AMERISAFE - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 was operationally solid but mixed vs expectations: operating EPS of $0.60 modestly beat S&P Global consensus, while total revenues missed on lower net investment income and equity marks; GAAP diluted EPS was $0.47 as unrealized equity losses flowed through earnings. EPS (Primary/operating) actual $0.60 vs $0.597*; revenue actual $72.60M vs $76.78M*; combined ratio 89.1% (vs 87.3% LY).
• Top-line drivers stayed healthy: gross written premium +4.6% YoY to $83.8M, voluntary premiums +7.1% YoY; audits contributed $5.0M (down YoY as wage inflation moderates).
• Underwriting remained disciplined: current accident-year LR held at 71%; favorable prior-year development of $8.7M aided a 58.3% net loss ratio; expense ratio rose to 29.9% on growth investments (management expects full-year below 30%).
• Capital and income: net investment income fell 9.7% YoY (smaller portfolio post-special dividend), equity marks were -$3.2M; book value per share rose to $13.69 (+1.3% QoQ) and a $0.39 dividend was declared for June 20.
• Potential stock catalysts: path to sub-30% expense ratio, continued favorable reserve development, sustained policy retention with agency engagement, and any rebuilding activity tailwinds in SE footprint vs risk from continued state rate declines, medical/physician cost pressure, and tariff scenarios.

What Went Well and What Went Wrong

• What Went Well

  • Sustained premium growth with disciplined underwriting: “Gross written premiums grew 4.6%... driven by consistent new business gains and strong premium retention… Premiums on policies we wrote in the quarter grew 7.1%” (CEO).
  • Favorable reserve development continued: $8.7M net favorable development (primarily AY 2020–2021), supporting a 58.3% loss ratio; frequency favorable and severity “relatively modest” outlook (CEO).
  • Capital/ROAE resilience: Operating ROAE 17.1% with book value per share up to $13.69 QoQ, and portfolio quality (avg AA-, 4.48-year duration) intact (CFO).

• What Went Wrong

  • Revenue and GAAP EPS pressure from markets: net investment income -9.7% YoY and -$3.2M unrealized equity loss weighed on total revenues and GAAP EPS.
  • Expense ratio ticked up: underwriting expense ratio rose to 29.9% on growth investments and timing, though management expects full-year to settle below 30% (CFO).
  • Rate headwinds persist: state loss costs continue to trend down mid-single digits, with a 6–8% average decrease expected across NCCI states, keeping pricing pressure elevated (CEO).

Transcript

Operator (participant)

Good day and welcome to the AMERISAFE Q1 2025 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Kathryn Shirley. Please go ahead.

Kathryn Shirley (EVP, Chief Administrative Officer and Secretary)

Thank you, Operator, and good morning, everyone. Welcome to the AMERISAFE 2025 Q1 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 result 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 Factors section of our Form 10-K, Form 10-Qs and other reports and filings with the U.S. 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.

Janelle Frost (President and CEO)

Thank you Kathryn 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 strong competition now, driven by declining workers' compensation rates and turmoil amongst other property and casualty lines. There is 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 Q1 of 2024, which was driven by consistent new business gains and strong premium retention. 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 Q1 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 discussed in previous quarters with the moderation in wage inflation. As indicated on 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.

Andy Omiridis (CFO)

Thank you, Janelle and good morning to everyone. For the Q1 of 2025, AMERISAFE reported net income of $8.9 million, or $0.47 per diluted share and operating net income of $11.4 million, or $0.60 per diluted share. In comparison, during the Q1 of 2024, net income was $16.9 million, or $0.88 per diluted share and operating net income of $13.3 million, or $0.69 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 Q1 of 2024. Gross written premiums increased by 4.6% to $83.8 million in the quarter compared with $80.1 million in the Q1 of 2024.

Net premiums earned increased 60 basis points to $68.9 million compared to $68.4 million in the Q1 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 Q1 of 2024. This increase resulted in an expense ratio of 29.9% compared with 27.3% in the Q1 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 Q1 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 Q1, 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 Q1 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 U.S. Treasuries and Agencies, 7% in equity securities and 6% in cash and other investments. Approximately 54% of our bond portfolio is classified as held to maturity securities which maintain a net unrealized loss of $13.3 million as of quarter end. As a reminder, the 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 $826 million in investments, cash and cash equivalents. 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 $235.1 million at December 31, 2024. 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.

Janelle Frost (President and CEO)

Operator, we're ready for Q&A.

Operator (participant)

My apologies. Again, those questions or 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.

Matt Carletti (Managing Director and Senior Insurance/InsurTech Analyst)

Hey, good morning.

Janelle Frost (President and CEO)

Good morning, Matt.

Andy Omiridis (CFO)

Good morning.

Matt Carletti (Managing Director and Senior Insurance/InsurTech Analyst)

Just a few questions. One is, do you have handy the kind of the audit premium impact on the year-ago Q2 and Q3, too, if you have it. Just trying to get a feel for obviously voluntary is seeing a nice rebound, but kind of what. What we're up against in terms of just the kind of reported number.

Janelle Frost (President and CEO)

I appreciate that. I'll just kind of give the four quarters of last year. Q1, $6.4 million. As I stated earlier, Q2 was $7.3 million, Q3 was $4 million, and Q4 was $2.5 million.

Matt Carletti (Managing Director and Senior Insurance/InsurTech Analyst)

All right, super helpful. Thank you. Kind of staying on top line. As kind of last fall happened and Helene hit and Milton hit. It sure seemed like those were your construction exposure, trucking exposure, kind of in your wheelhouse there in terms of the rebuild, as well as states that you have pretty big market shares in? 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?

Janelle Frost (President and CEO)

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 Q4, quarter of 2023. 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.

Matt Carletti (Managing Director and Senior Insurance/InsurTech Analyst)

Okay, helpful. Then one last one. If I could just. Can you help us, you know, with the. Help us think through kind of the impact of potential tariffs on your business? I know that might be impossible, given we do not know what that picture's gonna look like, but I am 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 have done any analysis just on what that impact should be or if we should not even be worried about it.

Janelle Frost (President and CEO)

It's a great question. I can speculate with everyone else in the industry, I suppose, again, putting premiums aside, 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. If tariffs somehow impact those two, there could be a slight uptick in medical from that perspective. For AMERISAFE, 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, I don't know that it would be that meaningful. I think the real question is going to be is the cost passed through or not, right.

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 premium. That's my speculation, for what it's worth.

Matt Carletti (Managing Director and Senior Insurance/InsurTech Analyst)

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

Janelle Frost (President and CEO)

You're welcome.

Operator (participant)

Once again, if you have a question, please press Star one on your telephone keypad. Our next caller or question is going to come from Mark from Truist.

Mark Hughes (Equity Analyst)

Yeah, thanks. Good morning.

Janelle Frost (President and CEO)

Good morning, Mark.

Mark Hughes (Equity Analyst)

Janelle, you mentioned competition in your remarks. Was there any change in that competitive dynamic in the Q1?

Janelle Frost (President and CEO)

No, there really hasn't been. You know, 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. There really hasn't been a shift, good or bad in the level of competition, not at this point.

Mark Hughes (Equity Analyst)

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

Andy Omiridis (CFO)

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

Mark Hughes (Equity Analyst)

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

Janelle Frost (President and CEO)

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, 6-6, somewhere between 6-8%. 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 out across all of the states. You know, it varies in degree. I think the smallest was like half a percentage decrease and then the largest being nearly 14% decrease. It still varies, but on average somewhere in that 6-8% range decrease, in case I wanted to clarify.

Mark Hughes (Equity Analyst)

Okay, yeah. Anything on the medical inflation front? You mentioned some of the maybe potential tariff impacts, so. On an underlying basis, any changes?

Janelle Frost (President and CEO)

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. 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 cost, medical equipment.

Mark Hughes (Equity Analyst)

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

Janelle Frost (President and CEO)

No. Yeah, no, great question. What I was referring to is actual bills coming in the door, so not necessarily utilization, actually what the doctors are charging us.

Mark Hughes (Equity Analyst)

Yeah. Isn't that largely tied to kind of state fee schedules, isn't there?

Janelle Frost (President and CEO)

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. 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.

Mark Hughes (Equity Analyst)

Yeah, you got those deep pockets. Anything you see in the stat data as you look at the industry, your judgments about the loss cost 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 this time around?

Janelle Frost (President and CEO)

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 generally the degree of declining because again, loss 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. The rate of the decreases may have slowed slightly. Therefore, I would assume that means the industry's decline, the industry's overall redundancy should be deteriorating. 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.

The question would be, does the industry feel as confident in the more current accident years as they did in those pre-COVID accident years? I think the industry as a whole would say that's probably not the case. We'll see what happened. The data tells its own story. We'll see what has been collected and what's reported.

Mark Hughes (Equity Analyst)

Yeah. Remember, properly you provided wage specifics. Maybe increases in payroll versus increases in wages or average wage.

Janelle Frost (President and CEO)

Right. You know, 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. 1Q. 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 count, but the wage inflation is still trending above the national average.

Mark Hughes (Equity Analyst)

Yeah. Am I thinking properly that your ELCM is a thing of the past? Which is perfectly fine with me.

Janelle Frost (President and CEO)

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

Mark Hughes (Equity Analyst)

Yeah. It was a beautiful thing.

Janelle Frost (President and CEO)

Thank you, Mark. I appreciate that.

Mark Hughes (Equity Analyst)

Did you consult Alan on that decision?

Janelle Frost (President and CEO)

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 do feel like that's competitive information.

Mark Hughes (Equity Analyst)

Yeah, understood. One final one, large losses in the quarter.

Janelle Frost (President and CEO)

Two.

Mark Hughes (Equity Analyst)

Two. Okay. Kind of below trend.

Janelle Frost (President and CEO)

Right?

Mark Hughes (Equity Analyst)

Yeah. Okay. All right, thank you very much.

Janelle Frost (President and CEO)

Thank you.

Operator (participant)

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

Janelle Frost (President and CEO)

This quarter was another data point in our success, 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.

Operator (participant)

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