AMERISAFE INC Q3 FY2024 earnings call

• AMERISAFE is pleased with quarterly financial results, benefiting from workers' compensation industry trends like multiyear declines in frequency, moderate severity, and growing wages. - Board declared a special dividend of $3 in addition to regular quarterly dividend of $0.37. - Maintained positive momentum in production and top line performance, with premium growing 8.8% over last year's third quarter. New business growth coupled with 93.6% renewal retention led to higher in-force policy count and gross written premium growth of 5.8%. - Audit premiums contribution moderating, payroll growth and wage inflation leveling off. Accident year loss ratio consistent with last year at 71%, saw $80.5 million favorable development on prior accident years. - Expenses: total underwriting and other expenses decreased, expense ratio improved. Investment portfolio: high quality, tax equivalent book yield increased, net unrealized gains due to strong equity market returns. - Capital position strong with high-quality balance sheet, solid loss reserve position, and conservative investment portfolio. Repurchased shares during the quarter.

In the third quarter of 2024, AMERISAFE reported net income of $14.3 million or $0.75 per diluted share and operating net income of $11.1 million or $0.58 per diluted share. Gross written premiums were $74.9 million in the quarter compared with $70.8 million in Q3 of 2023. The increase in top line was driven by increased sales efforts with agents, new business growth, and strong retentions. Audit premiums increased the top line by $4 million and remain a material contributor. Total underwriting and other expenses were $21.3 million in the quarter, resulting in an expense ratio of 31.7% versus 33.6% in the prior year. The investment portfolio had a tax equivalent book yield of 3.84% or 7 basis points higher than the third quarter of 2023. Net unrealized gains for the portfolio and equity securities was $3.9 million in the quarter. The investment portfolio is high quality with an average AA minus credit rating and specific composition: 59% municipal bonds, 24% corporate bonds, 3% U.S. treasuries and agencies, 6% equity securities, and 8% cash and other investments. Book value per share was $16.50 and operating return on average equity was 14.2%. Statutory surplus was $294.1 million at quarter end, up from $254.9 million at December 31, 2023. Roughly 22,000 shares were repurchased in the quarter.

• Strategic priority is to achieve targeted profitable growth and add incremental profitable growth each quarter. - Expect full year expense ratio to be within historical ranges. - No specific forward-looking guidance beyond general commitment to profitable growth and maintaining strong financial position.

• Threat to current loss trends from medical inflation and viability of current fee schedules. - Investment portfolio unrealized gains/losses not reflected in book value for held-to-maturity securities. - Competition in the workers' compensation industry could impact business performance. - Broader P&C line dynamics could indirectly affect AMERISAFE's business. - Impact of catastrophes like hurricanes on business exposure and recovery could have implications.

Q: Can you give an idea of the inning in agent engagement efforts?

A: It's a combination of employee-led initiatives, clarifying appetite, and being more effective in engaging agents while maintaining underwriting discipline. Pre-quote number is still well north of 90%.

Q: What have you seen regarding hurricanes and business impact?

A: Southeastern footprint with construction, trucking, etc., could be boosted by quick recovery from hurricanes as it relates to work activity.

Q: Why the uptick in top line now?

A: Reinforcing appetite, better agent engagement efforts over a year now, focusing on policy count and being more effective in working with agents while maintaining underwriting discipline.

Q: Nuance in package vs monoline?

A: Globally, no major shift seen; AMERISAFE is selling value proposition like safety and claim services. Agents need to understand appetite to remain top of mind.

Q: Thoughts on medical inflation and fee schedules?

A: Florida had rate changes for reimbursement rates effective 1/1/2025, pressure from provider side, but workers' comp not top priority of insurance departments currently.

Q: Number of large claims year-to-date?

A: Ended the quarter with 13 claims in excess of $1 million, on track with previous years.

Q: Trajectory of NCCI loss cost numbers for 2025?

A: Still anticipating upper single-digit declines, with significant rate decreases over sequential years since 2018 in NCCI states.

Q: New money yields and portfolio yield?

A: New money yields were about 5%, tax equivalent book yield was 3.84%