AMERISAFE, Inc.

Good day and welcome to the AmeriSafe fourth quarter 2024 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Catherine Shirley. Please go ahead, ma'am.

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 results of risk, 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, 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.

Thank you, Catherine, and good morning, everyone. We are pleased to share AmeriSafe's results for both the fourth quarter and the full year of 2024. A key priority throughout the year has been top-line growth with consistent underwriting margin, which is reflected in our gross premiums-ridden 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 and declining wage inflation, our ability to identify and capitalize on profitable opportunity 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 to 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 as a line remains attractive to carriers. For the full year, our accident year loss ratio remained steady at 71%, consistent with the prior year, 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 of 2024. On 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, 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.

Thank you, Janelle, and good morning to everyone. For the fourth quarter of 2024, AmeriSafe reported net income of $13.2 million. or 69 cents per diluted share and operating net income of 12.8 million or 67 cents per diluted share. During the fourth quarter of 2023, net income was 19.2 million or a dollar per diluted share and operating net income of 14.3 million or 74 cents 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 market 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 on 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 minus 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 U.S. 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 bulk 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?

And if you would like to ask a question, please signal by pressing star 1 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. Once again, that is star 1 if you would like to ask a question. We'll now take a question from Mark Hughes with Truist.

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've experienced in recent quarters? And could you also talk about what the average size for policy has been, how that has trended over the last few quarters?

Great. I believe, Mark, the 9.6% that I quoted was for the year. That's on an indoor space, not just the quarter. So that was for the entire year. And how does that compare? I'm sorry. Go ahead.

Oh, I was going to, and sorry to interrupt, but how was that in the fourth quarter?

Great question. I don't have that in front of me, actually. I only brought the year to date. Let me think about it. I guess the year over year is 9.6, but... Yeah, policy growth in the fourth quarter was 2.6%.

Okay.

And that's a sequential number?

Yes.

Okay. Very good. And then, sorry for interrupting, you were saying, I think I'd ask about size as well.

Yeah, so the 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 boosted by stronger payrolls. coming into the year. We knew that going into 2024 that we were seeing payroll growth. In the fourth quarter, we saw some flowing 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. But we were trending higher than national averages, and now we're starting to see some moderation there.

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

Right. 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.

And then your reserve gains, I think you had some gains in 2022 earlier in the year, and you described this quarter also reserve gains. from older accident years, including 2022. Any observations about the post-COVID years, 21, 22, just kind of how they're shaping up?

Yeah, those are going to be good accident years for us. The 9.7% favorable development, not percent, $9.7 million of favorable development we had this quarter, a million of it was from 22, 1.5 million was from 21. $1.6 million from 20, and then 2019 and prior was $5.6 million. So we're obviously seeing, even from the more green years, we're seeing favorable taste development come out of those exiting years.

Yeah. And then maybe one more. The seeded premium was a 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 a year over year. If we think about, I guess, number one, why was that? And then number two, for 2025, should it be kind of back in the, I see it as around 6% normally of gross premiums written.

Mark, it's Andy. Good morning to you. So you're right. The recession was a little bit higher. I 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 trope needed, it's done. But overall, it's really based on the growth that we're seeing in the policy count coming through voluntary deck. And, you know, 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.

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

Thank you, Mark. And as a reminder, that is star one if you would like to ask a question. We'll now take a question from Matt Carletti with Citizens JMP.

Thanks. Good morning.

Good morning, Matt.

First question is... We talked a bit about what we've seen 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, kind of interacting with your agencies and trying to be easy to do business with. And one of the aspects 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, kind of class codes and things like that. Have you seen that in the growth that's come through 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 that's broadening and that's driving the growth or is it something else?

Well, it's 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 basically, excuse me, getting our TSMs in front of agents, reiterating, you know, what do you have in your book, Mr. Agent, that fits in the MirrorSafe's risk appetite and give us an opportunity? So the question to, is that attributable to a growth? I would say yes. Could I put... 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 number of agents that have a bind with us. Those are two numbers internally that we're really focused on. So driving home the appetite is part of that equation, certainly.

Okay, perfect. And then second question, you know, for the latter part of last year, you know, a couple of hurricanes came through, you know, areas of the country that you have a lot of business. Have you seen as any of, I guess, has any of the growth we saw in Q4 kind of been a result of kind of that reconstruction, if you will, 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.

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

Okay, great. Thank you very much for the call. I appreciate it.

Thank you, Matt. And once again, that is star one. If you would like to ask a question, we'll now take a question from Bob Farnham with Jannie.

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

We are focusing on things that we already write. If I talk about it in terms of hazard groups, you know, A to G, You know, we specialize in E, F, and G, and still over 80% of our enforced 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.

Right. Okay. That's what I thought. And just kind of a qualitative view on reserves here. How much of your kind of open claim inventory is related to claims that are 10 years or older? I'm trying to get an idea of kind of how long claims can stay open and kind of what the average duration of your liabilities is, is kind of what I'm getting at.

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, it goes in this is prior to 2019. Prior to 2019, I would say 99% of the claims that were reported to us are closed. So very small percentages are open. And some are open for, you know, there are some states that we can't technically close the claims for medical reasons, and so they're open for medical only. We're done with the indemnity portion of the claim. But yeah, 99% of those claims, I would say, are closed for that prior to 2019. Okay.

So it sounds like relative to the overall workers' comp industry, your claims closures seem to be more quick than maybe the average for the industry. Is that accurate?

I believe so, and I totally give the credit to my claims organization. It is definitely in the way that AmeriSafe handles claims. We still use, we call it good old-fashioned claims adjusting. We meet with people. We take written statements. We manage those claims intensely, and we keep those low inventories per bill case manager. I can't stress that enough. I know that that is unique to AmeriSafe. On average, across many field case managers, on average, they have less than 50 claims per adjuster. When you think about that, 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 resolutions, getting maximum medical improvement, return those injured workers to work as quickly as we can, because they have the opportunity and the means to which to close those claims.

Great. All right. Thanks for the answers, Janelle. Thank you, Bob.

And once again, that is star one. If you would like to ask a question, we'll now take a follow-up from Mark Hughes with Truist.

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. Do you have any view on the construction industry and the prospects there?

You know, look, I feel, and this is the world according to Janelle, but, you know, my opinion is that, at least for our insurance base, the economy seems to be supporting their work pretty well. I mean, we're still seeing strong payroll growth there. We're finding opportunities. You know, we think about 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 that, but you also think about small to mid-sized employers. I do think we have some buffer around those types of impacts to the industry as a whole. So not immune, but somewhat insulated, I would think. Immigration is, again, a question we've been asked about, particularly regarding our construction in the agriculture book. For AmeriSafe, I don't have a way of quantifying from the premium side of things how many of our workers are non-documented workers. But certainly we know from a claims perspective, we do have injured workers that are non-documented workers. But from a claims perspective, they are entitled to the same benefits every other worker is entitled to. So 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 mid-sized 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. Headline-wise, those are the things I think about in terms of our industries, fans of the economy as it stands. But as of right now, obviously, things change every day. But as of right now, I feel pretty strongly that our construction book and even our entire book has a bright future for 2025. Yeah.

How about the large claims for the year?

Yeah. You're going to 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 18 claims over a million dollars. And when you look comparatively to 2023, which was a record year in terms of a low number, nine, I hearken back to my lumpy word. 18 is not that unusual. If I look at the five-year average of where we were at 12 months, because obviously claims develop after at the end of an accident year. But if I look at the five-year average at 12 months, we average around 15, so 18 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 much of a frequency of severity. It's just there were 18 claims. If I look at how they occurred or what industries they incurred in, it very much mirrors our book of business. And even the types of injury are very consistent with what we've seen in terms of the types of injuries. You know, obviously falls and slips being the number one cause of loss for those larger claims. And that's true for 24.

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

No real development other than what we've shared over the last couple of quarters. Home health is still probably the one 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 certainly are paying attention to that. But nothing new other than the then those things, in terms of reimbursement rate, no. We certainly are monitoring the lost costs or the rates that are being approved by the states and how that could or could not be impactful. But it's been a wide range if you look at the lost costs that have been approved for 1-1 or the ones that we know about for 2025 at this point. I think the high is a 19% decrease in Maine, or I say the high, the low, the decrease, And then the largest increase I think we've seen is 6.5% in Nevada. But there's a wide range there in the loss costs 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 will tell. But I can't think of anything in those rate filings that were specific to medical fee schedules being adjusted to the degree that it was highlight in the rate filing. I don't recall that. It's been more just experience.

Yeah. Did you, have you averaged up the rate filings if you look at the recent trend?

Yeah, the average, yeah, I shouldn't, I don't think I have to, but it's a decrease of, and somewhere around the mid-single digit range.

Yeah. How was that mid-year or this time last year?

So for 20, that's a good point. In 2023, we were sort of upper single digits, so more in the 8% to 9%, depending, I think we said somewhere in the range of 7% to 9%. Yeah. So it's an ever so slight improvement. If you're trying to get me to give you great news about rates, there you go.

Hey, it's an inflection. Yes, yes, indeed. And then anything on the audit front is that, you know, 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? You know, maybe the audits just naturally from a macro perspective, you'll – you'll see a deceleration there.

Yeah, I believe we'll see a deceleration or a moderation. I don't see, again, looking forward to 22.5 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 new employee count still has been averaging between that 1% and 2% of the things that we've been seeing each quarter. And then there's been wage inflation. I don't think there's – I don't foresee that flipping to being negative, but certainly the year-over-year comparisons are going to get tougher and tougher, and there will be deceleration from that standpoint. But standalone audit premium, I believe, will still remain positive in 2025. Yeah.

And then any instances of any competitors getting more aggressive for workers' comp premiums? It seems like you're holding your own and then some in terms of policy count and premium growth. So, you wouldn't know it by looking at it in that sense, but I'm just sort of curious whether you've seen any changes.

It is very competitive, Mark. If that's a change, probably not. As the other P&C lines have not yet rectified their issues in terms of overall results, workers' compensation remains attractive. As long as the combined ratios for the industry remain attractive, we will have competitors, and we will have competitors dipping into the high-hazard space. But that's a reality that we are prepared to face.

Yeah, zipping into high hazard is probably a bad approach.

Well, yes, if you're asking me for advice, yes, I would say that, certainly.

That's super dangerous. You need to stay away. Exactly. Any early thoughts on loss pick for 2025?

Yeah, as of right now, I believe we're going to hold at 71.

Okay. Very good. Thank you for all the answers.

And it appears there are no further telephone questions. I'd like to turn the conference back to Ms. Frost for any additional or closing comments.

Profitable incremental growth is the focus goal for the AmeriSafe team, one that we delivered on in 2024 and are well positioned for 2025. Thank you for joining us today.

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