AMERISAFE, Inc.

earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Catherine Shirley. Please go ahead.

Thank you, Operator, and good morning, everyone. Welcome to the AmeriSafe 2025 First 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 intended to fall within the safe harbor provided under the securities laws. 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 risks, 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-Q, and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. 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 with this quarter's results, both financially and operationally. We continue on our track of adding incremental growth with an attractive underwriting margin. Importantly, we have done so within our existing geographic footprint and risk appetite and building on the power of relationships with our agents, policyholders, and injured workers. Before I discuss the results for the quarter, I will comment on the environment in which we operate. There is a strong competition now driven by declining workers' compensation rates and turmoil amongst other property and casualty lines. Then there's the economy. News headlines lately highlight the level of uncertainty. Tariffs, inflation, recession, interest rates. I will not be so bold as to predict what will happen, but we, like most companies, evaluate the risk to our business directly and to our customers. In the most simplistic of terms, those economic conditions which impact payrolls have the potential to influence our premium. Examples are unemployment, general economic slowdown, project delays, wage inflation. If history were my guide, our niche industries fared well in prior mild-shallow recessions. This is something we monitor closely, but does not change the course we are currently pursuing. Now back to our results. Gross written premiums grew 4.6% over the first quarter of 2024, which was driven by consistent new business gains and strong premium retentions. Premiums on policies we wrote in the quarter grew 7.1% over the prior year quarter. We continue to see strong retention in policies for which we offer renewal with 93.1% retention in the first quarter, as well as further policy count growth. Premium growth was partially offset by slowing payroll audits and other premium adjustments, which contributed $5 million to top line in the quarter versus $6.4 million in the year-ago quarter. This was not unexpected as we've discussed in previous quarters with the moderation in wage inflation. As indicated in our last earnings call, our current accident year loss ratio was in line with the prior accident year at 71%. Looking forward, we expect frequency to remain favorable, which we experienced this quarter, and severity trends to be relatively modest. The company experienced $8.7 million in favorable development on prior accident years, primarily from accident years 2020 and 2021. We attribute our favorable case development to our proactive claims handling. And with that, I'll turn the call over to Andy to discuss the financials.

Thank you, Janelle, and good morning to everyone. For the first quarter of 2025, AmeriSafe reported net income of $8.9 million, or 47 cents per diluted share and operating net income of 11.4 million or 60 cents per diluted share. In comparison, during the first quarter of 2024, net income was 16.9 million dollars or 88 cents per diluted share and operating net income of 13.3 million or 69 cents per diluted share. The lower net income was primarily driven by lower valuations across our equity holdings, which resulted in a net unrealized loss on equity securities of 3.2 million during the quarter, compared to an unrealized gain on equity securities of 4.8 million in the first quarter of 2024. Gross written premiums increased by 4.6% to $83.8 million in the quarter, compared with $80.1 million in the first quarter of 2024. Net premiums earned increased 60 basis points to $68.9 million compared to $68.4 million in the first quarter of 2024. Overall, strong new business production and improved premium retention were the primary drivers of continued top-line growth, highlighting our focus on expanding profitable sales despite a competitive market environment. Our total underwriting and other expenses were $20.6 million in the quarter, a $1.9 million increase compared with $18.7 million recognized in the first quarter of 2024. This increase resulted in an expense ratio of 29.9% compared with 27.3% the first quarter of 2024. The increase in expenses is primarily driven by ongoing investments in the business to support top-line growth. Timing differences between the initial expense outlay, and the recognition of premium contribute to an elevated expense ratio. For the quarter, our tax rate was 20.2% compared to 18.4% in the first quarter of 2024, which was largely due to an increase in the proportion of underwriting income versus tax-exempt investment income. Turning to our investment portfolio, for the first quarter, net investment income decreased 9.7% to $6.7 million, driven by a decrease in investable assets following the payment of the special dividend. For the quarter, the yield on new investments exceeded portfolio roll off by 296 basis points, driving our tax equivalent book yield to 3.85% or 10 basis points higher than the first quarter of 2024. The investment portfolio is high quality carrying an average AA minus credit rating with a duration of 4.48 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 54% of our bond portfolio is classified as health and maturity securities, which maintain a net unrealized loss of $13.3 million as of quarter end. As a reminder, the health and 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, Amerisave carried roughly $826 million in investments, cash and cash equivalents. And finally, just a couple of other topics. Book value per share was $13.69, and operating return on average equity was 17.1%. Our statutory surplus was $243.6 million at quarter end, up 3.6% from the from $235.1 million at December 31, 2024. And finally, we will be filing our Form 10-Q with the SEC today, April 30, after the market close. With that, I would like to open the call for the question and answer portion. Operator?

Operator, we're ready for Q&A. My apologies.

Again, those questions or to ask a question, please press star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. Our first question is going to come from Matt Carletti at Citizens.

Hey, good morning.

Good morning, Matt.

Good morning. Just a few questions. One is, do you have handy the kind of the audit premium impact on the year-ago second quarter and third quarter too, if you have it, just trying to get a feel for obviously voluntary seeing a nice rebound, but kind of what we're up against in terms of just the kind of reported number.

Yeah, I appreciate that. So I'll just kind of give the four quarters of last year. First quarter was 6.4 million, as I stated earlier. Second quarter was 7.3 million. Third quarter was 4 million. And fourth quarter was 2.5 million.

All right. Super helpful. Thank you. And then kind of staying on top line, you know, as kind of last fall happened and Helene hit and Milton hit, it sure seemed like those were, you know, your construction exposure, trucking exposure kind of in your wheelhouse there in terms of the rebuild, as well as the states that you have pretty big market shares in there. I know those things can take time to develop, but are you seeing anything in terms of work activity or otherwise that would lead you to believe that you're kind of benefiting from what's going on to recover from those events?

Yeah. You know, Matt, if I look at audit premium and if I think about the audit premium that we recognized this quarter, that would have been policies that were effective dates starting in the fourth quarter of 2023. So if I look at the states for the hurricanes that you specifically announced, you talked about Florida, Georgia, the Carolinas. We did see a slight increase in the audit premiums for what I would call rebuilding classifications in North Carolina and Georgia. Not as much in Florida, but we did see a little bit of a bump there.

Okay, helpful. And then one last one, if I could, just... Can you help us think through kind of the impact of potential tariffs on your business? And I know that might be impossible given we don't know what that picture is going to look like. But I'm thinking more along the lines of like to the extent of like medical equipment and medicine and things like that to get your workers back to kind of, you know, maximum medical improvement. If you've done any analysis just on that,

you know what that income impact should be or if we shouldn't even be worried about it you know it's a great question I can and I can speculate with everyone else in the industry I suppose it again are you putting premium to the side to your point about medical if you think about the things that could be impacted by tariffs I would go to pharmacy and probably durable medical equipment for the workers compensation industry as a whole that's probably about 15% of medical costs. So if there's somehow that's, you know, impactful tariffs somehow impacting those two, there could be a slight uptick in medical from that perspective. For Mirathate, we probably run a little bit higher than that 15% just because of the durable medical equipment in particular with the types of injuries that we have. However, you know, I don't know that it'd be that meaningful. I think the real question is going to be, is the cost passed through or not, right? And I think that's the same thing everybody's worried about even on the construction side with premiums. If the tariffs do in fact somehow impact the construction industry, but the construction industry can pass those costs off to the end customer, then it's less impactful to our premiums. If the construction companies as a whole bear the brunt of that or it delays projects, then it could be impactful to premiums. So that's my speculation for what it's worth.

That's super helpful. Thank you for the color. Always appreciate it.

You're welcome.

And once again, if you have a question, please press star 1 on your telephone keypad. And our next question is going to come from Mark Hughes from Tourist.

Yeah, thanks. Good morning.

Good morning, Mark.

Janelle, you mentioned competition in your remarks. Was there any change in that competitive dynamic in the first quarter?

No, there really hasn't been. We closely monitor what's happening in the other lines of business, even though we're a monoline and we write workers' compensation, certainly what's happening in the rate environment and even with the distribution network and the other lines of business is impactful to us. And there really hasn't been a shift, good or bad, in the level of competition, not at this point.

Yeah. Andy, you talk about the expense ratio being impacted by elevated costs to support growth. Did you quantify that, and would you expect that to persist into coming quarters?

So, Mark, as I said earlier in what I was speaking, it's roughly about $1.9 million increase over last year. And that is related to, again, you know, investing for scale. I think as we see, go through the year, we should see the cost, you know, flatten out or moderate because we do assume we will be below a 30 for the year. But again, you know, the investment does have a timing delay before we see the premium.

Yeah. And Janelle, you shared maybe some of the state lost cost updates that you've seen lately. Do you have any specifics on that, and do you notice any kind of trend in those state-by-state numbers?

Unfortunately, the trend is still declining rates. Yeah, we're still seeing, I think when we talked about coming into 2025, what we were expecting, you know, mid-single digits, 6 to 6, somewhere between 6 and 8 percent, we're still seeing the same things. If you look, there's a great chart put out there that shows all the approved or latest approved rate, I'll say decreases, because I think there were two increases across all of the states. But, you know, it varies in degree. I think the smallest was like half a percentage decrease, and then the largest being nearly 14% decrease. So it still varies, but on average, somewhere in that 6% to 8% range decrease, in case I didn't clarify.

Okay, yeah. And then anything on the medical inflation front? You mentioned some of the maybe potential tariff impacts, but on an underlying basis, any changes?

We are seeing some increases, particularly coming out of physician care. That seems to be one that we're kind of monitoring a little bit in terms of, I wouldn't even say specific states, just overall rates. There's certainly an increase there. I'm assuming that's more to do with labor costs than anything else. Not tariffs at this point, but we'll wait and see what happens in terms of, like I mentioned before, pharmacy and durable medical costs, medical equipment.

Yeah, is that physician impact? Is that utilization or is that some kind of fee schedule impact?

Yeah, no, great question. And what I was referring to is actual Bills coming in the door, so not necessarily utilization actually what the doctors are. Try our call are charging us.

Yeah, and as isn't that largely tied to a kind of state fee schedules isn't there.

Yeah, there's fee schedules, and certainly we do medical repricing as well, as does everyone in the industry, you know, going through those bills and looking at the particular codes that we're charged for. But just if we look at what we're being charged, that does seem to be escalating some, and we're obviously negotiating that and using fee schedules as best we can.

Yeah, you got those deep pockets. Anything you see in the STAT data as you look at... The industry, your judgments about the lost costs or inflation or reserve adequacy. I know we'll get the NCCI data here pretty soon, but anything you see in the industry numbers that caught your eye at this time around?

Yeah, you're spot on. You took the words right out of my mouth. You know, NCCI is a couple of weeks away, so we'll certainly see what their opinion is in terms of the industry's overall redundancy. I would suspect that the overall redundancy for the industry should be declining. It's really the degree of declining because again, lost costs are coming out annually. They're still saying rate decreases and they're basing that off premium and loss data that they're collecting from the individual carriers. So the rate of the decreases may have slowed slightly. Therefore, I would assume that means the industries decline the industry's overall redundancy should be deteriorating and plus if you think about the years that the redundancies have been generated from those what we would call older accident years now that should be waning a little bit for the industry so the question would be does the industry feel as confident in the more current accident years as they did in those pre-COVID pre-COVID accident years, and I think the industry as a whole would say that's probably not the case. But we'll see what happens. The data tells its own story, so we'll see what's been collected and what's reported.

Yeah. I remember properly you provided wage specifics, maybe increases in payroll versus increases in wages or average wage.

Yeah. Right. Our indications are that our wage inflation is still trending a little bit above the national average. I think the national average right now is somewhere around 4%. So our wage inflation indications are that we're slightly above that. We do feel like maybe we've had a little bit of increase in new employee count. One quarter, we'll see. If I look at it compared to not sequential quarter, but prior year quarter, same quarter prior year, it would look like we may have a little bit of increase in employee counts. but the wage inflation is still trending above the national average.

Yeah. And am I thinking properly that your ELCM is a thing of the past, which is perfectly fine with me?

As far as our public disclosure, yes. I believe that that is competitive information.

Yeah. Well, it was a beautiful thing while it was going on.

thank you mark i appreciate that did you consult alan on that decision i did not he probably would say come on janelle you've been doing it that long why do i change now yeah we're all better at data we're all better at data now than we were in the past way back in the gap so i i do feel like that's competitive information yeah understood um and then one final one uh large losses in the quarter Two. Two.

Okay.

So kind of below trend.

Right.

Yeah. Okay. All right. Thank you very much.

Thank you.

And this will conclude our Q&A session. I will now turn it over to Janelle Frost, CEO, for closing remarks.

This quarter was another data point in the success of our strategy and ability to create long-term value for our shareholders. We remain competitive and profitable by executing on our service-focused strategy from the beginning of the agent experience to risk selection to protecting our policyholders and their injured workers. This is who we are, turning risk into opportunity through the performance and experience of our employees. Thank you for joining us today.

This concludes today's call. Thank you for your participation. You may now disconnect.