AMERISAFE, Inc. (NASDAQ:AMSF) Q4 2024 Earnings Call Transcript

AMERISAFE, Inc. (NASDAQ:AMSF) Q4 2024 Earnings Call Transcript February 27, 2025

Operator: Good day, and welcome to the AMERISAFE fourth quarter 2024 earnings call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Ms. Kathryn Shirley. Please go ahead, ma’am.

Kathryn Shirley: Good morning. Welcome to AMERISAFE 2024 fourth 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. If the underlying assumptions prove to be incorrect, or as the result of risks, uncertainties, and other factors, including factors in the earnings release, in the comments made during today’s call, and in the risk factor section of our Form 10-Ks, 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 statements. I will now turn the call over to Janelle Frost, AMERISAFE’s President and CEO.

Janelle Frost: Thank you, Kathryn, and good morning, everyone. We are pleased to share AMERISAFE’s results for both the fourth quarter and the full year 2024. A key priority throughout the year has been top-line growth with consistent underwriting margin, which is reflected in our gross premiums written increase of 3.9% for the fourth quarter and 3.1% for the full year. Voluntary premiums on policies written rose by 8.5% in the fourth quarter and 4.6% for the year compared to 2023, while our enforced policy count grew 9.6%. Strong premium retention and robust new business production were the primary drivers for this growth. Underscoring our commitment to profitable growth in a competitive landscape. Despite industry-wide headwinds, including rate reductions, our ability to identify and capitalize on profitable opportunities is a testament to the expertise and collaboration of our team.

We are improving our agent relationships, protecting our policyholders, and caring for injured workers. Our focus led to a combined ratio of 88.7% and an ROE of 20.2%. This success is a direct result of collaboration across the organization and the empowerment of our employees to foster a sales-driven culture. From frontline teams of underwriting, sales, and safety, our the back-end support of claims and premium audit, and operational functions such as regulatory, IT, and finance. Every department played a role in driving growth. Our employees have embraced the challenge of competing in a dynamic P&C market where workers’ compensation remains attractive to carriers. For the full year, our accident year loss ratio remains steady at 71%, consistent with the prior year.

Q&A Session

And we anticipate maintaining that level in 2025. Additionally, we recognize favorable development from prior accident years of $9.7 million in the quarter and $34.9 million for the full year 2024. On the capital management front, AMERISAFE’s Board of Directors has approved a 5.4% increase in our regular dividend to $0.39 per share. Looking ahead, we remain focused on top-line growth. We are confident that our ability to identify and ensure profitable high-risk, high-hazard risk will continue to offset broader market challenges. With strong policy retention and a disciplined approach to growth, AMERISAFE remains committed to delivering exceptional value to our shareholders. With that, I’ll turn the call over to Andy to discuss the financials.

Andy Omiridis: Thank you, Janelle, and good morning to everyone. For the fourth quarter of 2024, AMERISAFE reported net income of $13.2 million or $0.69 per diluted share and operating net income of $12.8 million or $0.67 per diluted share. During the fourth quarter of 2023, net income was $19.2 million or $1 per diluted share and operating net income of $14.3 million or $0.74 per diluted share. The lower net income was primarily driven by lower net unrealized gains on equity securities. For the full year, net income was $55.4 million and net operating income was $48.4 million compared with $62.1 million and $55.9 million respectively in 2023. First written premiums were $62.7 million in the quarter and $294.1 million for the year, growing 3.9% and 3.1%, respectively.

Net premiums earned were $66.5 million in the quarter and $270.6 million for the year, growing 1.2% and 1.3% respectively. Overall, strong premium retention and new business production were the primary drivers of top-line growth for both the quarter and year reflecting an organizational focus on growing profitable sales despite competitive marketing conditions. Our total underwriting and other expenses were $19.8 million in the quarter, a 4% increase compared with $19 million recognized in the fourth quarter of 2023. This increase resulted in an expense ratio of 29.7% compared with 28.9% in the fourth quarter of 2023. The increase was primarily the result of slightly lower earned premium growth in relation to other operating expenses. For the full year, the expense ratio was 29.6% compared with 29.3% in 2023.

For the year, our tax rate was 19.7%, unchanged from the prior year. Turning to our investment portfolio. For the fourth quarter and full year, net investment income decreased 14.4% to $6.9 million and 6.8% to $29.2 million respectively. This was due to the decrease in investable assets following the payment of the special dividend in December. For the quarter, the yield on new investments increased approximately 42 basis points driving our tax equivalent book yield to 3.8% or 11 basis points higher than the fourth quarter of 2023. Realized losses for the portfolio and securities sold were $400,000 in the quarter compared with a gain of $1 million during the fourth quarter of 2023. The investment portfolio is high quality carrying an average AA- credit rating, with a duration of 4.4 years.

The composition of the portfolio is 62% in municipal bonds, 22% in corporate bonds, 3% in US treasuries and agencies, 7% in equity securities, and 6% in cash and other investments. Approximately 56% 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 was $13.3 million at quarter end. As a reminder, these held-to-maturity securities are carried at amortized cost and therefore unrealized gains or losses on these securities are not reflected in our book value. Our capital position is strong with a high-quality balance sheet, solid loss reserve position, and conservative investment portfolio. At quarter end, AMERISAFE carried roughly $830 million in investments, cash, and cash equivalents.

And finally, just a couple of other topics. Book value per share was $13.51 after paying the special dividend in December 2024. A decrease in book value of 11.6% from year-end 2023. Operating return on average equity was 17.5% for the quarter, and 17.1% for the full year. We will be filing our Form 10-K with the SEC tomorrow, February 28th, after the market close. With that, I would like to open the call for the question and answer portion of the call. Operator.

Operator: And if you would like to ask a question, please click on it by pressing. We will now take a question from Mark Hughes with Truist.

Mark Hughes: Yeah. Thanks. Good morning. Janelle, the policy count growth, I think you said 9.6%. Could you put that in the context of what you experienced in recent quarters, and could you also talk about what the average size per policy has been, how that has trended over the last few quarters?

Janelle Frost: That’s great. I believe Mark’s 9.6% that I quoted was for the year. That’s on an import space? Not just the quarters. That was for the entire year. And how does that compare? So I’m sorry. Go ahead.

Mark Hughes: Oh, I was gonna I’m sorry to interrupt. But I was how was that in the fourth?

Janelle Frost: Great question. I don’t have that in front of me, actually. I only I’m about the year to date. Let me see if that’s I guess the year over year is 9.6%.

Mark Hughes: But 8.6%.

Janelle Frost: Yeah. Policy term growth in the fourth quarter was 2.6%.

Mark Hughes: Okay.

Janelle Frost: And that’s a sequential number?

Mark Hughes: Yes.

Janelle Frost: Okay. Very good. And then, sorry for interrupting it. You you were saying, I think I’d asked about size as well.

Janelle Frost: Yeah. So size of policy. You know, our average policy size for 2024 was slightly lower than 2023. But still holding strong. You know, we’re certainly we’re we’re boosted by stronger payrolls, coming into the year, we knew that going into 2024 that we we we we were seeing payroll growth. In the fourth quarter, we saw some slowing in terms of average wages. If you recall, the last probably the first three quarters of 2024, we were seeing somewhere around 7% each quarter. It dropped to 4%, in the fourth quarter of 2024, not a complete surprise, obviously. We but we were trending higher than national averages, and now we’re starting to see some moderation there.

Mark Hughes: Okay. How about the renewal rate? The pricing measures that shall not be named we we don’t we don’t we don’t have that. Which is perfectly fine. But generally speaking, you know, this quarter, I think you had undertaken a strategy of of being a little more active on renewal rates. Was that a contributor this quarter? Is that kind of run its course? Or how much was that an impact on the top line?

Janelle Frost: Yes. It certainly was impactful to the quarter and to the full year actually. But, you know, for the quarter, our policy retention was 94.1% on a policy basis and on a premium basis, 88%. So strong renewals.

Mark Hughes: And then your reserve gains, you I think you had some gains from 2022 earlier in the year, and you you described this quarter also reserve gains from older active years including 2022. Any observations about the post-COVID years, 2021, 2022, just kind of how they’re shaping up?

Janelle Frost: Yeah. They’re they’re they’re they’re they’re gonna be good accident years for us. The 9.7% favorable development or 9%. 9.7 million dollars of favorable development we had this quarter. A million of it was from 2022, 1.5 million was from 2021. 1.6 million from 2020 and then 2019 and prior was 5.6 million. So we’re we’re obviously seeing even from the more green years, we’re seeing favorable pace development come out of those.

Mark Hughes: Yeah. And then maybe one more of the seated premium. Was the little elevated in this quarter. I think it was a little higher in the fourth quarter of last year, but even compared to that, it’s up year over year. We think about I guess, number one, why was that? And then number two, for 2025, should it be kinda back in the yeah. I I see it as around 6%. Normally of gross premiums written.

Andy Omiridis: Mark, it’s Andy. Good morning to you. So you’re right. The recession was a little bit higher. Think that’s because of the growth that we saw in the quarter. And, of course, in Q4, you know, we always go back and make sure that if there’s any true-up needed, it’s done. But overall, it’s really based on the growth that we’re seeing. In. The policy account coming through voluntary deck. And you just as far as 2025, I think it’s fair to say that, you know, every quarter isn’t linear. So I think the 6% you’re saying is probably correct. But it’s right around that number.

Mark Hughes: Yeah. Okay. Very good. I had a couple more, but I’ll jump back in the queue. Thank you.

Janelle Frost: Thank you, Mark.

Operator: And as a reminder, that is star one if you would like to ask a question. We will now take a question from Matt Carletti with Citizens JMP.

Matt Carletti: Thanks. Good morning.

Janelle Frost: Morning, Matt.

Matt Carletti: First question is, you know, you’ve you’ve talked a bit about, what we’ve seen the the voluntary growth really pick up kind of back half of the year, and I think we’ve talked a bit about how that’s been pretty intentional you know, kinda interacting with your agencies and trying to be easy to do business with. And and one of the aspects you you pointed to, I think it was last call, was kind of the idea of, like, you know, getting them just to not think of you as, like, the roofing company. And that you write other high hazard, you know, kinda class codes and things like that. Have you seen that in the growth that’s come through that that there is an expanded kind of maybe appetite by the agency and that you know, certain cases you might have been pigeonholed to a particular type of risk and and that’s broadening and that’s driving the growth, or is it or is it something else?

Janelle Frost: Well, this is a great question. You know, we certainly have, to your point really have been making sure our agency base understands, a, the value proposition of AMERISAFE, particularly our safety and claim services. And then two, what our appetite is. So making sure that that is easily accessible. To our agents, both through our TSMs and both through digital platforms as well. But, mainly, excuse me, getting our TSMs in front of agents and reiterating what do you have in your in your book, mister agent, that sits in the AMERISAFE risk appetite, and give us an opportunity. So the question to is that attributable to a growth? I would say yes. Could I percentages around that, probably no. But I will say this, we are trying to be sure that we are being more effective with the agents that we have appointed.

So increasing the percentage of our agents that are submitting business to us and more importantly, increasing the the number of agents that have a bind with us. Those are two numbers internally that we’re really focused on.

Matt Carletti: Okay. Perfect. And then second question, you know, sort of latter part of last year, a couple hurricanes came through areas in the country that you know, you have a lot of business. Have you seen as any of I guess, has any other growth we saw in Q4 kind of been a result of kind of that that reconstruction, if you will. Or or would you expect to see any of that maybe as we go forward? I know it can take time for that to come through.

Janelle Frost: Yeah. You know, you’re you’re you’re right, Matt. It does take time. You know, certainly hasn’t shown up an audit premium yet because obviously, we haven’t audited those policies that would have been affected during those time period. You know, we do look at the monthly reporting that our policyholders are are are sending into us, and we know, we’ve seen some a little bit of increase if I look at Florida, Georgia, and the Carolinas, but nothing that I can point to and say, yep. That’s definitely hurricane-related business. I think it’s more normal course of business. I I don’t know that I can quantify if any of that particular to storms.

Matt Carletti: Great. Thank you very much for the call. I appreciate it.

Janelle Frost: Thank you, Matt.

Operator: And once again, that is star one if you would like to ask a question. We will now take a question from Bob Farnam with Janney.

Bob Farnam: Hey there. Good morning. I I just like to maybe expand a little bit on Matt’s question about the kind of the the the expansion of your new business. And I I just wanted to know are you are you looking at adding additional class codes as you’re expanding, or are you really just focusing on stuff that you already write?

Janelle Frost: We are focusing on things that we already write. You it’s if I talk about it in terms of hazard groups, you know, A to G, you know, we we specialize in E, F, and G, and still over 80% of our in-force policies are E, F, and G. So even with our new business growth, that is our focus area. We haven’t added necessarily classes of business. It’s really about penetrating the markets that we’re in and being more effective about that.

Bob Farnam: Right. Okay. That that’s that’s what I I thought. And then just kind of a qualitative view on reserves. How much of your kind of open claim inventory is related to claims that are that are ten years or older. I’m trying to get an idea of kinda how how long claims can stay open and kind of what your the average duration of your liabilities is is is kind of what I’m getting at.

Janelle Frost: Yeah. If I look at accident years and I’ll use the same sort of the same accident years that we put in the 10-K, you know, where we have 2023, 2022, but then it’s just prior to 2019. Prior to 2019, I would say 99% of the claims that were reported to us are closed. So it’s a very small percent. Of those are open. And and and some are open for, you know, there are some states that we can’t you know, technically close the claims. It’s for for medical reasons, and so they’re open for medical enrollment. We’re done with the infinity portion of the claim. Yeah. 99% of those claims I would say, are closed. For those that would for that prior to 2019.

Bob Farnam: Okay. So and and it’s so it sounds like relative to the overall workers comp industry, your your claims closures seem to be more more quick than than maybe the average for the industry. Is that inaccurate?

Janelle Frost: I believe that. I believe so. And I totally give the credit to my claims organization. It is definitely in the way that AMERISAFE handles claims. You know, we still use we call it good old-fashioned claims adjusting. We we meet with people. We take written statements. We we manage those claims intensely, and we keep those low inventories per bill case manager. I can’t stress that enough. I I I know that that is unique to AMERISAFE. You know, on average, across many field case managers on average, they have less than fifty claims per adjuster. When you think about that, they are really they really have the opportunity to make a difference in these claims, know these claims, and that’s how we’re able to close them and find resolution, getting maximum medical improvement, return those injured workers to work, as quickly as we can, because they they have the opportunity and the means which to close those claims.

Bob Farnam: Great. Alright. Thanks thanks for being interested now.

Janelle Frost: Thank you, Bob.

Operator: And once again, that is now take a follow-up from Mark Hughes with Truist.

Mark Hughes: Yeah. Thanks. You talked about the payroll, one of the concepts that’s come up from time to time is kind of that next job in construction. You have any view on the construction industry and the prospects there?

Janelle Frost: You know, look, I feel and this is world according to you now, but, you know, my opinion is that that at least for our insured base, the economy seems to be supporting their their work pretty well. Mean, we’re still seeing strong payroll growth there. We we are we are finding opportunities. You know, we think about all the thing all the headlines that I read every day and we always contemplate how does that affect our book of business. We think about tariffs and what that could mean to construction as a whole. I know people talk about steel and those types of things. Not that we’re completely isolated from them, but you also think about small to midsize employers. I do think we have some buffer around those types of impacts to the industry as a whole.

So not immune, but made somewhat insulated, I would think. Immigration is, again, a question that we’ve been asked about strictly regarding our our our construction agriculture book. For for AMERISAFE, you know, I I don’t have a way of quantifying from from the premium side of things how many of our workers are undocumented workers. But I certainly, we know from a claims perspective, we do have injured workers that are non-workers. But from a claims perspective, they they they are entitled to the same benefits every other worker is entitled to. So if I if I play that through in my mind, what happens for non-documented workers, particularly in our construction book or our agriculture book? Could it be influential to the labor force? Perhaps.

But, again, these are small to midsize employers. So even if it is influential in terms of maybe less resilient labor force. Perhaps that also could lead to higher wages if those jobs are replaced. With documented workers. So headline wise, those are the things I think about in terms of our three spans the economy as it’s as it as it stands, but I I as of right now, obviously, things things change every day. But as of right now, I feel pretty strongly that our construction book and even our entire book is has a bright future for 2025.

Mark Hughes: Yeah. How about the large claims for the year?

Janelle Frost: Yeah. So you’re gonna laugh when I say this, Mark, but it’s been a while since I’ve had to use this word, but it’s lumpy. So we ended the year with eighteen claims. Over a million dollars and when you look comparatively to 2023, which was a record year in terms of a loan number, nine. Is there I I hearken back to my lumpy word. Eighteen is not that unusual. If I look at the five-year average of where we were at twelve months, because, obviously, claims develop after an accident at the end of an accident year. But if I look at the five-year average at at at at twelve months, we average around fifteen, so eighteen is not too far off of the average. But compared to 2023, that number certainly you look at and go, wow.

That’s a change. But when you look at the book as a whole, it’s really not that that much of a frequency of severity. It’s just there were eighteen claims. I look at how they occurred or what industries they incurred in, it very much mirrors our book of business. Even the types of injury have been are very consistent with what we’ve seen in terms of the types of injuries. Know, obviously, falls and slips being the number one cause of loss for those larger claims, and that’s true for 2024.

Mark Hughes: Yeah. Okay. Then anything on the medical inflation front, either from costs or ability to access certain services in case of you know, lack of capacity because reimbursement rates are too low. Any any changes there you’ve noted?

Janelle Frost: No real development other than what we’ve shared over the last couple of quarters. Home health is Joe probably the one I I I focus on the most simply because it’s such a big component of our larger claims. Home health is a big component of those costs. So we we certainly are paying attention to that. But nothing new other than that than those things in terms of reimbursement rate. No. We certainly are monitoring the loss costs or the rates that are being approved by the states and how that it could or could not be impactful. But but there’s it’s been a wide range. If you look at the loss cost that have been approved for one one or the ones that we know about for 2025 at this point, I think the high is a 19% decrease in Maine and the or the I say the high, the low.

The decrease. And then the end the largest increase I think we’ve seen is 6.5% in Nevada. But there’s there’s a wide range there in the loss cost that are being approved. So how medical costs will influence or how the reimbursement rates will influence that on a go forward basis. I guess time would tell. But I don’t I can’t see of anything in those rate filings that were specific to medical fee schedules being adjusted to the degree that it was highlighted in the rate filing. I don’t don’t recall that. It’s been more just experience.

Mark Hughes: Yeah. Did you have you averaged up the rate filings? If you look at the recent trend, it’s

Janelle Frost: Yeah. The average Yeah. I shouldn’t I don’t think I said this, but it’s a decrease. Of in somewhere around the mid-single-digit range.

Mark Hughes: Yeah. How and and how was that midyear or this time last year?

Janelle Frost: So for twenty that’s a good point. In 2023, we’re a little we were sort of upper single digits. So more in the 8 to 9%. Depending I I think we said somewhere in the range of 7 to 9.

Mark Hughes: Yeah. For twenty-three?

Janelle Frost: It’s a it’s a will ever so slight improvement if you’re trying to get me to give you great news about rates. There you go.

Mark Hughes: Hey. It’s an inflection. The trend is right.

Janelle Frost: Yes. Yes.

Mark Hughes: And then anything on the audit front? Is it You know, we’re we’re just kind of progressing through that earlier period of wage inflation. And so as you do the audits and the look back, it’s kind of naturally tapering. Is that a way to think about it? Know, maybe there’s audits just naturally from a macro perspective, you’ll You you’ll see deceleration there?

Janelle Frost: Yeah. I I believe we’ll see a deceleration deceleration or a moderation. I yeah. I don’t I don’t see Again, looking forward to 2025 based on what I know today. I don’t see audit premium turning negative. I think it still remains positive. I think, you know, the the new employee count still been averaging between that one and two percent of the, you know, the things that we’ve been seeing each quarter. And then there’s been wage and inflation. I don’t I don’t think there’s I I don’t foresee that flipping to being negative. But certainly the year over year comparisons get tough, you know, are gonna get tougher and tougher, and there’ll be deceleration from that standpoint. But stand-alone audit premium, I believe, will still remain positive in 2025.

Mark Hughes: Yeah. And then any instances of any competitors getting a more aggressive for workers’ comp premium? It seems like you’re owning your own and then some in terms of policy count and premium growth. So you wouldn’t know it by looking at it, and that’s sense, but I’m just sort of curious, have you seen any changes?

Janelle Frost: It is very competitive. Mark. If that’s a change, probably not. But as as the other P&C lines have not yet rectified their issues in terms of overall results, workers’ compensation remains attractive. And so as long as the combined ratios for the industry remain attractive, we will have competitors and we will have competitors, you know, dipping into the high hazard space. But that’s a that we are prepared to base.

Mark Hughes: Yeah. I would zipping into high hazard is probably a bad bad approach. One one

Janelle Frost: Well, yes. If you’re asking me for advice, yes. I would say that. That’s super dangerous. You need to stay away.

Mark Hughes: Exactly. Any early thoughts on LostPic for 2025?

Janelle Frost: Yeah. I I’ve I’ve as of right now, I believe we’re gonna hold 71.

Mark Hughes: Okay. Very good. Thank you for all the answers.

Operator: And it appears there are no further telephone questions, and it’s turn the conference back to Ms. Frost for any additional or closing comments.

Janelle Frost: Profitable incremental growth is the focus goal for the AMERISAFE team. One that we delivered on in 2024 and are well positioned for for 2025. Thank you for joining us today.

Operator: And once again, that does conclude today’s conference. We thank you all for your participation. You may now disconnect.