AMERISAFE, Inc. 10-Q Summary
Business Context and Reporting Period
AMERISAFE is an insurance holding company providing workers’ compensation coverage to small and mid-sized employers in hazardous industries, principally construction, trucking, logging and lumber, agriculture, manufacturing, telecommunications and maritime. The company markets insurance in 27 states through independent agencies and its wholly owned agency subsidiary. This filing covers the unaudited three months ended March 31, 2024, compared with the three months ended March 31, 2023.
Key Financial Metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Gross premiums written | $80.1 million | $82.5 million | Down 2.9% |
| Net premiums written | $76.1 million | $78.3 million | Down 2.8% |
| Net premiums earned | $68.4 million | $69.2 million | Down 1.1% |
| Total revenues | $80.5 million | $78.4 million | Up 2.6% |
| Total expenses | $59.7 million | $56.9 million | Up 5.0% |
| Income before income taxes | $20.7 million | $21.5 million | Down 3.7% |
| Net income | $16.9 million | $17.3 million | Down 2.4% |
| Diluted EPS | $0.88 | $0.90 | Down $0.02 |
| Net combined ratio | 87.3% | 82.2% | Up 5.1 points |
| Return on average equity | 22.8% | 21.3% | Up 1.5 points |
| Book value per share | $15.74 | $17.38 | Down $1.64 |
Net income margin was approximately 21.0% of revenue in Q1 2024, compared with approximately 22.1% in Q1 2023. The net loss ratio increased to 58.4% from 56.4%, while the expense ratio increased to 27.3% from 24.5%.
Loss and loss adjustment expenses were $40.0 million, including $48.6 million of current accident-year losses and $8.6 million of favorable prior-year development. The company’s initial 2024 accident-year loss and LAE ratio estimate remained 71.0% of net premiums earned.
Net investment income was $7.4 million in both periods. Q1 2024 also included $4.8 million of net unrealized gains on equity securities, compared with $1.4 million in Q1 2023, partially offset by $0.2 million of realized investment losses versus $0.3 million of realized gains in the prior-year quarter.
Cash Flow, Financial Position and Liquidity
- Operating cash flow was $7.5 million, down from $13.5 million in Q1 2023, primarily because of lower reinsurance recoveries and investment income.
- Investing activities used $5.7 million, compared with $27.2 million used in Q1 2023. Investment purchases totaled $41.9 million, while proceeds from sales and maturities totaled $36.9 million.
- Financing activities used $7.1 million, primarily for shareholder dividends.
- Cash and cash equivalents were $33.4 million at March 31, 2024, compared with $38.7 million at December 31, 2023.
- Total investments, including cash and cash equivalents, were $899.9 million, or approximately 72% of total assets. The portfolio comprised 52.8% held-to-maturity fixed maturities, 32.3% available-for-sale fixed maturities, 6.9% equity securities, 4.3% short-term investments and 3.7% cash.
- Total assets were $1.243 billion and shareholders’ equity was $301.1 million at March 31, 2024. Insurance reserves for losses and LAE were $668.1 million.
- The filing does not identify material traditional corporate debt or borrowings. Liabilities primarily consist of insurance reserves, unearned premiums and other insurance-related obligations.
Material Changes, Outlook and Risks
- Premium production declined because payroll audits and related premium adjustments for prior policies decreased $2.5 million. A $0.3 million increase in residual market premium partially offset the decline.
- Ceded premiums declined to 5.4% of gross premiums earned from 5.7%, reflecting changes to the 2024 reinsurance treaties.
- Operating costs, commissions and salaries increased to $18.7 million from $17.0 million. The comparison was affected by a $3.3 million profit-sharing reinsurance commission benefit recognized in Q1 2023 and a $1.0 million increase in compensation expense.
- Open claims declined to 3,812 at March 31, 2024 from 4,307 a year earlier. Management attributed favorable prior-year reserve development primarily to closed claims and claims in which workers reached maximum medical improvement.
- Management stated that workers’ compensation reserves are inherently uncertain and may be more volatile because the company focuses on lower-frequency, higher-severity hazardous-industry business. Favorable development may not recur.
- No formal earnings, premium or margin guidance was provided. Management maintained its 71.0% initial accident-year 2024 loss and LAE ratio estimate.
- Key disclosed risks include competition, economic and labor-market conditions, inflation and interest rates, investment-market performance, claim frequency and severity, regulatory and legal changes, reinsurance availability and collectability, cybersecurity events, rating-agency actions and dependence on key personnel.
- Available-for-sale securities had $12.8 million of gross unrealized losses at March 31, 2024, and held-to-maturity securities had a fair value $13.6 million below carrying value. The company reported no allowance for credit losses on available-for-sale securities and a $0.2 million allowance on held-to-maturity securities.
- The Board declared a quarterly dividend of $0.37 per share on April 23, 2024, payable June 21, 2024. The company had $10.4 million remaining under its share repurchase authorization, but made no repurchases during the quarter.
Important Facts for Investors to Verify
- Whether the decline in gross premiums written reflects temporary audit adjustments or a broader change in policy count, payroll exposure or pricing.
- Whether the higher combined ratio and expense ratio persist after the prior-year reinsurance commission comparison normalizes.
- The sustainability of $8.6 million of favorable prior-year reserve development and the adequacy of reserves for severe, long-tail claims.
- The effect of interest rates and equity-market performance on investment income, unrealized gains and losses, accumulated other comprehensive loss and book value.
- The terms and economic impact of the 2024 reinsurance treaties, including reinsurer creditworthiness and recovery timing.
- Capital and liquidity requirements of the insurance subsidiaries, dividend capacity, and any future use of the $10.4 million share repurchase authorization.
- The filing’s interim results are not necessarily indicative of full-year performance, and the financial statements should be read with the company’s 2023 Form 10-K.