Operator: Ladies and gentlemen, please stand by. We are about to begin. Good day and welcome to the AMERISAFE Q3 2026 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Kathryn Shirley, Chief Administrative Officer. Please go ahead.
Kathryn Shirley: Thank you operator, and good morning everyone. Welcome to the AMERISAFE 2026 Q3 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.
Kathryn Shirley: During this call, we will be making forward-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 risks and uncertainties.
Kathryn Shirley: 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 results of risks, 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 10-K,
Kathryn Shirley: Form 10-Qs, and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. I will now turn the call over to Janelle Frost, AMERISAFE's President and CEO.
Janelle Frost: Thank you, Kathryn, and good morning everyone. Joining me today are Guillermo Ramos, our Chief Financial Officer, and Vincent Gagliano, our Chief Risk Officer. AMERISAFE continues to demonstrate the disciplined underwriting reserve strength in capital management that we've defined our company throughout multiple market cycles.
Janelle Frost: While competitive pressures in workers' compensation were elevated, the quarter reinforced several key strengths of our franchise. We grew policy count, we achieved strong renewal retention, we generated favorable reserve development and maintained exceptional balance sheet strength. These results reflect both the resilience of our business model and the value of our specialized approach to serving hazardous industries.
Janelle Frost: Our strategy emphasizes risk selection, pricing discipline, and long-term profitability. The workers' compensation marketplace is increasingly competitive, with some carriers prioritizing premium growth over underwriting return. Our approach remains unchanged. Preserve underwriting integrity through the cycle to create superior value for our shareholders.
Janelle Frost: We believe this positions AMERISAFE exceptionally well to capitalize on opportunities as market conditions evolve. During the quarter, net premiums earned increased 3% year-over-year, supported by continued growth in policy count, strong retention of existing accounts. Voluntary premium on policies written in the quarter grew 0.8%, led by continued strong pricing. We renewed 92.3% of the policies for which we offered renewal.
Janelle Frost: However, competition intensified in the quarter in select states, which slowed our new premium growth. Turning to losses, our current accident year loss ratio remains at 72%. We continue to monitor frequency, severity and medical trends closely.
Janelle Frost: As we've discussed in previous quarters, medical inflation remains an area of focus for the workers' compensation industry. Through the Q3, both frequency and severity for the current accident year were in line with the prior accident year, with closing claims reported exceeding premium growth.
Janelle Frost: Our claims team continues to demonstrate their expertise in actively managing claims and finding opportunities to resolve them effectively and efficiently. We experienced $6.9 million of favorable reserve development during the quarter, primarily from accident years 2023 and prior. We attribute that favorable development to our proactive claims handling and the consistent approach our team takes from time a claim is reported through resolution.
Janelle Frost: Our ability and experience in handling severe claims and our reserve strength continue to be distinguishing characteristics for AMERISAFE. We remain confident in our long-term outlook for our business and our ability to create sustainable value for shareholders through disciplined underwriting, prudent capital management, and operational excellence. With that, I will turn the call over to Guillermo.
Guillermo Ramos: Thank you, Janelle. Good morning, everyone. For Q3 2026, AMERISAFE reported net income of $7.2 million, or $0.39 per diluted share, and operating net income of $7.4 million or $0.40 per diluted share. For reference, in Q3 2025, net income was $13.8 million or $0.72 per diluted share, and operating net income was $10.6 million or $0.55 per diluted share. Turning to premiums.
Guillermo Ramos: Gross written premiums decreased 4.5% to $76.7 million from $80.3 million in Q3 2025. Payroll audits and related adjustments reduced premiums by $1.6 million this quarter, compared with a $2.5 million increase in the prior year quarter. Despite the unfavorable audit and related premium adjustments during the quarter, net premiums earned increased 3% to $73.3 million from $71.2 million, supported by strong premium production in recent quarters.
Guillermo Ramos: Total underwriting and other expenses were $23.8 million, compared to $22.1 million in Q3 2025, resulting in expense ratio of 32.5%, compared with 31.1% a year ago. The increase was driven by increased insurance-related assessments, higher compensation costs, and higher commission expense. Our effective tax rate for the quarter was 20%, compared to 21% in the prior year quarter.
Guillermo Ramos: The decrease was due to a higher proportion of income from tax-exempt investments. Turning to investments. Net investment income was $6.6 million in the quarter, an increase of 0.6 from Q3 2025. The investment rate environment remained favorable, with yields on new investments exceeding portfolio roll-off yields by approximately 146 basis points. As a result, the tax-equivalent book yield increased to 4%, up nine basis points from Q3 2025.
Guillermo Ramos: Our portfolio remains conservatively positioned, carrying an average AA- credit rating and a duration of 4.7 years. At quarter end, we held approximately $753 million in investments, cash, and cash equivalents. The portfolio was comprised of 58% municipal bonds, 25% corporate bonds, 3% U.S. Treasuries and agencies, 9% equity securities, and 5% cash and cash equivalents.
Guillermo Ramos: Approximately 41% of the portfolio was classified as held to maturity and carry a net unrealized loss position of $23.8 million. As a reminder, these securities are carried at amortized costs and therefore unrealized gains and losses are not reflected in reported book value.
Guillermo Ramos: Our diversified equity holdings recorded a modest unrealized loss of $0.2 million compared to $4.1 million unrealized gain in the prior year quarter. Statutory surplus was $208.4 million at quarter end compared to $217.8 million at year-end 2025.
Guillermo Ramos: Book value per share decreased to $12.8, down 4.8% year to date. During the quarter, we repurchased approximately 5,000 shares at an average price of $30.18 per share, representing $0.2 million return to shareholders. Overall, the quarter reflected growth in earned premiums and continued improvement in portfolio yields, partially offset by unfavorable audit premium adjustments and higher expenses.
Guillermo Ramos: We remain focused on disciplined underwriting, profitable premium production, and improving operating leverage, while maintaining a conservative investment portfolio and a prudent approach to capital management. Lastly, we will file a Form 10-Q with the SEC tomorrow, 30 October 2026, after the market close. With that, I would like to turn the call over to the operator for the questions.
Operator: Thank you, sir. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will pause for just a moment to allow everyone an opportunity to signal. We will now take our first question from Mark Hughes with Truist Securities.
Mark Hughes: Thank you very much. Janelle, I think you talked on the last call about frequency being up through the six months. I think you said on the call just a second ago that growth in claims reported is exceeding premium growth.
Mark Hughes: Have you seen any change in that trajectory? Is it accelerating as you go through the year? Is that a function of premiums being down rather than claims being up, I guess, measured against headcount or payroll or something like that? Just a little more on what is going on with frequency would be great.
Janelle Frost: Well, good morning, Mark. Let me start with absolute reported claim counts are up. So I would love to say, oh, it is really all premium related, but that is not true. However, at the same time, our reported claims are up. We have written more policies, right? We have more policies in force. Our in-force policies have grown 4% year over year.
Janelle Frost: From an in-force basis. So yes, absolute claim counts are up. I think you will see that when we file the 10-Q later today. But also keep in mind, we have more policies in force. That being said, there is certainly pressure on that denominator in terms of premium. As you know, we came into this year expecting mid to high single-digit rate declines. That has been the experience.
Janelle Frost: The rate filings that are now in force that are going to be, I guess, for now and for 2027, more of the same. I think everybody in the industry was thinking the rate of decline would slow, but that really hasn't necessarily been the case. So that puts pressure on frequency.
Mark Hughes: When you talk about the rate filings, any specific numbers there? I think sometimes you talked about kind of the recent trend. It sounds like you're seeing, if you say more of the same, is that mid to upper single digits? Is that what I heard you say?
Janelle Frost: Yeah. If you look at the latest charts that are out there, the lowest decline is North Carolina, down 10.8%. I think there were three states that had increases: Oregon, California, and Nevada. Nevada was an administrative change, so I wouldn't really count that one as much. But everyone else is a decline. So I think on average, we're still looking in that 5% to 6% range for loss cost declines going into the 2027 premium year.
Mark Hughes: Yeah. In your judgment, you're saying that the industry was hoping for better or thought it would do better?
Janelle Frost: I think we said early on this year that we thought we were expecting the rate of the declines to slow. When I talk about the declines, the loss costs. They did not slow, they more stabilized, would be probably the better term.
Mark Hughes: Yeah. Is that because NCCI is looking in the rearview mirror or it is because that is what is happening in the marketplace?
Janelle Frost: Well, NCCI is using the data that companies are reporting in. So yeah, that data is 18 months old, but they apply trend factors to that as well. I think it depends on individual company experience and what we are going to see in terms of what companies are experiencing in the here and now in terms of frequency, severity, and reserve development from more recent accident years.
Mark Hughes: Yeah. When you say you had more policies, I think your policy size, correct me if I am wrong, has shrunk a little bit with the competitive dynamic in the market. If you looked at it on a headcount or payroll basis, is it still up?
Janelle Frost: No. From the average account size, if that is what you are referring to, I would say it is relatively flat.
Mark Hughes: Okay. Yeah. Okay. How about the audit premium? This is the first negative result in a while. What is driving that? Are there any particular industries and markets where you are seeing more influence?
Janelle Frost: Yeah, I will give some color. Then I will pass it off to Vince to give you a little bit more detail. Let me be very clear, even though I know we talked about the decrease compared to the prior year quarter. Audit premiums themselves remained positive, meaning our insured base, their expected payrolls were higher than what they were when they originally estimated for that premium year or that policy year. I want to be very clear that they remained positive.
Janelle Frost: They were lower, considerably lower than Q3 of last year. When I read into that, I think about what does that mean for the economy of our insured base, and is there something happening there? We have seen a slowing of the wage growth itself. I think for the quarter, Vince will give more detail, but I think it was like 4.1% in total.
Janelle Frost: That really was not new employee count. I do not think this comes as a surprise to anyone. I think employers, small to mid-size employers, are experiencing the pressures on wages given the margin compression they are experiencing with things that are happening. I still believe that there is a positive economic outlook for the people that we insure. There is definitely a labor shortage, so that speaks to potential higher wages.
Janelle Frost: At the same time, there is margin compression. Obviously, things happening with oil prices and diesel and gasoline are impactful to our industries. I think employers are being cautious about wage growth. I believe, as we have talked about before, particularly during the COVID years, we have talked about is the next job there? I believe the next job is there. We have not seen or heard of project delays and those types of things.
Janelle Frost: I still feel like that is economically a positive for AMERISAFE going forward. Vince can talk about the quarter specifically and industries.
Vincent Gagliano: Yeah, Mark, good morning. I will start with industries. We do not see any material change in any specific industry's audit premium patterns. The color I would add to the quarter is more about just the mechanics of premium audit. Keep in mind, we are auditing policies that were written over a year ago. We also do not control the timing necessarily of when those audits come through or whether they will be bigger or smaller than usual.
Vincent Gagliano: I can tell you we did have a couple unusually large negative audits in the quarter that on a small audit premium base does move the number significantly. We also had cancellation premium that while it was not out of the norm, it was robust, I would say, and coming in on top of low audit premium, it really just created a pretty negative look for audit and adjustments for the quarter.
Vincent Gagliano: We were a little surprised in general, but I will also say that our Q3 audit and adjustment premium is typically our lowest of the year, if we look back over about 10 years of history.
Mark Hughes: Is that cancellation premium, is that a little more shopping around?
Vincent Gagliano: Yeah. Certainly. Competition is intensifying. We are having to battle more and more to keep the accounts we have, much less writing new business.
Mark Hughes: You had said last quarter you saw maybe some of the package carriers were getting a little more aggressive in the market. Any observations about what is happening this quarter, the intensity versus three or six months ago? Then whether is it the same players doing the same thing?
Vincent Gagliano: It is the same players. I think we have reached a point where we are comfortable saying we are seeing some irrational behavior.
Janelle Frost: We have not used that term in a while.
Vincent Gagliano: No, we kind of debated who would say it first.
Mark Hughes: Yeah.
Vincent Gagliano: Yeah, competition is intense. Some days, Mark, I feel like we're fighting for every single account. It's not quite that bad, but we see some really bizarre things happening out there where it's apparent to us that some competitors are just chasing premium over profitability. That's where we draw the line, and it's tough for us to walk away, but sometimes we just think if we can't write it profitable, that's what we're going to do.
Mark Hughes: Yeah. I've got a few more. I'm happy to drop off if that makes sense. I'll say thanks and put myself in the queue, but if there's not much more of a queue, then-
Janelle Frost: I believe there is.
Mark Hughes: feel free to call on me before I come back.
Janelle Frost: I believe there is.
Mark Hughes: Okay. All right.
Janelle Frost: Thank you.
Mark Hughes: Yeah. I am dominating, I apologize.
Janelle Frost: We will speak soon.
Mark Hughes: Okay. All right. Thanks.
Operator: And once again, ladies and gentlemen, it is star one if you had a question. We will go next to David Samar with Citizens.
David Samar: This is David Samar. Good morning.
Janelle Frost: Good morning, David.
David Samar: So, just on large losses, are you able to let us know where you stand versus last year?
Janelle Frost: Yeah, absolutely.
David Samar: Or just a year ago is great.
Janelle Frost: At quarter end, for the year, we would've had 18 claims over $1 million. Last year, at Q3, we were at 17, and we ended the year with 25. So we're at 18 through the first 9 months.
David Samar: Thank you. On the expense ratio, obviously, it was a little bit higher this quarter driven by those assessments. Were there any states or areas with outsized assessments that you can point out for us?
Guillermo Ramos: Well, first of all, what I would like just to mention is that, the expense ratio was higher, but it has to do as well with the net premiums earned, so we need to take a look at the denominator. Okay? There were 3 states that had those assessments. The biggest one was Delaware.
David Samar: And then, I guess lastly, just digging a little further in the competitive environment, voluntary growth slowed just a bit. Is this kind of the new normal that we should expect, or is there anything else to comment on there?
Janelle Frost: No, I don't expect that to be a new normal. Vince was talking about certainly we saw the level of competition notch up a bit, if that's the right term to use, in Q3, but we compete every day. My expectation is, as we started this year, we said we were shooting for a mid-single-digit growth for the year. That outlook or that expectation for me has not changed.
David Samar: Okay. Thank you.
Janelle Frost: You're welcome.
Operator: Once again, star 1 if you had a question. We will return to Mark Hughes with Truist Securities.
Janelle Frost: Welcome back, Mark.
Mark Hughes: Yeah. Thank you very much, Janelle. How about medical inflation? Anything there? One theory on the little higher frequency was maybe just overall pressure on medical costs, more people with high deductible plans that may find it more convenient to work through the comp system with health issues rather than their health plans. What do you think about that?
Janelle Frost: That's a really interesting point, Mark, because when we talk about medical inflation and we look at our book, and even if you look across industry data, a lot of companies have talked about the inflation increase in hospitalization and hospital costs. I think that's a direct correlation to exactly what you're talking about, just the experience that everyone in the country is experiencing on the healthcare front, what hospitals are experiencing with lower reimbursement rates,
Janelle Frost: what employers are experiencing in terms of their own health insurance costs and benefits. It's all interconnected. It's all related. That's probably where, other than home health, because I will continue to beat that drum for AMERISAFE, because I do think it's not unique to us, but given the severity of our injuries, that's certainly important to us. Hospitalization and hospital costs are probably where we're seeing the greatest pressure.
Mark Hughes: Yeah. Okay. Yeah, I think that was it for me.
Janelle Frost: Okay.
Mark Hughes: Appreciate that.
Janelle Frost: Oh, I am sorry I cut you off. Maybe you just had one more thing. We could have done another.
Mark Hughes: No, I had my whole list.
Janelle Frost: Yeah.
Mark Hughes: I was reviewing my list. I thought, "Oh my gosh, we've already gone through them. What am I
Janelle Frost: Well, David beat you to the punch on the large losses, so we'll give him credit. You'll get credit for that.
Mark Hughes: Well, let me ask you this. You mentioned the point about irrational and kind of contemplated whether to use that word.
Janelle Frost: Yeah.
Mark Hughes: What are the ramifications of that? If somebody said, "Gosh, people are starting to be irrational," what does that make you think about as you're running the business?
Janelle Frost: Yeah. We really internally talked about, do we use the word or not? Because we've seen, and I've talked about this on prior calls, we've seen anecdotes on different accounts where we thought, "How are they charging that?" When we lose something to a competitor, how are they charging that? Sometimes if it is a multi-line carrier, it is a little bit hard for us to compare apples and apples.
Janelle Frost: Granted, that is true. I would say the anecdotes were more plentiful this quarter than in the past. That is why I feel comfortable using the word irrational. There definitely was a shift that we saw in the quarter, is the best way for me to say it. I should also say this, and I don't think we commented on this earlier. It wasn't just pricing. We saw what I would call irrational commission structures.
Mark Hughes: Oh, yeah.
Janelle Frost: In states where you compete on dividends. It was all related to how you win the account from a pricing perspective, whether it is commission, the rate itself, or dividends. We just saw an uptick in that in Q3. That is why I would say irrational. Compare and contrast that to AMERISAFE, because again, we compete every day, so I don't want to make this all about the competition. This is how AMERISAFE behaves in the marketplace.
Janelle Frost: As Vincent said, we're not chasing that price. We want to win the account. We want to win the account under AMERISAFE's value proposition, what we offer the policyholder, what we offer the agent, but more importantly, what is going to produce long-term profitable growth for AMERISAFE. It is a balance of all of those things.
Janelle Frost: Guillermo was talking about the expense ratio. If you look at AMERISAFE, and I know this isn't information that is anywhere published, but if you look at our expense ratio, and again, certainly the audit premium hurts the expense ratio this particular quarter, but even if I look at it on a year-to-date basis, we're gaining operational efficiencies in what I would call fixed costs or non-variable costs.
Janelle Frost: That is something we've really been focused on as we've tried to find these ways to create ease of doing business. At the same time, are we managing that expense ratio? We're definitely making progress there on a year-to-date basis. I feel comfortable about that. Going to the variable cost, if I look at our commission expense on a year-to-date basis, we're 10 basis points higher than we were last year at this point in time.
Janelle Frost: We're not. I think we've tried to find creative ways and rewarding those agencies and those policyholders that do bring us profitable business, but at the same time, not using it as a premium grab.
Mark Hughes: Yeah. I have a question. This is a general question we've been thinking about is when you look at some of the package writers, you'll see the profitability, say in their property, the commercial multi-peril property or non-liability, will be very high. At the same time, the profitability in the liability portion of it is abysmal.
Mark Hughes: I wonder the extent to which the same thing happening here in workers' compensation, that everybody's pursuing the package, but the profit allocation is subject to a lot of discretion. You try to figure out why would you write package business where you get the property at 50 and the GL at 120 combined?
Janelle Frost: Right.
Mark Hughes: If you look at it on a direct underwriting basis, it doesn't make sense.
Janelle Frost: Yeah.
Mark Hughes: Or maybe it does, or we're trying to figure out why that happens.
Janelle Frost: Yeah.
Mark Hughes: I wonder if you have any comments on that.
Janelle Frost: Yeah, I do not know that I have the why behind that. I can say from a workers' compensation perspective and a package carrier, why write the comp at maybe something that breaks even? It is because it is a long-tail line, right? And where the interest rates are now, you can make money off of the cash flow portion of that. So maybe that 100 combined in workers' compensation is still more profitable than that 100 combined property to your point.
Mark Hughes: Yeah.
Janelle Frost: If that gives you any color. But again, I can only really speak about it in terms of what it means to the workers' compensation organization.
Mark Hughes: Well, exactly. Okay. All right. I am glad we have had this time together. I appreciate all your help.
Janelle Frost: Me too, Mark. It is nice talking to you.
Mark Hughes: I was-
Operator: Ladies and gentlemen, with no other questions holding, I would like to turn the call back to CEO Janelle Frost for any additional or closing remarks.
Janelle Frost: AMERISAFE has successfully navigated workers' compensation cycles for decades by remaining disciplined when markets become increasingly competitive. That discipline continues today. Our recent AM Best rating affirmation reflects our underwriting discipline, prudent reserving, strong capitalization, and long-term focus on execution, the same fundamentals that continue to drive our performance.
Janelle Frost: We believe these strengths position us well to serve our policyholders, create sustainable value for shareholders, and navigate current market conditions. We are operating from a position of strength with a team that remains intensely focused on underwriting profitability. Thank you for your continued support of AMERISAFE.
Operator: Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.
