AMERISAFE - Earnings Call - Q4 2024
February 27, 2025
Executive Summary
- Q4 2024 delivered underwriting profitability with a net combined ratio of 86.1% and net income of $13.2M ($0.69 diluted EPS); year-over-year EPS declined on lower net unrealized gains, while underwriting results remained disciplined.
- Top line momentum continued: gross premiums written rose 3.9% YoY; voluntary premiums were up 8.5% YoY, driven by strong retention (94.1% policy retention; 88% premium retention) and new business production.
- Capital actions remained supportive: the regular dividend was raised 5.4% to $0.39 per share; book value per share ended at $13.51 after paying a $3.00 special dividend in December 2024.
- Management reiterated a 71% accident-year loss ratio outlook for 2025 and highlighted continued favorable reserve development ($9.7M in Q4) from prior accident years, underscoring claims execution strength.
- Potential stock reaction catalysts: dividend increase and continued policy growth against competitive rate headwinds; headwinds include moderating audit premiums and lower investment income from smaller portfolio post-special dividend.
What Went Well and What Went Wrong
What Went Well
- Strong underwriting execution: Q4 net combined ratio of 86.1% (vs. 85.5% LY) with favorable prior-year reserve development reducing LAE by $9.7M; AY loss ratio held at 71%.
- Sales-driven culture delivered: voluntary premiums +8.5% YoY; in-force policy count grew 9.6% for the year, supported by 94.1% policy retention and 88% premium retention in the quarter.
- Strategic message from CEO: “Risk selection, appropriate product pricing and claims handling resulted in combined ratios of 86.1% this quarter and 88.7% for the year,” emphasizing disciplined growth in a competitive market.
What Went Wrong
- Earnings declined YoY: diluted EPS fell to $0.69 from $1.00, driven primarily by lower net unrealized gains and realized losses vs. prior year.
- Investment income down: net investment income decreased 14.4% YoY to $6.9M in Q4 due to reduced investable assets following the special dividend; pre-tax investment yield ticked down to 3.2%.
- Expense ratio ticked up: underwriting expense ratio rose to 29.7% (vs. 28.9% LY), with prior-year franchise tax true-up not repeating; combined ratio slightly higher YoY.
Transcript
Operator (participant)
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. Kathryn Shirley. Please go ahead, ma'am.
Kathryn Shirley (EVP, Chief Administrative Officer & Secretary)
Good morning. Welcome to AMERISAFE 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 a 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 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 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 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 written 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 in-force 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 our organization and the empowerment of our employees to foster a sales-driven culture. From front-line 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 the 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 insure profitable high-hazard risks 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.
Anastasios Omiridis (CFO)
Thank you, Janelle, and good morning to everyone. For the fourth quarter of 2024, AMERISAFE reported net income of $13.2 million, or $0.69 per diluted share, and operating net income of $12.8 million, or $0.67 per diluted share. During the fourth quarter of 2023, net income was $19.2 million, or $1 per diluted share, and operating net income of $14.3 million, or $0.74 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. Gross 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 and 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- 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 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 $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 closes. With that, I would like to open the call for the question-and-answer portion of the call. Operator.
Operator (participant)
And if you would like to ask a question, please signal by pressing star one 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 one. If you would like to ask a question, we'll now take a question from Mark Hughes with Truist.
Mark Hughes (Analyst)
Yeah, thanks. Good morning.
Janelle Frost (President and CEO)
Hi, Mark.
Mark Hughes (Analyst)
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 per policy has been, how that has trended over the last few quarters?
Janelle Frost (President and CEO)
Yeah, great. I believe, Mark, the 9.6% that I quoted was for the year. That's on an accident-year basis, not just the quarter. So that was for the entire year. And how does that compare? I'm sorry. Go ahead.
Mark Hughes (Analyst)
Oh, I was going to, I'm sorry to interrupt, but how was that in the fourth quarter?
Janelle Frost (President and CEO)
Great question. I don't have that in front of me, actually. I only got the year-to-date. Let me think about it. Let me see if I can find it.
Mark Hughes (Analyst)
I guess the year-over-year is the 9.6, but.
Anastasios Omiridis (CFO)
2.6%.
Janelle Frost (President and CEO)
Yeah, policy count growth in the fourth quarter was 2.6%.
Mark Hughes (Analyst)
Okay, and that's a sequential number?
Janelle Frost (President and CEO)
Yes.
Mark Hughes (Analyst)
Okay. Very good. And then sorry for interrupting. You were saying I think I'd asked about size as well.
Janelle Frost (President and CEO)
Yeah, so size of policy. Our average policy size for 2024 was slightly lower than 2023, but still holding strong. We certainly were 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 slowing 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.
Mark Hughes (Analyst)
Okay. How about the renewal rate? The pricing measure that shall not be named, we don't have that, which is perfectly fine. But generally speaking, this quarter, I think you had undertaken a strategy of being a little more active on renewal rate. Was that a contributor this quarter? Has that kind of run its course? Or how much was that an impact on the top line?
Janelle Frost (President and CEO)
Right. Yes, it certainly was impactful to the quarter and to the full year, actually. But for the quarter, our policy retention was 94.1% on a policy basis, and on a premium basis, 88%. So strong renewals.
Mark Hughes (Analyst)
And then your reserve gains, I think you'd had some gains from 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, 2021, 2022, just kind of how they're shaping up?
Janelle Frost (President and CEO)
Yeah, those are going to be good accident years for us. The 9.7% favorable development, or not percent, $9.7 million of favorable development we had this quarter. $1 million of it was from 2022. $1.5 million was from 2021. $1.6 million from 2020. And then 2019 and prior was $5.6 million. So we're obviously seeing, even from the more recent years, we're seeing favorable development come out of those accident years.
Mark Hughes (Analyst)
Yeah. And then maybe one more. The ceded 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 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—yeah, I see it as around 6% normally of gross premiums written.
Anastasios Omiridis (CFO)
Mark it's Andy, good morning to you. So you're right. The cession was a little bit higher. I think that's because of the growth that we saw in the quarter. And of course, in Q4, we always go back and make sure that if there's any true-up needed, it's done. But overall, it's really based on the growth that we're seeing in the policy count coming through voluntary direct and just as far as 2025, I think it's fair to say that every quarter isn't linear. So I think the 6% you're saying is probably correct, but it's right around that number.
Mark Hughes (Analyst)
Yeah. Okay. Very good. I had a couple more, but I'll jump back in the queue. Thank you.
Janelle Frost (President and CEO)
Thank you, Mark.
Operator (participant)
As a reminder, that star one if you would like to ask a question. We'll now take a question from Matt Carletti with Citizens JMP.
Matthew Carletti (Analyst)
Thanks. Good morning.
Janelle Frost (President and CEO)
Good morning, Matt.
Matthew Carletti (Analyst)
First question is, you've obviously talked a bit about what we're seeing 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, kind of interacting with your agencies and trying to be easier to do business with, and one of the aspects you pointed to, I think it was last call, was kind of the idea of getting them just to not think of you as the roofing company and that you write other high-hazard 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 in 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?
Janelle Frost (President and CEO)
That's a great question. 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. Making sure that that is easily accessible to our agents, both through our TSMs and both through digital platforms as well. Excuse me, getting our TSMs in front of agents, reiterating, "What do you have in your book, Mr. Agent, that fits in AMERISAFE's risk appetite and give us an opportunity?" The question, too, is that attributable to growth? I would say yes. Could I put percentages around that? Probably no. 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.
Matthew Carletti (Analyst)
Okay. Perfect. And then second question, kind of latter part of last year, a couple of hurricanes came through areas of the country that you have a lot of business. Have you seen, 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.
Janelle Frost (President and CEO)
Yeah. You're right, Matt. It does take time. 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. We do look at the monthly reportings that our policyholders are sending into us, and we've seen a little bit of increase if I look at Florida, Georgia, and the Carolinas, but nothing that I could point to and say, "Yeah, 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.
Matthew Carletti (Analyst)
Okay. Great. Thank you very much for the color. I appreciate it.
Janelle Frost (President and CEO)
Thank you, Matt.
Operator (participant)
And once again, that star one. if you would like to ask a question, we'll now take a question from Bob Farnham with Janney.
Robert Farnham (Analyst)
Hey there. Good morning. I'd just like to maybe expand a little bit on Matt's question about kind of 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 the stuff that you already write?
Janelle Frost (President and CEO)
We are focusing on things that we already write. If I talk about it in terms of hazard groups, A to G, we specialize in E, F, and G. And still, over 80% of our in-force 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.
Robert Farnham (Analyst)
Right. Okay. That's what I thought. And just kind of a qualitative view on reserves, 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, kind of what I'm getting at.
Janelle Frost (President and CEO)
Yeah. If I look at accident years, and I'll use sort of the same accident years that we put in the 10-K, you know where we have 2023, 2022, it goes, and 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 there are some states that we can't technically close the claims for medical reasons. And so they're open for medical only, but we're done with the indemnity portion of the claim. But yeah, 99% of those claims, I would say, are closed for those that were prior to 2019.
Robert Farnham (Analyst)
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?
Janelle Frost (President and CEO)
I believe so, 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 field 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, and 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.
Robert Farnham (Analyst)
Great. All right. Thanks for the answers, Janelle.
Janelle Frost (President and CEO)
Thank you, Bob.
Operator (participant)
Once again, that star one. if you would like to ask a question, we'll now take a follow-up from Mark Hughes with Truist.
Mark Hughes (Analyst)
Yeah. Thanks. You talked about the payroll. One of the concepts that's come up from time to time is kind of the next job in construction. Do you have any view on the construction industry and the prospects there?
Janelle Frost (President and CEO)
You know, Mark, I feel, and this is the world according to Janelle, but my opinion is that at least for our insured base, the economy seems to be supporting their work pretty well. I mean, we're still seeing strong payroll growth there. We are finding opportunities. 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 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 and 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 industry's stance on the economy as it stands. But I mean, 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.
Mark Hughes (Analyst)
Yeah. How about the large claims for the year?
Janelle Frost (President and CEO)
Yeah. So 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 $1 million. 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 an accident 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 it 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, obviously, falls and slips being the number one cause of loss for the larger claims. And that's true for 2024.
Mark Hughes (Analyst)
Yeah. Okay. Then anything on the medical inflation front, either from costs or ability to access certain services in case of lack of capacity because reimbursement rates are too low? Any changes there you've noted?
Janelle Frost (President and CEO)
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 those things. In terms of reimbursement rate, no. We certainly are monitoring the loss costs or the rates that are being approved by the states and how that could or could not be impactful to us. But it's been a wide range. If you look at the loss costs that have been approved for 11 or the ones that we know about for 2025 at this point, I think the high is a 19% decrease in Maine and the I say the high, the low, the decrease.
Then the largest increase I think we've seen is 6.5% in Nevada. There's a wide range there in the loss costs that are being approved. How medical costs will influence or how the reimbursement rates will influence that on a go-forward basis, I guess time would tell. 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 a highlight in the rate filing. I don't recall that. It's been more just experience.
Mark Hughes (Analyst)
Yeah. Have you averaged up the rate filings? If you look at the recent trend, is the...
Janelle Frost (President and CEO)
Yeah. The average is. I don't think I have to say this, but it's a decrease of somewhere around the mid-single-digit range.
Mark Hughes (Analyst)
Yeah. How was that?
Janelle Frost (President and CEO)
It really doesn't come up.
Mark Hughes (Analyst)
How was that mid-year or this time last year?
Janelle Frost (President and CEO)
So for 2023, that's a good point. In 2023, we were sort of upper single digits, so more in the 8-9%, depending. I think we said somewhere in the range of 7-9% for 2023. So it's a ever so slight improvement if you're trying to get me to give you great news about rates. There you go.
Mark Hughes (Analyst)
Hey, it's an inflection. The trend is right.
Janelle Frost (President and CEO)
Yeah. Definitely.
Mark Hughes (Analyst)
And then anything on the audit front? Is it that we're just kind of progressing through that earlier period of wage inflation? And so as you do the audits on the lookback, it's kind of naturally tapering. Is that a way to think about it? Maybe that audits just naturally from a macro perspective, you'll see a deceleration there?
Janelle Frost (President and CEO)
Yeah. I believe we'll see a deceleration or a moderation. I don't see, again, looking forward to 2025, based on what I know today, I don't see audit premium turning negative. I think it still remains positive. I think the new employee count has still 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'll be a deceleration from that standpoint. But standalone audit premium, I believe, will still remain positive in 2025.
Mark Hughes (Analyst)
Yeah. And then any instances of any competitors getting more aggressive for workers' comp premium? 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.
Janelle Frost (President and CEO)
It is very competitive, Mark. If that's a change, probably not. But as the other P&C lines have not yet rectified their issues in terms of overall results, workers' compensation remains attractive, and so 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.
Mark Hughes (Analyst)
Yeah. Dipping into high-hazard is probably a bad approach. One question.
Janelle Frost (President and CEO)
Yes. If you're asking me for advice, yes, I would say that. Certainly.
Mark Hughes (Analyst)
That's super dangerous. You need to stay away.
Janelle Frost (President and CEO)
Exactly.
Mark Hughes (Analyst)
Any early thoughts on loss pick for 2025?
Janelle Frost (President and CEO)
Yeah. As of right now, I believe we're going to hold at 71.
Mark Hughes (Analyst)
Okay. Very good. Thank you for all the answers.
Operator (participant)
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.
Janelle Frost (President and CEO)
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.
Operator (participant)
And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.