Q2 2025 AMERISAFE Inc Earnings Call
Please stand by. We are about to begin.
Good day and welcome to the mayor of safe. Second quarter, 2025 earnings call.
Today's conference is being recorded.
Katherine Shirley: at this time, I would like to turn the conference over to Katherine Shirley
Speaker Change: Please go ahead.
Speaker Change: Thank you, operator. And good morning everyone. Welcome to the amerisafe 2025 second quarter investor call.
Speaker Change: 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.
Speaker Change: Details on how to access the replay are in the earnings release.
Speaker Change: During this call, we will be making 4 looking statements intended to fall within the safe harbor provided under the Securities laws.
These statements are based on current expectations and assumptions that are subject to various risk and uncertainty.
Speaker Change: Actual results May differ materially from the results expressed or implied in these statements. If the underlying assumptions proved to be incorrect or as the results of risk, uncertainties and other factors including factors discussed in the earnings release and the comments made during today's call and in the risk factor section of our form. 10K form 10 cues and other reports and filings with the Securities and Exchange Commission.
Speaker Change: We do not undertake any duty to update any forward-looking statement.
Speaker Change: I will now turn the call over to Janelle Frost are safes president and CEO.
Thank you, Katherine and good morning, everyone.
Speaker Change: I am pleased to begin today's call highlighting our continued success in growing premiums by increasing policy count exhibiting pricing discipline and strong renewal retention.
Speaker Change: Our risk selection, coupled with working more effectively, with our agents generated 12.8% growth in voluntary premiums for policies, written in the quarter.
Our enforce policy count. Grew 3.4% in the quarter supported by new business growth and 93.8% renewal retention.
Speaker Change: These accomplishments took place in the competitive market, where workers compensation Remains the most profitable in the Property and Casualty space.
According to ncci the industry's combined ratio remained below 100% for 2024. However, it did not improve over 2023, unlike P the other PNC Lions which are getting rate increases
Speaker Change: Workers compensation approved loss costs on average are down mid single digits with California, being a significant outlier with an 8.7% increase.
Speaker Change: While are safe only has ancillary exposure in California. We cannot ignore the potential for this dramatic increase to Signal a shift in the cycle.
Speaker Change: Another potential sign for a shift with ncci's reported 6% increase in medical severity for 2024.
Speaker Change: Regardless, if the market remains soft or begins to harden, amerisafe is well, positioned, both operationally and with a strong balance sheet to respond and generate consistent underwriting profitability.
As for Ameris loss experience, frequency was down compared to second quarter of 2024 and severity Trends are within our expectations.
our current accident year loss, ratio was 71% as of the end of the second quarter,
In addition, we had 8.6 million of favorable development in the quarter as our claims team continues to demonstrate expertise in finding opportunities to close claims, effectively and efficiently.
Speaker Change: This quarter accident years 2020 and prior drove most of the favorable case development.
Share repurchase program replacing the prior program.
Speaker Change: Since the Inception of our initial program in February of 2010, we have repurchased approximately 1.75 million shares at an average cost of $5.69 per share.
Speaker Change: Totaling 44.8 million.
Speaker Change: In addition, the company's board of directors, declared a regular quarterly cash dividend of 39 cents per share. Payable on September 26th, 2025 to shareholders of record as of September 12th 2025
Speaker Change: these ongoing Capital Management strategies. Reflect our confidence, in the long-term value of our business, and our commitment to delivering to shareholder returns. I'll now turn the call over to Andy to discuss Financial results surrounding our underwriting profitability and investment
Thank you, Janelle. Good morning, everyone for the second quarter of 2025 Amer safe reported net, income of 14 million or 73 cents per diluted share and operating net income of 10 million or 53 cents per diluted share.
Andy: During the second quarter of 2024, net income was 11 million or 57 cents per diluted share and operating net. Income was 11.1 million or 58 cents per diluted share.
Andy: The higher reported. Net income was primarily driven by stronger valuations across our Equity Holdings, which resulted in a net unrealized gain on Equity Securities of 1.8 million during the quarter. In addition to 3.1 million of realized gains also primarily from Equity securities.
Andy: Rosewood and premiums were 79.7 million in the quarter. Compared with 76.4 million in Q2 of 2024, in 4.3 percent.
Audit premiums continue to moderate, which increased the top line by 1.5 million compared with 7.3 million in the year ago, period.
Andy: despite the, despite the out of Premium headwinds voluntary, premium growth on policies written in the quarter was 12.8%, fueled by new business, Productions and strong retention
Andy: Our total underwriting and other expenses were 21.7 million in the quarter, compared with 20.4 million, recognizing the prior year quarter, this increased resulted in an expense ratio of 31.3% compared with 29.8%. In, the year ago, quarter the expense ratio reflects ongoing investment in the Mars safes growth.
Andy: Further Auto premium which is earned immediately has declined in comparison to the prior year, but is still in material contributor to net premiums earned while voluntary premiums are earned over time, creating an expense premium mismatch that elevates, the ratio. Lastly, 100 basis points of the current quarter's expense ratio is due to increase in Bas in insurance-based decision.
Andy: Ments.
Andy: We anticipate the full year expense ratio to be in line with uh previous years.
Our effective tax rate was 20.1% compared to 20% in the prior year quarter.
Andy: Turning to our Investment Portfolio in the second quarter, net investment income decreased 10.2% to 6.7 million driven by a decrease in investable assets. Following the payment of the special dividend
Andy: a quarter end. We had approximately 807 million Investments cash and cash equivalents compared to 800 and 884 million at June 3020 20224 on the consecutive quarter basis. Net investment income increased by 60 basis points.
Andy: The reinvestment rate environment remains strong, this quarter with yields on new Investments exceeding portfolio. Overall off by 230 basis points, contributing to a taxi equivalent, bulky of 3.85% compared to 3.79% in the second quarter of 2024,
Andy: Our Investment Portfolio remains high quality carrying an average double A minus credit rating within duration, of 4 and a half years. The composition of the portfolio is 62% in municipal bonds, 21% in corporate bonds 4% in us, treasuries and agencies 7% in equity Securities and 6% in cash and other Investments approximately. 50% of the portfolio is is classified as held to maturity as a reminder. These Securities are carried at advertised cost and therefore unrealized gains and losses are not reflected in our reported Book value, our Capital position is strong,
With a high quality, balance sheet, solid loss, Reserve position and conservative Investment Portfolio.
Andy: During the second quarter, the company repurchased, 63,000, shares at an average cost of $44.55 totaling 2.8 million. And finally, a couple of other topics book value per share increased to 13.96 up 3.3% year to date.
Andy: Statutory Surplus was 257 million compared to 235 million at year. End 2024. And lastly we will be filing our 10q with the SEC later today after the close of the market.
Andy: 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 1 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.
Andy: Again, press star 1 to ask a question.
Andy: We'll pause for just a moment to allow everyone an opportunity to signal.
Speaker Change: We will now take our first question from Mark Hughes with truist.
Mark Hughes: Yeah, thank you. Good morning, morning morning. Good morning, 13%, pretty impressive. Uh, you uh, described it in the usual way. Good retention and strong new business, but could you give
Mark Hughes: A something is, uh, good or or stronger than last quarter. So I'm just sort of curious what you saw in the quarter that
Mark Hughes: Drove that business.
Yeah, Mark. I'll I'll start by saying um,
Mark Hughes: This, um, shout out to the Amur safe team. Uh, the employees have truly been focused on ease of doing business agent Effectiveness and creating scalability I've been talking about it for gee I should probably look back and see how many earnings calls now and they really are seeing the fruits of their labor. You know, coming into this year and at the end of last year, we said we were looking for small incremental growth. Um we are achieving that we've grown policy counts 5.8% since year end 3.4% in the quarter. Um, but yet sticking to our knitting sticking to our wrist selection process, starting from the beginning of the sales process with our sales, folks on the ground, working with agents, uh, making sure that we are working with the right agents that fit a mirror, safes profile. Um, on to safety being part of that process, still, you know, 93% of our accounts are still getting
Mark Hughes: That pre-code safety inspection, our safety, visit with our safety folks out on the ground, visiting, with prospects, understanding those risks, providing that information back to my Underwriters and then our underwriting do what they do best in terms of risk, selection, understanding risk, pricing it appropriately. Um, I know we don't give pricing information anymore on this call, but I'll, I'll, I'll say this about our risk selection process. If I look at that enforce policy calendar,
83 to 85% of that is still within those Hazard groups e f and g, which is where we consider our specialty, where we consider our sweet spot. Um, so that's a very long answer to the say that. I, I just feel like all of those things collectively are coming together, um, with the intention of finding ways, to address this very competitive market that we're in, uh, you know, for the longest time Amer save
Mark Hughes: probably took more of a defensive position in terms of the market price. And now we look at, you know, the stock market has been gone for. I think we're in our 10th, maybe 10th or 11th year of of approved loss costs, continuing to go down with some improvement in, you know, we're not in double digit declines anymore. We're mids single digits, but finding a way to respond to that market and still
Still. Um,
Mark Hughes: Keep our risk selection profile. And what we know we want to underwrite to in terms of profitability uh top of mind and and finding ways to get that done.
Speaker Change: Very good. How about the average policy size? I think policy count up 6%, um, written up 13% and I know that's kind of apples and oranges. But any change in the, uh,
Mark Hughes: Average, uh, policy size.
A a, a slight change. I would say um, you know, again proved lost costs. I think are down mids single digits. So, even that 5 to 6 range, uh, I I, I do know, I can say this. I know that wage inflation, at least for the this past quarter, you know, wages were up roughly around 5% and even in CCI mentioned,
May be slightly down but, you know, our sweet spot is still in that 25 to 35% range uh, percent thousand dollar range.
Speaker Change: gotcha, I thought, uh, medical inflation and maybe I'll
Speaker Change: Just a general comment there and then the Medicare fee schedules. Uh,
Speaker Change: whether any of these updates are impacting your view on inflation,
Speaker Change: um, I I think it's there's a lot of detail that I assume folks are still working through, but maybe some of the
Speaker Change: The reimbursement.
Speaker Change: Arrangements for Specialists, maybe they've gone up. Um,
Speaker Change: I'm just curious if you have any observations there,
Speaker Change: Yeah, I I I said in my opening remarks, you know, ncci reported for 2024, medical severity had gone up 6%. Now they do a worker's comp medical index and that and that number was 2.8% up. So the remainder of that, um, they really ncci really attributed to the utilization which I think is something. Um Everybody in the industry has been talking about for some time now and how we how we view that what is actually happening and then how we view that in terms of reserves, um, going back to my claims team. I feel like this is where they Shine the most
Speaker Change: In terms of how they initially, set up those reserves how they view those claims on a long-term basis. Um, we haven't really changed our view again because we use long-term averages when we think about medical severity. So we have not changed our reserving practices in terms of some of the noise that, you know, I think people are starting to see in the data we probably 2 years ago were talking about home health for, as an example of just pockets of medical costs where we were seeing inflation, right? Um, it was harder to find providers in certain parts of the country and then we were able to find providers. The rates had gone up significantly. Um, I think there are in the industry again pockets of where we're seeing that probably a little bit more surgical procedures in terms of maybe uh increased hospitalizations
Speaker Change: nothing that I can point to in our particular data right now. That would say I that I feel like we need to change our reserving practices. Um, again kudos to my claims team because they really have taken a long-term view of that. And we have very consistent book of, uh, injury types and uh, you know, the severity of our injuries. There's not many things that we haven't seen at this point, for lack of broad term, knock on wood. I don't need that to happen today. Uh, so I feel very confident in our case, reserving process.
Very good. Um any stats on new business uh like new business production year-over-year in the quarter. I know that's something you have a historically.
Disclosed. Yeah, we uh, I hear you. Uh, we're very excited about the new business growth. Not a number, I would necessarily want to put out there because of my competitors, listen to this call. Uh, but we are having success. And I'll, I'll say this, if you look and I'll try to back into what I, what I mean in terms of the new business growth, I I mentioned renal retention at 93.8%, and that was on the policy count basis and yet policy count grew
3.4% in the quarter so you can back into that math. Um, but I'll say this as far as new business, uh, and talking about initially, when I said, ease of doing business and making it and having more effective relationships with our agents. If you look at our agent counts at the end of 2023 2200 agents at the end of 2024 roughly 1700 ages by uh by second quarter. We were down to almost 15.
Speaker Change: Agents yet policy count has gone up.
Speaker Change: Um, so that is, I think that speaks to how we've been able to find new business and be more effective with fewer agents.
Speaker Change: The addition by subtraction method.
Speaker Change: Um I'll ask it 1 final question construction. What's the uh what's the vibe and construction?
Ally in construction and our agriculture book of business is somehow, uh, immigration and undocumented workers affecting those numbers, uh, to be seen. But it was an interesting data point for this particular quarter. Um, so if you think about it, in terms of, if let's let's play that through and say, okay, well, it is immigration or something to do with immigration. So,
Not, not adding on incremental staff new workers extended work hours, could be good for a frequency.
Speaker Change: If indeed those workers do get rep. If, if undocumented workers do get replaced with higher wage earners,
Speaker Change: Um that could be a boost in premium dollars at the same time if they're replaced with higher wage earners and they're new to that industry, could also drive up frequency. So I gave you a lot of different scenarios there but I definitely think that impacts
Speaker Change: Or has the potential to impact construction and our agriculture books in particular.
Speaker Change: Very good. Appreciate it.
Thank you, Mark.
Speaker Change: And ladies and gentlemen, if you did have a question again that is star 1 on your telephone.
We will go next to you. Bob Farnum with Janie.
Bob Farnum: Hey there. Good morning. Just uh, I think
Speaker Change: question is.
Speaker Change: just wanted to know in terms of,
Speaker Change: Case load per per per claim Personnel. I I don't know if there's been any changes to the case loads?
Speaker Change: uh, over the last, you know, year few years,
Speaker Change: No sir, great question and good morning. Bob uh, you know, we're still below that we're still at below 50 claims per on on average per adjuster, so no shift their
Speaker Change: Okay, uh, and you've been at the 71% active in your loss ratio assumption for a few years. Now, given the, the changes in the loss cost, I is that am I right to assume that there's been some upward pressure there that that that, if anything, that might go up at some point in the future,
Speaker Change: Yeah, I think that's a good assumption that there's definitely pressure there. Um, as to your point, as loss costs continue to be decline, um, you know, 1 of the things, 1 of the Beauties. I think of amera safe. Again, shout out to McLean's Department, uh, in the way we think about client reserving and we put those reserves up to Ultimate relatively quickly, it does help us.
Speaker Change: In terms of how we price our product and how we think about profitability in, on the risk selection side of things. But there's no question in in terms of just the absolute
Claim number of claims and the claims dollars that we're having to spend that. There's pressure on that 71% on a go forward basis. Unless something changes in the marketplace, I was like, I throw that out there just in case. Yeah, unless I'm thinking yeah, in case something changes. But if, if if continued trends
Speaker Change: Uh happen in terms of loss costs themselves, definitely pressure there.
Right? Okay, uh, and in terms of Capital Management, how how are you balancing kind of, share repurchases versus the special dividend? That is, is there any thought process behind how much you're allocating to each?
Bob, it's Andy. How are you? Um, right now, you know, we we looked at, you know, the buyback. So of course we want to buy back our, our stock at at the right time. So, um, you know, we did go to the board as Janelle said and it was reauthorized up to 25 million
And then again, that, you know, if the inquiry is is how we bounce out. Does that mean that have any kind of patience towards the special dividend? We assume there will be a special dividend. The recommendation is there, and, you know, there is capital. Sufficiency, I mean, that's probably the best way I can answer it for you.
Speaker Change: Okay. All right. Got it.
Speaker Change: Uh last question that I had here was your. So, it sounds like the expense ratio this year is going to be 30 ish. Maybe a little under, do you have a kind of a long-term Target that you want to keep your expense ratio around? I'm not sure if it's, it's at 30 or above, or below.
Speaker Change: So, you know, um for the sake of not being too forward, looking what we assume is and for this year as well, that we will be within the range that, you know, we have been historically.
Speaker Change: And, and the historical range, you don't expect any changes at least for now, without without getting into it. And if I cannot get, if I cannot just 1 other, if you look at the quarter, we're at 313. Look at the Year, we're at 30.6. So, you know, again, the assumption is, is that we'll be within
Speaker Change: Uh, historical.
Speaker Change: Range.
Speaker Change: Okay.
Speaker Change: We'll return next to Mark Hughes with truist.
Mark Hughes: Yeah, just want to follow up the uh uh policy holder. Dividends were up a bit in the
Speaker Change: quarter.
What drove that?
Mark Hughes: Mark, I mean the the policy holder dividend is, you know, some of our policy holders did qualify for it and it isn't linear, it's lumpy. So if you recollect for even from last year, it goes up and down each quarter. So you know, for that's all I can say is there's really not.
Um any um Spike it's just that we had more policies qualify for the policy holder dividends.
Mark Hughes: Yeah. Is that uh,
Mark Hughes: Can it be interpreted as uh competitive issue that on some policies? You?
are uh motivated to pay out higher dividends from a competitive standpoint or is it, uh,
Mark Hughes: Reflection of better loss experience and that's what's driving it? How to think about that?
Mark Hughes: How about it's probably a comp?
For a mirror save. It's really made up of 3 states, Florida.
Mark Hughes: Which happens to be our largest state. There's something you can read into that. Uh Wisconsin and Virginia
Mark Hughes: And so some of yeah obviously in Florida as you know as administrative administrative pricing States. So policyholder dividends is certainly a way to compete uh but it also involves loss experience.
Mark Hughes: yeah, with 1, say maybe of Florida race being flat this year and set of down that there was
Speaker Change: A little more competition by way of policy holder dividends. Is that a
Mark Hughes: 1 to say that.
Mark Hughes: Oh, okay. All right.
Mark Hughes: Um, I think I just said it.
Mark Hughes: Very good. Uh, okay. All right. Thank you. Appreciate it.
Speaker Change: Thank you, Mark.
It appears there are no further questions at this time. I'll turn the call back to Janelle Frost CEO for any additional or closing remarks.
We are pleased with this quarter's continued Topline growth in industry-leading, operating Roe of 14.9% supported by our investment, in our people and technology and delivering on our commitment to our stakeholders. Thank you for joining us today.
Speaker Change: Thank you, ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.