AMERISAFE - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered a revenue beat and a slight operating EPS miss: total revenues were $81.09M vs S&P Global consensus $77.30M (beat by ~$3.79M, +4.9%), while operating EPS was $0.53 vs $0.537 (miss by ~$0.007, -1.2%); GAAP diluted EPS was $0.73 supported by $3.1M realized and $1.8M unrealized gains on equities. Values retrieved from S&P Global.*
• Underwriting remained solid but sequentially softer: net combined ratio was 91.7% (vs 90.5% a year ago and 89.1% in Q1) as the expense ratio rose to 31.3% due to insurance-based assessments (+100 bps) and growth investments, partly offset by $8.6M favorable prior-year reserve development.
• Top-line drivers stood out: gross premiums written increased 4.3% YoY and voluntary premiums on policies written rose 12.8% on stronger new business and 93.8% renewal retention; in-force policy count grew 3.4% in the quarter.
• Capital returns remain a catalyst: Board reauthorized a $25.0M share repurchase program and declared a $0.39 quarterly dividend; book value per share rose to $13.96 (+3.3% YTD).

What Went Well and What Went Wrong

• What Went Well

  • Strong organic growth: “Voluntary premiums on policies written grew 12.8%,” supported by new business and 93.8% renewal retention; in-force policy count up 3.4% in the quarter.
  • Favorable reserve development: $8.6M of favorable prior-year development aided the net loss ratio (58.6% vs 59.2% LY) and supported profitability.
  • Capital management: share repurchases of ~62.8K shares for $2.8M; new $25.0M buyback authorization; regular dividend declared at $0.39/share; book value per share at $13.96.

• What Went Wrong

  • Operating EPS miss vs consensus: $0.53 vs $0.537 amid higher expense ratio (31.3% vs 29.8% LY) linked to growth investments and insurance-based assessments (+100 bps). Values retrieved from S&P Global.*
  • Net investment income declined YoY: $6.7M (-10.2% YoY) due to lower investable assets following the special dividend; though sequentially improved by 60 bps.
  • Continued moderation in audit premium: $1.5M contribution vs $7.3M LY reduced immediate earnings leverage relative to the prior year.

Transcript

Speaker 3

Good day and welcome to the AMERISAFE second quarter 2025 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Kathryn Shirley. Please go ahead.

Speaker 1

Thank you, operator, and good morning, everyone. Welcome to the AMERISAFE 2025 second 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 a result 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 factors 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 statement. I will now turn the call over to Janelle Frost, AMERISAFE's President and CEO.

Speaker 0

Thank you, Kathryn, and good morning, everyone. I am pleased to begin today's call highlighting our continued success in growing premiums by increasing policy count, exhibiting pricing discipline, and strong renewal retention. Our risk selection, coupled with working more effectively with our agents, generated 12.8% growth in voluntary premiums for policies written in the quarter. Our enforced policy count grew 3.4% in the quarter supported by new business growth and 93.8% renewal retention. These accomplishments took place in a competitive market where workers' compensation remains the most profitable in the property and casualty space. According to NCCI, the industry's combined ratio remained below 100% for 2024. However, it did not improve over 2023, unlike the other P&C lines which are getting rate increases. Workers' compensation approved loss costs, on average, are down mid-single digit, with California being a significant outlier with an 8.7% increase.

While AMERISAFE only has ancillary exposure in California, we cannot ignore the potential for this dramatic increase to signal a shift in the cycle. Another potential sign for a shift was NCCI's reported 6% increase in medical severity for 2024. Regardless if the market remains soft or begins to harden, AMERISAFE is well-positioned both operationally and with a strong balance sheet to respond and generate consistent underwriting profitability. As for AMERISAFE's loss experience, frequency was down compared to the second quarter of 2024, and severity trends are within our expectations. Our current accident year loss ratio was 71% as of the end of the second quarter. In addition, we had $8.6 million of favorable development in the quarter as our claims team continues to demonstrate expertise in finding opportunities to close claims effectively and efficiently. This quarter, accident years 2020 and prior drove most of the favorable case development.

Further, on July 23, 2025, our board of directors approved the reauthorization of a $25 million share repurchase program, replacing the prior program. Since the inception of our initial program in February of 2010, we have repurchased approximately 1.75 million shares at an average cost of $25.69 per share, totaling $44.8 million. In addition, the company's board of directors declared a regular quarterly cash dividend of $0.39 per share, payable on September 26, 2025, to shareholders of record as of September 12, 2025. These ongoing capital management strategies reflect our confidence in the long-term value of our business and our commitment to delivering to shareholder returns. I'll now turn the call over to Andy to discuss financial results surrounding our underwriting profitability and investment.

Speaker 2

Thank you, Janelle, and good morning, everyone. For the second quarter of 2025, AMERISAFE reported net income of $14 million or $0.73 per diluted share and operating net income of $10 million or $0.53 per diluted share. During the second quarter of 2024, net income was $11 million or $0.57 per diluted share and operating net income was $11.1 million or $0.58 per diluted share. The higher reported net income was primarily driven by stronger valuations across our equity holdings, which resulted in a net unrealized gain on equity securities of $1.8 million during the quarter, in addition to $3.1 million of realized gains, also primarily from equity securities. Gross written premiums were $79.7 million in the quarter, compared with $76.4 million in Q2 of 2024, increasing 4.3%. Audit premiums continued to moderate, which increased the top line by $1.5 million, compared with $7.3 million in the year-ago period.

Despite the audit premium headwinds, voluntary premium growth on policies written in the quarter was 12.8%, fueled by new business production and strong retention. Our total underwriting and other expenses were $21.7 million in the quarter, compared with $20.4 million recognized in the prior year quarter. This increase resulted in an expense ratio of 31.3%, compared with 29.8% in the year-ago quarter. The expense ratio reflects ongoing investment in AMERISAFE's growth. Further, audit premium, which is earned immediately, has declined in comparison to the prior year, but is still a material contributor to net premiums earned. While voluntary premiums are earned over time, creating an expense premium mismatch that elevates the ratio. Lastly, 100 basis points of the current quarter's expense ratio is due to an increase in insurance-based assessments. We anticipate the full-year expense ratio to be in line with previous years.

Our effective tax rate was 20.1% compared to 20% in the prior year quarter. Turning to our investment portfolio, in the second quarter, net investment income decreased 10.2% to $6.7 million, driven by a decrease in investable assets following the payment of the special dividend. At quarter end, we had approximately $807 million in investments, cash and cash equivalents, compared to $884 million at June 30, 2024. On a consecutive quarter basis, net investment income increased by 60 basis points. The reinvestment rate environment remains strong this quarter, with yields on new investments exceeding portfolio rolloff by 230 basis points, contributing to a tax-equivalent book yield of 3.85%, compared to 3.79% in the second quarter of 2024. Our investment portfolio remains high quality, carrying an average AA- credit rating with a duration of four and a half years.

The composition of the portfolio is 62% in municipal bonds, 21% in corporate bonds, 4% in U.S. treasuries and agencies, 7% in equity securities, and 6% in cash and other investments. Approximately 50% of the portfolio is classified as held to maturity. As a reminder, these securities are carried at amortized cost, and therefore unrealized gains and losses are not reflected in our reported book value. Our capital position is strong with a high-quality balance sheet, solid loss reserve position, and conservative investment portfolio. During the second quarter, the company repurchased 63,000 shares at an average cost of $44.55, totaling $2.8 million. A couple of other topics. Book value per share increased to $13.96, up 3.3% year to date. Statutory surplus was $257 million, compared to $235 million at year-end 2024. We will be filing our 10-Q with the SEC later today after the close of the market.

With that, I would like to open the call for the question and answer portion of the call. Operator.

Speaker 3

Thank you. If you would like to ask a question, please signal by pressing 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. We'll pause for just a moment to allow everyone an opportunity to signal. We will now take our first question from Mark Hughes with Truist Securities.

Speaker 5

Thank you. Good morning. Morning, Janelle.

Speaker 3

Morning, Mark.

Speaker 5

Good morning. It's 13%. Pretty impressive. You described it in the usual way, good retention and strong new business, but could you give something as good or stronger than last quarter? I'm just sort of curious what you saw in the quarter that drove that business.

Speaker 0

Yeah, Mark, I'll start by saying this. Shout out to the AMERISAFE team. The employees have truly been focused on ease of doing business, agent effectiveness, and creating scalability. I've been talking about it for, gee, I should probably look back and see how many earnings calls now, and they really are seeing the fruits of their labor. Coming into this year and at the end of last year, we said we were looking for small incremental growth. We are achieving that. We've grown policy count 5.8% since year-end, 3.4% in the quarter. Yes, sticking to our knitting, sticking to our risk selection process, starting from the beginning of the sales process with our sales folks on the ground, working with agents, making sure that we are working with the right agents that fit AMERISAFE's profile, onto safety being part of that process.

Still, 93% of our accounts are still getting that pre-quote safety inspection, our safety visit with our safety folks out on the ground, visiting with prospects, understanding those risks, providing that information back to my underwriters, and then our underwriters can do what they do best in terms of risk selection, understanding risk, pricing it appropriately. I know we don't give pricing information anymore on this call, but I'll say this about our risk selection process. If I look at that enforced policy count, 83% to 85% of that is still within those hazard groups, E, F, and G, which is where we consider our specialty, where we consider our sweet spot. That's a very long answer to say that I just feel like all of those things collectively are coming together with the intention of finding ways to address this very competitive market that we're in.

For the longest time, AMERISAFE probably took more of a defensive position in terms of the market price. Now we look at, yeah, this stock market has been gone for, I think we're in our 10th, maybe 10th or 11th year of approved loss costs continuing to go down with some improvement. We're not in double-digit declines anymore. We're at mid-single digits. Finding a way to respond to that market and still keep our risk selection profile and what we know we want to underwrite to in terms of profitability, top of mind, and finding ways to get that done.

Speaker 5

Very good. How about the average policy size? I think policy count up 6%, written up 13%. I know that's kind of apples and oranges, but any change in the average policy size?

Speaker 0

A slight change, I would say. Again, approved loss costs, I think, are down mid-single digits, so in that 5% to 6% range. I do know, I can say this. I know that wage inflation, at least for this past quarter, wages were up roughly around 5%. Even NCCI mentioned for 2024 that wage growth did not exceed the loss cost changes. For the longest time, we were receiving premium dollars, basically quasi-rate, from just wage inflation standalone. That has sort of balanced out now in terms of wage growth being somewhere around the 5% range, loss costs being in that 5% to 6% range. The average premium size may have changed ever so slightly, maybe slightly down, but our sweet spot is still in that 25% to 35% range, a 6%, $1,000 range.

Speaker 5

Gotcha. How about the medical inflation? Maybe I'll just a general comment there, and then the Medicare fee schedules, whether any of these updates are impacting your view on inflation. I think there's a lot of detail that I assume folks are still working through, but maybe some of the fee reimbursement arrangements for specialists, maybe they've gone up. I'm just curious if you have any observations there.

Speaker 0

Yeah, as I said in my opening remarks, you know, NCCI reported for 2024 medical severity had gone up 6%. Now, they do a workers' comp medical index, and that number was up 2.8%. The remainder of that, NCCI really attributed to the utilization, which I think is something everybody in the industry has been talking about for some time now and how we view that, what is actually happening, and then how we view that in terms of reserves. Going back to my claims team, I feel like this is where they shine the most in terms of how they initially set up those reserves, how they view those claims on a long-term basis. We haven't really changed our view, again, because we use long-term averages when we think about medical severity.

We have not changed our reserving practices in terms of some of the noise that, you know, I think people are starting to see in the data. We probably two years ago were talking about home health as an example of just pockets of medical costs where we were seeing inflation, right? It was harder to find providers in certain parts of the country, and then we were able to find providers. The rates had gone up significantly. I think there are, in the industry, again, pockets of where we're seeing that, probably a little bit more surgical procedures in terms of maybe increased hospitalizations. Nothing that I can point to in our particular data right now that would say that I feel like we need to change our reserving practices. Kudos to my claims team because they really have taken a long-term view of that.

We have a very consistent book of injury types and the severity of our injuries. There's not many things that we haven't seen at this point, for lack of a better term. Knock on wood. I don't need that to happen today. I feel very confident in our case reserving process.

Speaker 5

Very good. Any stats on new business, like new business production year over year in the quarter? I know that's something you haven't historically disclosed.

Speaker 0

Yeah, I hear you. We're very excited about the new business growth. Not a number I would necessarily want to put out there because my competitors listen to this call. We are having success. I'll say this. If you look, and I'll try to back into what I mean in terms of the new business growth. I mentioned renewal retention at 93.8%, and that was on a policy count basis. Yet policy count grew 3.4% in the quarter. You can back into that math. I'll say this as far as new business and talking about initially when I said ease of doing business and making and having more effective relationships with our agents. If you look at our agent count, at the end of 2023, 2,200 agents. At the end of 2024, roughly 1,700 agents. By second quarter, we were down to almost 1,500 agents.

Yet policy count has gone up. I think that speaks to how we've been able to find new business and be more effective with fewer agents.

Speaker 5

The addition by subtraction method.

Speaker 0

Yeah.

Speaker 5

I'll ask one final question on construction. What's the vibe in construction?

Speaker 0

Great question. We're still seeing wage growth there in terms of the payrolls that are being reported to us. Interestingly enough, this past quarter, we did not see an increase in new employee count. We actually saw maybe even a slight decrease, so something we're keeping our eye on there. That can go a couple of different ways. Obviously, we feel like new employees tend to drive up claim counts, tend to drive up frequency. If we have our druthers, we'd rather extend work hours. Anecdotally, we're hearing that. We're hearing things about extended work hours, same employees working longer hours. My thought process behind it, particularly in construction and our agriculture book of business, is somehow immigration and undocumented workers affecting those numbers to be seen. It was an interesting data point for this particular quarter.

If you think about it in terms of, let's play that through and say, okay, it is immigration or something to do with immigration. Not adding on incremental staff, new workers, extended work hours could be good for frequency. If indeed those workers do get replaced, if undocumented workers do get replaced with higher wage earners, that could be a boost in premium dollars. At the same time, if they're replaced with higher wage earners and they're new to that industry, it could also drive up frequency. I gave you a lot of different scenarios there, but I definitely think that impacts or has the potential to impact construction and our agriculture books in particular.

Speaker 5

Very good. Appreciate it.

Speaker 0

Thank you, Mark.

Speaker 3

If you did have a question, again, that is star one on your telephone. We will go next to Bob Farnham with Janie.

Hey, there. Good morning. I think one more question in lines of kind of what Mark was asking about. I just wanted to know in terms of caseload per claim personnel. I didn't know if there's been any changes to the caseloads over the last few years.

Speaker 0

No, sir. Great question. Good morning, Bob.

Amy.

We're still at below 50. We're still at below 50 claims per, on average, per adjuster. No shift there.

Okay. You've been at the 71% accident year loss ratio assumption for a few years now. Given the changes in the loss cost, am I right to assume that there's been some upward pressure there, that, if anything, that might go up at some point in the future?

Yeah, I think that's a good assumption. There's definitely pressure there. As to your point, as loss costs continue to decline, one of the beauties, I think, of AMERISAFE, again, shout out to my claims department, in the way we think about reserving and we put those reserves up to ultimate relatively quickly, it does help us in terms of how we price our product and how we think about profitability and on the risk selection side of things. There's no question in terms of just the absolute number of claims and the claims dollars that we're having to spend, that there's pressure on that 71% on a go-forward basis, unless something changes in the marketplace. I throw that out there just in case.

Yeah.

Unless something changes, if continued trends happen in terms of loss costs themselves, definitely pressure there.

Right. Okay. In terms of capital management, how are you balancing kind of share repurchases versus the special dividend? Is there any thought process behind how much you're allocating?

Speaker 2

Bob, it's Andy. How are you? Right now, we looked at the buyback. Of course, we want to buy back our stock at the right time. We did go through the board, as Janelle said, and it was reauthorized up to $25 million. The inquiry is how we balance out. Does that mean it has any connotations towards the special dividend? We assume there will be a special dividend. The recommendation is there, and there is capital sufficiency. That's probably the best way I can answer it for you.

Okay. All right. Got it. Last question that I had here was, it sounds like the expense ratio this year is going to be 30%-ish, maybe a little under. Do you have a kind of a long-term target that you want to keep your expense ratio around? I'm not sure if it's at 30% or above or below.

For the sake of not being too forward-looking, what we assume is, and for this year as well, that we will be within the range that we have been historically.

The historical range, you don't expect any changes, at least for now, without getting into it.

No. If I can add just one other, if you look at the quarter, we're at 31.3. If you look at the year, we're at 30.6. The assumption is that we'll be within the historical range.

Okay. All right. Thanks. Good cover.

Speaker 3

We'll return next to Mark Hughes with Truist Securities.

Speaker 5

I just want to follow up. The policyholder dividends were up a bit in the quarter. What drove that?

Speaker 2

Mark, I mean, the policyholder dividend is, you know, some of our policyholders did qualify for it. It isn't linear. It's lumpy. If you recollect, even from last year, it goes up and down each quarter. That's all I can say is there's really not any spike. It's just that we had more policies qualify for the policyholder dividends.

Speaker 5

Yeah. Can it be interpreted as a competitive issue that on some policies you are motivated to pay out higher dividends from a competitive standpoint, or is it a reflection of better loss experience and that's what's driving it? How do you think about that?

Speaker 0

It's probably a combination of both, Mark. I'll say this about policyholder dividends. For AMERISAFE, it's really made up of three states: Florida, which happens to be our largest state. There's something you can read into that, Wisconsin, and Virginia. Obviously, in Florida, as you know, is an administrative pricing state, so policyholder dividends is certainly a way to compete. It also involves loss experience.

Speaker 5

Would one say maybe a Florida rate being flat this year instead of down, that there was a little more competition by way of policyholder dividends? Is that a?

Speaker 0

One could say that.

Speaker 5

Okay. All right. I think I just said it. Very good. Okay. All right. Thank you. Appreciate it.

Speaker 0

Thank you, Mark.

Speaker 3

It appears there are no further questions at this time. I'll turn the call back to Janelle Frost, CEO, for any additional or closing remarks. We are pleased with this quarter's continued top-line growth and industry-leading operating ROE of 14.9%, supported by our investment in our people and technology and delivering on our commitment to our stakeholders. Thank you for joining us today. Thank you, ladies and gentlemen. That will conclude today's call. We thank you for your participation. You may disconnect.