27% in corporate bonds and 4% in U S treasuries and agencies, 6% in equity securities and 7% in cash and other investor.
<unk>.
Speaker 4: Approximately 57% of our bond portfolios comprised of health and maturity securities and due to the notable increase in rates during the quarter of the net unrealized loss position was 35.1M at quarter.
Approximately 57% of our bond portfolio is comprised of held to maturity securities and due to the notable increase in rates during the quarter. The net unrealized loss position was $35 1 million at quarter end.
Speaker 4: As a reminder, this help to maturity securities are carried at amortized costs and therefore unrealized gains or losses on these securities are not reflected in our book.
As a reminder, this held to maturity securities are carried at amortized cost and therefore unrealized gains or losses on the securities are not reflected in our book value or.
Speaker 4: Our capital position is strong with a high quality balance sheet, solid loss reserve.
Our capital position is strong with a high quality high quality balance sheet solid loss reserves.
Speaker 4: position and conservative investment portfolio. A quarter and a Marisa have carried roughly 950 million dollars in investments cash and cash equivalents. Our company paid its regular quarterly cash dividend of 34 cents per share in the third quarter. This quarter the board declared a quarterly cash dividend of 34 cents per share payable on December 15, 2023 to shareholder's a record as of December 1, 2023. And finally just a couple of other top.
Position and conservative investment portfolio at quarter end, Amerisafe carried roughly $950 million in investments cash and cash equivalents. Our company paid its regular quarterly cash dividend of <unk> 34 per share in the third quarter. This quarter. The board declared a quarterly cash dividend of <unk> 34 per share payable on December 15.
2023 to shareholders of record as of December one.
2023, and finally, just a couple of other topics book value per share was $17.51 an increase of five 7% from year end 2022, and operating return on an average equity was 13, 2% and finally Tomorrow Friday October 27th 2023, we will be filing our form 10.
Speaker 4: Book value per share was $17.51 and increased at 5.7% from year end 2022 and operating return on average equity was 13.2%.
Speaker 4: And finally, tomorrow, Friday, October 27th, 2023, we will be filing our Form 10-Q with the aftermarket close. With that, I would like to open the call for the question and answer portion of the call. Operator.
Q with the SEC after market close with that I would like to open the call for the question and answer portion of the call operator.
Speaker 1: Well, thank you. If you would like to signal with questions, please press star 1 on your touchtone telephone. If you're joining us today using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star 1 if you would like to signal with questions, star 1. Our first question today comes from Mark Hughes with Truist.
Well. Thank you if you would like to signal with questions. Please press star one on your Touchtone telephone. If you are joining us today using a speaker phone. Please make sure mute function is turned off to allow your signal to reach our equipment.
Again that is star one if you would like to signal for questions Star one.
Our first question today comes from Mark Hughes with Truest.
Thank you and good morning.
Good morning, Mark.
Speaker 5: Did you give the ELPM number to now? One, six.
Did you give the LTM number.
150.
Okay.
And then.
Speaker 5: What do you, are you seeing anything happening with medical inflation? There's all this talk about employee benefit expenses going up and health care costs. What do you,
What are you are you seeing anything happening happening medical inflation. There's all this talk about employee benefits expenses going up in health care costs.
What do you think about that.
Speaker 3: It is certainly the topic de jour amongst everyone in the industry and workers comp. I think we all believe, I know I believe that given the cost of health care.
It is certainly the topic de jour amongst everyone in the industry and workers comp.
I think we all believe I know I believe that given the cost of health care.
Speaker 3: that we will indeed see that eventually work its way into the workers compensation system, but can't point to any data elements at this point, other than pockets here and there of anecdotal experiences, nothing prolific that I would say that we've seen it truly impact the industry. However, I do think
And that we will indeed see that eventually work its way into the workers' compensation system, but I can't point to any data elements at this point other than pockets here and there are anecdotal experiences nothing put prolific that I would say that we've seen it truly impact the industry. However, I do think.
Speaker 3: It is top of mind for people in the industry and when they're contemplating reserving, I do think people are
It is top of mind for people in the industry and when Theyre contemplating reserving I do think people are companies are probably being a little more cautious or a little more thoughtful about medical cost.
Speaker 3: Companies are probably being a little more cautious, a little more thoughtful about medical costs.
Speaker 3: expectations in their reserves depending on how they view that. So try to fabricate America safe
Expectations in their reserves, depending on how they view that you know amerisafe relies heavily on our case reserves are at CMS have always taken a long term approach that medical case.
Speaker 3: Realize heavily on our case reserves, our SVMs have always taken a long-term approach to the medical case.
Speaker 3: or medical inflation within their individual case reserves and that has benefited us in our past and we haven't changed that practice.
Inflation in medical inflation within their individual case reserves.
And that has benefited us in the in our past and we haven't changed that practice. So we are closely monitoring what's happening and really trying to look for pockets of savings as we always are but particularly when I.
Speaker 3: So we are closely monitoring what's happening and really trying to look for pockets of savings, as we always are, but particularly when, I feel like the medical landscape to some degree has changed.
I feel like the medical landscape to some degree has changed.
Speaker 5: Yeah. Yeah. The, uh, the top line X audit premium. And I think we calculated a little differently than you presented, but the
Yeah Yeah.
Topline ex auto.
<unk> premium and I think.
We calculate it a little differently than you presented.
Speaker 5: first positive number in 2018.
First positive number.
Morning.
Sure.
Speaker 5: First quarter 2018 if I'm looking at it properly. Not a dramatic change, but is there anything going on that's helping to support the top line here?
First quarter 2018.
Looking at it properly.
Not a dramatic change there.
Is there anything going on that.
Towards the top line here.
Speaker 3: Yeah, I'll talk. There's a couple of things that are happening there. You know, we've reported a policy growth over the last few quarters. So that's been a positive, but certainly rate decreases if the premium dollars necessarily didn't follow the policy growth. So this quarter, we still had rate declines, no question, but we were able to grow even more policy count growth. And I really attributed it to, you know, the hard work of the Ameritrade employees trying to make the most of their agent relationships.
There's a couple of things I think happening there.
Reported.
Some policy growth over the last few quarters. So that's been a positive but certainly rate decreases.
The premium dollars necessarily didn't follow the policy growth this quarter.
We still had rate declines no question, but we were able to grow even more policy count growth and I really attributed that to the hard work of the Amerisafe employees trying to make the most of their agent relationships.
Speaker 3: ease of doing business, making sure that we're making the right contacts and penetration within the agency. So kudos to them for really.
Ease of doing business, and making sure that we're making the right contacts and penetration within the agency so kudos to them for really.
Speaker 3: making a difference there. I don't view it as a shift in the marketplace. I think it's more of efforts within the Amerisave four walls of moving that needle. At the same time wage inflation sort of acting as a rate increase, right? So we've talked about wage inflation for a number of quarters.
And making a difference there.
Don't view it as a shift in the marketplace I think it's more of efforts within within the Amerisafe four walls.
Moving that needle.
At the same time wage inflation sort of acting as a rate increase right. So we've talked about weight and wage inflation for a number of quarters.
Speaker 3: you know if i look back we were reporting twelve percent ten percent eight percent this quarter was down to five point nine percent but still higher than the industry of the country white average in terms of wage
If I look back we were reporting 12%, 10%, 8% this quarter it was down to five 9%, but still higher than the industry. The country wide average in terms of wage inflation. So we're certainly benefiting that both in terms of premium that we're putting on the books now and then of course, the audit premium as well.
Speaker 3: So we're certainly benefiting that both in terms of premiums that we're putting on the books now. And then of course the audit premium as well. And we're not seeing new employee accounts really shift all that much. So I feel like the economies for our insurers are strong, but not to the point where they're experiencing a labor shortage in terms of being able to add new workers.
And we're not seeing.
New employee counts really shift all that much so I don't I feel like the economies for our Insureds are strong, but not to the point, where there is a labor shortage in terms of being able to add new workers.
Yes.
Speaker 3: Could you give the number of large claims through 9 months? We ended the quarter with 8 claims with a case incurred over $1 million. If you look at that compared to where we were at 930 last year, I think that was 11, so still slightly down from where we were last year.
Could you give the number of large claims.
Through nine months.
And we ended the quarter with eight claims within case incurred over $1 million. If you look at that compared to where we were at 930 last year and I think that was 11, so still slightly down from where we were last year.
Speaker 5: Yeah. Um, the, uh, reinsurance treaty where you, uh,
Yes.
The reinsurance treaty where are you.
Speaker 5: had the adverse and the adverse, the proper chairing or reduced proper chairing. What was the circumstance there that that impacts your own reserves? They're clearly they would have been.
That would be adverse.
Reverse the profit sharing or reduced profit sharing.
What was the circumstance there does that impact your own reserves clearly they would have been.
Speaker 3: offset by being elsewhere, but what was that purpose? Right, right. This is a very good point. Yeah, these were older treaties prior to 2017, where there were claims that had some adverse development, and it just caused that feeding commission or that profit sharing that was associated with those treaties to reverse. So it had been accrued over a period of time.
All said elsewhere, but.
Hi, there.
Very good point Yeah. These were older treaties prior to 2017, where there were claims that had some adverse development and it just caused that ceding commission or that profit sharing that was associated with those treaties to reverse so it had been accrued over a period of time.
Speaker 3: And that is, hey, we use the word in frequent. I really didn't know how to describe it because it was not something that happens very often. But that profit commission was on older reentry.
And that's about it.
We use the word infrequent I really didn't know how to describe it because it's not something that happens very often.
But that that profit commission was on older reinsurance treaties, but you're absolutely right. Obviously it didn't impact the net aggregate development that we experienced in the quarter. It was just particular to those years.
Speaker 3: But you're absolutely right. Obviously it didn't impact the net aggregate development that we experienced in the quarter. It was just particular to those years.
Speaker 5: And then I'll ask one more and I'm being fairly rude, but the, uh,
And then I'll ask one more and I'm being very rude.
But.
Speaker 5: 2021 accident years, kind of the COVID years, year obviously taking gains on those. Any observations about how those have been developing?
2020, one accident years kind of a cool good years.
Obviously, taking gains on those any answer.
Innovation is about.
How those have been.
Developing.
That's a great question I would I would say there there were not within our expectation.
Speaker 3: I would say that we're not within our expectation. You know, the COVID years for us, or I think a little bit different than a lot of the industry expected. Yes, our claim counts were down per se, but.
Good years for us, where I think a little bit different than a lot of the industry expected.
Yes, our claim counts were down per se, but but yet we still had severe claims right. So those claims are developing they're not developing any differently than any other accident year from that standpoint, too I think.
Speaker 3: But yet we still had severe claims right so those claims are developing they're not developing any differently than any other accident here.
Speaker 3: From that standpoint, I think, I'm, there was in our, at this point, I would just say there was in our expectations.
There within our at this point I would just say, they're within our expectations for <unk>, you talked about 'twenty, one and 'twenty, two right or 2020 2020, one either way obviously in 'twenty. One we had a cat claim on the fourth quarter that hasn't developed any differently than our expectation that we had at the end of that accident year.
Speaker 3: For, for, you know, 21 and 22, right? Or 20 and 20 and 21, either way. Obviously in 21, we had the cat claim in the foot quarter. That hasn't developed any differently than our expectation that we had in the, in the, that accident here. Here.
Great. Thank you very much.
Thank you Mark.
Speaker 1: As a reminder, if you would like to signal with questions, please press star 1 on your touchtone telephone. Again, that is star 1 if you would like to ask questions.
As a reminder, if you would like to signal with questions. Please press star one on your Touchtone telephone.
And that is star one if you would like to ask questions.
Speaker 1: Our next question will come from Matt Carletti with JMP.
Our next question will come from Matt <unk> with JMP.
Hey, Thanks, good morning.
Good morning, Matt.
Speaker 1: Mark covered a lot of ground there. Yes, he did. It was not being rude. It was not being rude. The, because you just maybe dive in a little deeper on the question he had about growth, and specifically kind of some of the focus on what you're doing at agencies. I mean, I noted you appointed a new chief sales officer this summer. It feels like there's a little more.
Mark Mark covered a lot of ground there so I don't have yes.
And it was not been route is not bigger.
Yeah.
Could you just maybe dive in a little deeper on.
On the question you had about Roes and specifically kind of some of the focus on what youre doing at agencies.
Noted you appointed a new Chief sales officer this summer.
It feels like Theres, a little more concerted effort towards <unk>.
Speaker 6: concerted effort towards making sure maybe every, every, no stone is left unturned within kind of your, of course your underwriting appetite. Could you just expand on that a little bit?
Making sure maybe every every no stone.
Stone is left unturned within kind of Europe of course, Youre underwriting appetite.
Could you just expand on that a little bit.
Speaker 3: I think that's a great way to put it in a certain lift and turn. I'll start with this. Our underwriting appetite in our discipline and risk selection has not changed.
I think that's a great way to put it no stone left unturned I'll start with this our underwriting appetite.
Discipline and risk selection has not changed at.
Speaker 3: You're so I'll start I'll start there. You're, you're absolutely right. We, we brought in a chief sales officer a wise and and how you phrase it was the way I would phrase it is I feel like we've elevated the focus within the company.
So I'll start I'll start there.
Youre absolutely right, we brought in a chief sales officer array wise.
And how.
How you phrased it was the way I would phrase it is I feel like we've elevated the focus within the company.
Speaker 3: on our agent customers and our agent relationships. You know, we've had head of sales in the past, but they were not at the executive level. So it's really having a person sitting at the table when we're making strategic decisions.
N.
Our agent customers and our agent relationships you know, we've we've had head of sales in the <unk> in the past, but they were not at the executive level. So it's really having a person sitting at the table when we're making strategic decisions.
Speaker 3: focused on that agent customer and what we need to be doing from that standpoint. So I look for good things to come from that relationship. At the same time, even like I said before, even within the company we had a concerted effort in trying to
Focused on that agent customer and what we need to be doing from that standpoint.
So I look for good things to come from that relationship at.
At the same time, even like I said before even within within the company. We have had a concerted effort in trying to change.
Speaker 7: change, you know, the ease of doing business, working with our agent customers, and our employees have really pushed hard on that. And sometimes it takes a while for these things to take root. And I feel like that momentum is starting to take root. Perfect, that makes a-
Ease of doing business working with our agent customers.
And our employees have really.
Pushed hard on that and I know, sometimes it takes a while for these things to take root and I feel like that momentum is starting to take root.
Perfect that makes a lot of sense. Thank you for the color.
Thank you Matt.
Speaker 1: And our next question come from Mark Hughes with Truth.
And our next question comes from Mark Hughes with Trust.
Speaker 5: Yeah, thanks. Just a couple more. Mark. Any commentary on the construction and markup, the concept of the next job is very important. How are you seeing that? Right.
Yes, Thanks, just a couple more.
Hey, Mark.
Any commentary on the construction end market.
Concept to the next job is very important.
Or are you seeing that right.
Speaker 3: Right. You know, my best ways, my best gauge of that is what's being reported to us in payrolls on a monthly basis. And our construction book, the payrolls have been relatively strong, but they they show both wage growth.
Right.
But my best ways My best gauge of that is what's being reported to us in payrolls on a monthly basis and our construction book. The payrolls are have been relatively strong, but they show both wage growth and some new employee count, but not large large increases so from that aspect, it's holding up quite well.
Speaker 3: And in some new employee account, but not large, large increases. So from that aspect, it's holding up quite well. You know, I always like to remind people, you know, we report out construction as an aggregate group at the largest class within that is roofing. Roofing risk is something that we, we,
You know I always like to remind people we reach.
Port out construction as an aggregate group is the largest class within that is roofing.
Roofing risk or something that we we think we really are experts at and roofing is not always necessarily new construction, there's a there's a maintenance component to that.
Speaker 3: think we really are experts at. And roofing is not always necessarily new construction. There's a maintenance component to that, which I think we benefit from. So even if there is a lag or a downturn in commercial construction, I feel like that holds up pretty well, pretty resilient.
Which I think we benefit from so even if even if there is.
A lag or a downturn in commercial construction I feel like that holds up pretty well pretty resilient.
Speaker 5: And then what are your thoughts on the capital?
And then what are your thoughts on the capital.
Speaker 5: Another nice special dividend I think.
Another.
Dividends I think.
Speaker 5: Where is that going to position you? I guess you've got at this point no debt. If I'm looking at it properly. So kind of your underwriting leverage, if you did lever up with debt, how much more capacity could you have?
Where is that going to position.
Position you I guess, you've got at this point.
No debt.
If I'm looking at it properly.
Hello.
Your underwriting leverage.
You did lever up with that how much more competitive.
Sure.
Speaker 3: Yeah, you know, I'll say this about the special dividend. And you're so right about thinking about it in terms of leverage. You know, AmeriSafe has been profitable from an underwriting standpoint, has been profitable for a very long time. And that has enabled us to build excess capital. And then when those rates started declining in the market, really started softening, the question was,
Yeah, you know.
I'll say this about the special dividend and you're so right about thinking about it in terms of leverage you know.
Amerisafe has been profitable from an underwriting standpoint, and has been profitable for a very long time and that has enabled us to build excess capital and then when the rates started declining in the market really started softening and the question was to the and then I think the question. The board was asking yourself is what do we do with this capital.
Speaker 3: And I think the question the board was asking itself is what do we do with this capital? Do we invest it in writing unprofitable business? Do we protect our margin? Obviously our decision was protect the margin. And so that in turn led to us declaring special dividends to return that capital to Sheryl. And so that in turn led to us declaring special dividends to return that capital to Sheryl.
Do we do we invest it in writing unprofitable business do we protect our margin.
Obviously, our decision it was protect the margin.
So that in turn led to us declaring special dividends to return that capital to shareholders.
Speaker 3: At this point, we're starting to see some growth, which is great. The decision was to return capital to the shareholders, but we've said this all along, and I'll repeat it, is as we are able to grow organically and put that capital to work, to grow organically, to generate the returns that our shareholders are accustomed to, I would expect there may be some change to that.
At this point, where we're starting to see some growth which is great.
The decision was to return capital to the shareholders, but we've said this all along and I'll I'll I'll repeat it is as we are able to grow organically and put that capital to work to grow organically to generate the returns that our shareholders are accustomed to I would I would expect there may be some change to that but.
Speaker 3: as of right now we're seeing momentum, but we're not there yet. Right? We're not there yet. And then of course there's always the possibility of
As of right now, we're seeing momentum, but we're not there yet right. We're not there yet and then of course, there's always the possibility of <unk>.
Speaker 3: a merger in acquisition. You mentioned we have no debt on the balance sheet, so that's another use of capital, if we were to go out and buy something.
Merger and acquisition.
As you mentioned, we have no debt on the balance sheet. So that's another use of capital if we were to go out and buy something.
Operator: Please stand by. Good day and welcome to the Amerisafe 2023 Third Quarter Earnings Conference call. Today's conference is being recorded.
Sure.
Speaker 3: And we have a share repurchase program as well. I know we haven't purchased any shares recently, but there's still roughly a little over $12 million left in that share repurchase program.
And we have a share repurchase program as well and then we haven't purchased any shares recently, but there is still roughly a little over $12 million left in that share repurchase program.
Kathryn Shirley: At this time, I'd like to turn the conference over to Kathryn Shirley. Please go ahead. Good morning.
Speaker 5: and then
Kathryn Shirley: Welcome to the Amerisafe 2023 Third Quarter Investor call. If you have not received the earnings release, it is available on our website at Amerisafe.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.
I appreciate that and then.
Loss cost trends.
Speaker 5: If you put that in the release or made a comment, but you're very curious what you're going to do out of the MCCI.
If you put that in the release or maybe polymer.
I'm sort of curious.
Speaker 3: Yeah, I think for NCZI's latest member for 2023, going into 2024 somewhere around, averaging around somewhere around 7.5%. The loss cost that were effective, that became effective this quarter, for a merit saving average around 5%. So still,
Yeah.
I think for <unk> latest number for 2023 and going into 2024 somewhere around averaging around somewhere around seven 5%.
Kathryn Shirley: If the underlying assumptions prove to be incorrect or as a result of risk uncertainties and other factors, including factors discussed in the earnings release, in the comments made during today's call, and in the risk factor section of our Form 10K, Form 10Qs, and other reports and filings with the Securities and Exchange Commission, we do not undertake any duty to update any forward-looking statements.
The loss costs that were effective that became effective this quarter for amerisafe averaged around 5%.
So still.
Speaker 7: Still rate declines or still loss costs declines, but maybe a flowing in that decline. But if I'm being completely candid, there's nothing on a macro basis that I see in the industry, even in data that were reported, or just what other CEOs were sharing, that it's gonna move that needle anytime in the near future in terms of approved loss costs. Bye.
Bill rate declines are still loss cost declines, but maybe a slowing and that decline.
But you know if I'm, if I'm being completely candid theres nothing on a macro basis that I see in the industry either in data that were reported or just what other ceos of sharing that it's going to move that needle anytime in the near future in terms of approved loss costs.
So I think that's just wrong.
Janelle Frost: I will now turn the call over to Janelle for all Amerisafe's President and CEO. Thank you, Katherine, and good morning, everyone. During the third quarter, momentum in our top-line grew with increased enforce policy count, as well as an increase in audit premium.
Right.
Speaker 5: Pardon? Oh, thank you, Mark. I appreciate it. That's a good one. I appreciate that. I appreciate that. Oh. OK. All right. Appreciate it. Thanks, Danielle. Thank you.
Pardon Oh, thank you Mark.
[laughter].
Hey, Scott.
Okay, Alright, I appreciate it. Thanks, Thanks, Andy Thank you. Thank you.
Speaker 1: Thank you and that does conclude the question and answer session. I'll now turn the conference back over to Janelle Frost for any additional or closing remarks.
Thank you and that does conclude the question and answer session I'll now turn the conference back over to Janelle Frost for any additional or closing remarks.
Janelle Frost: However, our expense ratio was elevated due to some infrequent items during the quarter, which Andy will provide more detail on. The overall workers' compensation market has remained fairly stable from the last quarter, with declining rates partially offset by wage inflation. Our underwriting discipline is demonstrated in our ability to maintain strong margins throughout many market cycles. In the third quarter, we reported a combined ratio of 90.6 percent and a return on average equity of 11.8 percent.
Speaker 3: We are pleased with the court's results, particularly when driven by the fundamentals we focus on. Disciplined underwriting, proactive safety, and extensive claims management. Thank you for joining us today.
We are pleased with the quarter's results, particularly when driven by the fundamentals we focus on disciplined underwriting proactive safety and extensive claims management. Thank you for joining us today.
Yeah.
Speaker 1: Well thank you and that does conclude today's conference. We do thank you for your participation and have an excellent day.
Well, thank you and that does conclude today's conference. We do thank you for your participation and have an excellent day.
Janelle Frost: Our top-line increased 3.9 percent, compared with the third quarter of 2022, with voluntary premium for policies written in the quarter, growing 1.1 percent. We continue to see strong retention and policies for which we offer renewal, with a 95 percent retention for the quarter. Moving on to losses, the accident-year loss ratio remained steady at 71 percent. During the quarter, our claim-handling practices drove better than expected outcomes, resulting in favorable prior year development of 10.2 million or 15.2 loss ratio points. These reserves were primarily released from accident-year 2019, 2020, and 2021. As it relates to loss trends, frequency and severity were both in line with our expectations, trending lowers when compared with previous year at nine months.
Okay.
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Janelle Frost: It's been a while since I used the word lumpy in my prepared remarks, but when reporting favorable claims trends before the end of an accident year, I'm reminded that there's no seasonality to when severe claims happen. While the market remains challenging, we continue to utilize our focus on high hazard risk to decision company for outperformance within the end of the year. High Retention with policyholders demonstrating our strong position while we work to attract new business, delivering robust returns to shareholders.
Janelle Frost: Before returning the call over to Andy, I want to discuss our special dividends. The company's board of directors declared a special dividend at $3.50 for shareholders of record as of December 1, 2023.
Andy: With that, I'll turn the call over to Andy to discuss the financials. Thank you, Janelle.
Andy: Good morning to everyone. For the third quarter of 2023, Amerisa reported net income of $10 million, or $52 cents per diluted share, an operating net income of $11.7 million, or $61 cents per diluted share. During the third quarter of 2022, net income was $11.4 million, or $59 cents per diluted share, an operating net income of $14.1 million, or $73 cents per diluted share. The lower net income was primarily driven by certain items in the quarter, driving the expense ratio higher, as well as less tax exempt interest income, driving a high tax rate compared to the third quarter of 2022.
Andy: Gross-written premiums were $70.8 million in the quarter versus $68.2 million in the third quarter of 2022, growing 3.9% on a year-over-year basis, payroll audit and related premium adjustments increased premiums written by $5.6 million as compared to an increase of $3.4 million in the third quarter of 2022. While audit premium was strong this quarter, we continue to expect some flattening out in coming periods. Seated premiums increased $1.6 million for the quarter compared to the prior year quarter, primarily due to costs related to additional insurance coverage.
Andy: Our total underwriting and other expenses were $22.4 million in the quarter, a 14% increase compared with a $19.6 million recognized in the prior year quarter. This increase resulted in expense ratio of 33.6% compared with 28.9% in the third quarter of 2022. The increase was primarily due to a $1.6 million reduction in reinsurance profit sharing commission due to adverse development from an older treaty, a $600,000 increase in commission expense, and $400,000 increase in regulatory assessments and fees.
Andy: Our tax rate was 19.2% compared to 15.5% for the last year's third quarter largely due to a lower proportion of tax exempt income versus underwriting income in the quarter compared with last year. Turning to our investment portfolio, in the third quarter net investment income increased 16.1% to 8.1 million from $7 million in the prior year quarter. The increase was driven by higher yields on cash as well as higher investment rates on fixed maturity securities.
Andy: For the quarter, yield on your investments increased approximately 230 basis points driving our tax equivalent both yield to 3.77% or 60 basis points higher than the third quarter of 2022. Realized gains for the portfolio on security sold were 5.1 million in the quarter compared with 600,000 during the third quarter of 2022, primarily related to realize gains on the net equity security. The investment portfolio is a high quality carrying a double A minus credit rating with a duration of 4.3 years.
Andy: The composition of the portfolio is 56% in municipal bonds, 27% in corporate bonds, 4% in US treasuries and agencies, 6% in equity securities and 7% in cash and other investments. Approximately 57% of our bond portfolios comprise of health and maturity securities and due to the notable increase in rates during the quarter, the net unrealized loss position was 35.1 million at quarter end. As a reminder, this health to maturity securities are carried at amortized costs and therefore unrealized gains or losses on these securities are not reflected in our book value.
Andy: Our capital position is strong with a high quality balance sheet, solid loss reserved position and conservative investment portfolio. At quarter end, Amerisafe carried roughly 950 million dollars in investments, cash and cash equivalents. Our company paid its regular quarterly cash dividend of 34 cents per share in the third quarter. This quarter of the board declared a quarterly cash dividend of 34 cents per share payable on December 15, 2023 to shareholders of record as of December 1, 2023 and finally just a couple of other topics.
Andy: Book value per share was $17.51 and increase of 5.7% from year end 2022 and operating return on average equity was 13.2% and finally tomorrow, Friday October 27, 2023 will be filing our 410Q with the SEC aftermarket close.
Operator: With that, I would like to open the call for the question and answer portion of the call operator. Well, thank you. If you would like to signal with questions, please press star one on your touch tone telephone. If you're joining us today using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one, if you would like to signal with questions, star one.
Mark Hughes: Our first question today comes from Mark Hughes with Truist. Thank you.
Mark Hughes: Good morning. Good morning, Mark.
Janelle Frost: Did you give the ELCM number, you know? 150. And then how do you, are you seeing anything happening with medical inflation? There's all this talk about employee benefits expenses going up and health air costs. What do you think about that? It is certainly the topic de jour amongst everyone in the industry and workers comp. I think we all believe, I know I believe that given the cost of health care that we will indeed see that eventually work its way into the workers compensation system, but can't point to any data elements at this point, other than pockets here in there, of anecdotal experiences, nothing prolific that I would say that we've seen it truly impact the industry.
Janelle Frost: However, I do think it is top of mind for people in the industry and when they're contemplating, reserving, I do think people are, our companies are probably being a little more cautious, a little more thoughtful about medical cost expectations in their reserves, depending on how they view that. You know, AmeriSafe relies heavily on our case reserves, our FBMs have always taken a long-term approach to medical case inflation or medical inflation within their individual case reserves, and that has benefited us in our past and we haven't changed that practice.
Janelle Frost: So we are closely monitoring what's happening and really trying to look for pockets of savings, as we always are, but particularly when I feel like the medical landscape to some degree has changed. Yeah, yeah, the top line X audit premium, and I think we calculated a little differently than you presented, but this is the first positive member from 2018, first quarter of 2018 if I'm looking at it properly. Not a dramatic change, but is there anything going on that's open to the top line in here?
Janelle Frost: Yeah, there's a couple things that are happening there. You know, we've reported some policy growth over the last few quarters, so that's been a positive, but certainly rate decreases if the premium dollars necessarily didn't follow the policy growth. So this quarter, we still had rate declines, no question, but we were able to grow even more policy count growth, and I really attributed that to, you know, the hard work of the Amerisafe employees trying to make the most of their agent relationships, ease of doing business, making sure that we're making the right contacts and penetration within the agency, so kudos to them for really making a difference there.
Janelle Frost: I don't view it as a shift in the marketplace. I think it's more of efforts within the Amerisafe 4 walls of moving that needle. At the rate increase, right? So we've talked about wage inflation for a number of quarters. You know, if I look back, we were reporting 10%, 8%, this quarter was down to 5.9%, but still higher than the industry of the country-wide average in terms of wage inflation. So we're certainly benefiting that both in terms of premiums that we're putting on the books now, and then of course the audit premium as well.
Janelle Frost: We're not seeing new employee counts really shift all that much, so I don't, I feel like the economies for our insurers are strong, but not to the point where they're experiencing a labor shortage in terms of being able to add new workers. Yeah, it's a good number of large claims through nine months. We ended the quarter with eight claims within case incurred over a million dollars. If you look at that comparison, where we were at 9.30 last year, I think that was 11, so still slightly down from where we were last year. Yeah.
Janelle Frost: We re-insurance treaties where you had the adverse and the adverse proper chairing or reduced proper chairing.
Janelle Frost: What was the circumstance there that impacts your own reserves? They're clearly they would have been offset by the elsewhere, but what was that? Right. You're right. This is a very good point. Yeah, these were older treaties prior to 2017, where there were claims that had some adverse development and it just caused that feeding commission or that profit sharing that was associated with those treaties to reverse, so it had been accrued over a period of time.
Janelle Frost: And that that is, hey, we use the word infrequent. I really didn't know how to describe it because it was not something that happens very often, but that that that profit commission was on older re-intrunch treaties, but you're absolutely right. Obviously, it didn't impact the net aggregate development that we experienced in the quarter. It was just particular to those years.
Janelle Frost: Then I'll ask one more and I'm being fairly read, but the 2021 accident years, kind of the COVID years, obviously taking gains on those. Any observations about how those have been developing? You know, that's a great question. I would say that we're not within our expectation. You know, the COVID years for us are I think a little bit different than a lot of the industry expected. Yes, our claim counts were down per se, but yet we still had severe claims, right?
Janelle Frost: So those claims are developing, they're not developing any differently than any other accident from that standpoint. So I think there was in our, at this point, I would just say there were in our expectations for, for, you know, about 21 and 22, right?
Janelle Frost: Or 20 and 20 and 21, either way, obviously in 21, we had the cat claim on the foot quarter that hasn't developed any differently than our expectation that we had at that in the that accident year. Great.
Operator: Thank you very much. Thank you, Mark. As a reminder, if you would like to signal with questions, please press star one on your touch tone telephone. Again, that is star one, if you would like to ask questions.
Matthew Carletti: Our next question will come from Matt Carletti with JMP. Hey, thanks. Good morning. Good morning, Matt. Mark, Mark covered a lot of ground there, so I don't have to. Yes, he did. But he was not being rude. He was not being rude. The, the, because you just maybe dive in a little deeper on the question he had about growth, and specifically kind of some of the focus on what you're doing at agencies.
Matthew Carletti: I mean, I noted you appointed a new chief sales officer this summer. If feels like there's a little more concerted effort towards, you know, making sure maybe every every no stone is left unturned within kind of your, of course, your underwriting appetite. Could you just expand on that a little bit? I think that's a great way to put it, no stern left unturned.
Janelle Frost: I'll start with this. Our underwriting appetite in our discipline and risk selection has not changed. You're a, so I'll start, I'll start there. You're absolutely right. We brought in a chief sales officer, Ray Wise, and how you phrased it was, the way I would phrase it is, I feel like we've elevated the focus within the company on our agent customers and our agent relationships. You know, we, we've had head of sales and the creep in the past, but they were not at the executive level, so it's really having a person sitting at the table when we're making strategic decisions, focused on that agent customer and what we need to be doing from that standpoint.
Janelle Frost: So I look for good things to come from that relationship. At the same time, even like I said before, even within within the company, we have had concerted effort in trying to change, you know, ease of doing business, working with our agent customers and our employees have really pushed hard on that, and sometimes it takes a while for these things to take root, and I feel like that momentum is starting to take root. Perfect, that makes a lot of sense. Thank you for the call. Thank you, Matt.
Mark Hughes: And our next question come from Mark Hughes with Trude. Yeah, thanks. Just a couple more.
Janelle Frost: Mark, in any commentary on the construction and markup, the concept of the next job is very important. How are right? You know, my best way is my best gauge of that is what's being reported to us in payrolls on a monthly basis. And our construction book, The Paroles, have been relatively strong, but they show both wage growth and in some new employee count, but not large, large increases. So from that aspect, it's holding up quite well.
Janelle Frost: You know, I always like to remind people, you know, we report out construction as an aggregate group, but the largest class within that is roofing, roofing risk is something that we think we really are experts at. And roofing is not always necessarily new construction. There's a maintenance component to that, which I think we benefit from.
Mark Hughes: So even if there is a lag or a downturn in commercial construction, I feel like capital, another nice special dividend, I think. Where is that going to position you? I guess you've got, at this point, no debt. If I'm looking at it properly, so kind of your underwriting leverage, if you did lever up with debt, you know, how much more capacity could you have? Yeah, you know, I'll say this about the special dividend, and you're so right about thinking about it in terms of leverage.
Mark Hughes: You know, AmeriSafe has been profitable under, from an underwriting standpoint, has been profitable for a very long time, and that has enabled us to build excess capital. And then when those rates started declining and the market really started softening, the question was to the, and I think the question the board was asking itself is, what do we do with this capital? Do we invest it in writing unprofitable business? Do we protect our margin? Obviously, our decision was to protect the margin.
Janelle Frost: And so that in turn led to us declaring special dividends to return that capital to shareholders. At this point, we're starting to see some growth, which is great. The decision was to return capital to the shareholders, but we've said this all along, and I'll repeat it, is as we are able to grow organically and put that capital to work, to grow organically, to generate the returns that our shareholders are accustomed to, I would expect there may be some change to that. But as of right now, we're seeing momentum, but we're not there yet. Right? We're not there yet.
Mark Hughes: And then of course, there's always the possibility of a merger in acquisition. You mentioned we have no debt on the balance sheet. So there's that's another use of capital, if we were to go out and buy something, and we have a share repurchase program as well. And we haven't purchased any shares recently, but there's still roughly a little over 12 million dollars left in that share repurchase program. Appreciate that.
Janelle Frost: And then the lost cost trends. I don't know if you put that in the release or made a comment, but very curious, which is out of the MCCI. Yeah, I think for NCCI's latest member for 2023 going into 2024 is somewhere around averaging around somewhere around 7.5%. The lost cost that were effective that became effective this quarter for Amerisafe averaged around 5%. So still rate declines or still lost cost declines, but maybe a flowing in that decline.
Janelle Frost: But, you know, if I'm, if I'm being completely candid, there's nothing on a macro basis that I see in the industry, even in data that were reported or just what other CEOs were sharing that's going to move that needle anytime in the near future in terms of approved lost cost. You can be in it. Pardon? Oh, thank you, Mark. I appreciate that.
Andy: Okay. All right. Appreciate it. Thanks. Thanks, Andy. Thank you.
Janelle Frost: And that does conclude the question and answer session now turn to conference back over to Janelle Frost for any additional or closing remarks. We are pleased with the quarters results, particularly when driven by the fundamentals we focus on discipline underwriting, proactive safety, and extensive claims management.
Janelle Frost: Thank you for joining us today. Well, thank you.
Operator: And that does conclude today's conference. We do thank you for your participation and have an excellent day. Thank you.