AMERISAFE, Inc. — 2021 First-Quarter Form 10-Q Summary
Business Context and Reporting Period
AMERISAFE is a workers’ compensation insurance holding company serving small to mid-sized employers in hazardous industries, including construction, trucking, logging and lumber, manufacturing, agriculture, maritime, and oil and gas. The filing covers the three months ended March 31, 2021; financial statements are unaudited and amounts are in thousands unless otherwise stated.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Gross premiums written | $81.5 million | $87.1 million | Down 6.4% |
| Net premiums earned | $70.7 million | $79.0 million | Down 10.4% |
| Total revenues | $83.4 million | $79.2 million | Up 5.3% |
| Total expenses | $59.7 million | $65.9 million | Down 9.4% |
| Income before taxes | $23.6 million | $13.2 million | Up 78.3% |
| Net income | $19.3 million | $10.8 million | Up 78.8% |
| Diluted EPS | $0.99 | $0.56 | Up $0.43 |
| Net combined ratio | 84.6% | 83.5% | Up 1.1 points |
| Return on average equity | 17.4% | 10.0% | Up 7.4 points |
| Book value per share | $23.16 | $22.64 | Up 2.3% |
Net income margin was approximately 23.2% in Q1 2021 versus 13.6% in Q1 2020. Net investment income declined 15.0% to $6.6 million because of lower yields on fixed-income securities and cash balances. Net unrealized gains on equity securities were $5.5 million, compared with $8.8 million of unrealized losses in the prior-year quarter, materially supporting revenue and earnings.
Loss and loss adjustment expenses declined 9.5% to $39.5 million. The current accident-year loss estimate was $50.9 million, or 72.0% of net premiums earned, compared with 72.5% for the 2020 accident year. Favorable prior accident-year development was $11.4 million, versus $13.6 million in Q1 2020. The net loss ratio increased to 55.9% from 55.3%, while the expense ratio improved slightly to 26.8% from 26.9%.
Cash Flow, Liquidity, Investments, Debt, and Capital
- Operating cash flow was $16.6 million, compared with $15.2 million in Q1 2020.
- Investing cash flow was negative $39.6 million, primarily reflecting $71.6 million of investment purchases against $32.3 million of sales and maturities.
- Financing cash flow was negative $5.7 million, principally due to $5.7 million of shareholder dividends.
- Cash and cash equivalents declined to $33.1 million from $61.8 million at December 31, 2020.
- Total investments were $1.125 billion, and total investments including cash were $1.158 billion at March 31, 2021. The portfolio was primarily fixed maturity securities, including 49.7% held-to-maturity securities and 35.5% available-for-sale securities.
- Total assets were $1.495 billion and shareholders’ equity was $447.6 million at March 31, 2021, compared with $1.471 billion and $438.8 million, respectively, at year-end 2020.
- The filing does not present a material traditional debt balance or a separate debt metric. The balance sheet primarily reflects insurance reserves and other operating liabilities.
- The company declared a quarterly dividend of $0.29 per share payable June 25, 2021. No shares were repurchased during the quarter; $25.0 million remained available under the repurchase authorization.
Material Changes, Outlook, and Risks
- Premium volume weakened because of lower payroll-audit adjustments and lower annual premiums on voluntary policies. Management noted that payroll audits included periods affected by COVID-19.
- Management reported an effective loss cost multiplier of 1.54 for voluntary business, compared with 1.57 in Q1 2020.
- Open claims declined to 4,607 from 4,910 a year earlier. Favorable reserve development was largely attributed to closed claims and claims reaching maximum medical improvement, but reserves remain inherently uncertain and can be volatile because the company focuses on lower-frequency, higher-severity risks.
- COVID-19 may affect policyholder activity, insurance operations, investment values, revenues, results, and cash flows. Other significant risks include competition, economic and interest-rate conditions, investment-market losses, claim frequency and severity, regulatory and legal changes, reinsurance availability and collectability, cyberattacks, agency relationships, and changes in insurance ratings.
- The filing provides no specific earnings or premium guidance. Management states that interim results are not necessarily indicative of full-year performance.
- The company had an $1.7 million valuation allowance against deferred tax benefits at March 31, 2021, compared with none at March 31, 2020.
- Available-for-sale securities had $852 thousand of gross unrealized losses at quarter-end, all in positions held for less than 12 months; no such security had been in an unrealized-loss position for more than 12 months. The held-to-maturity credit-loss allowance was $166 thousand.
Investor Verification Checklist
- Verify whether premium declines and COVID-19-related payroll effects persist in subsequent quarters.
- Assess the sustainability of the $11.4 million favorable reserve development and the 72.0% current accident-year loss estimate.
- Separate recurring underwriting performance from the $5.5 million equity-security unrealized gain and other investment-market effects.
- Monitor investment yields, interest-rate sensitivity, unrealized losses, and the concentration of assets in fixed-income securities.
- Review liquidity after investment purchases, dividend payments, and potential claims payments, including the decline in cash balances.
- Evaluate reinsurance recoverables of $110.7 million and the related counterparty and collectability risk.
- Confirm the company’s capital, dividend, and repurchase capacity under adverse claims, investment, or regulatory conditions.