AMERISAFE [AMSF] Conference call transcript for 2023 q1
2023-04-27 16:44:10
Fiscal: 2023 q1
Operator: Good day, and welcome to the AMERISAFE 2023 First Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the presentation over to Ms. Kathryn Shirley. Please go ahead, ma'am.
Kathryn Shirley: Good morning. Welcome to the AMERISAFE 2023 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. 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 today's earnings release, in the comments made during this call and in the Risk Factors 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 statements. I will now turn the call over to Janelle Frost, AMERISAFE's President and CEO.
Janelle Frost: Thank you, Kathryn, and good morning, everyone. AMERISAFE's long tenure in the high hazard workers' compensation market and disciplined approach to risk selection and pricing has allowed us to navigate competition and pricing pressure while maintaining solid results. We started the year with a strong first quarter performance reporting a combined ratio of 82.2%, gross premiums written growth of 6%, and an operating ROE of 19.1%. During the quarter, topline grew 6% as positive audit premiums more than offset rate declines. Our overall pricing this quarter as measured by our ELCM was a 148. We continue to see strong retention in policies we offer renewals with a 94% retention for the first quarter, largely in line with our recent experience despite steady competition. As we look forward, competitive pressures and rate declines are anticipated to remain a headwind. At the same time, we anticipate audit premiums to remain a tailwind. However, the quarter-over-quarter growth comparisons should begin to flatten. Moving to losses. The accident year loss ratio remained steady with the prior year at 71%. During the quarter, our claims handling practices (ph) drove better than expected outcomes resulting in favorable prior year development of $10.1 million or 14.6 loss ratio points. These reserves were primarily released from accident years 2016 through 2020. As it relates to loss trends frequency and severity of both within our line of expectations. Frequency was trending slightly below and severity on par with the previous accident year. It bears repeating that claims trends can be lumpy when isolating quarters. As has been our historical practice, our case reserves include anticipated medical inflation, particularly given the long tail nature of severe claims. Our balance sheet is conservatively positioned as we were minimally impacted by the economic volatility this quarter. Our financial position remains strong with roughly $1 billion in investments and cash, a solid reserve position and no outstanding debt. We expect our market dynamics to remain challenging. However, given our long tenure of experience in high hazard niche and strong balance sheet, we are well-positioned to retain our policyholders and attract business while delivering robust returns to our shareholders. With that, I will turn the call over to Andy to discuss our financials.
Andy Omiridis: Thank you. Janelle, and good morning to everyone. For the first quarter of 2023 AMERISAFE reported net income of $17.3 million or $0.90 per diluted share and operating net income of $16.1 million or $0.83 per diluted share. This is largely in line with Q1 2022 net income of $17.3 million or $0.89 per diluted share and operating net income of $15.9 million or $0.82 per diluted share. Gross written premiums were $82.5 million in the quarter versus $77.8 million in Q1 2022, growing 6% on a year-over-year basis. During the quarter, voluntary premiums decreased 1.1% primarily due to continued rate pressure. Payroll audit and related premium adjustments benefited the quarter by $8.9 million. Rates continue to decrease with the average decline in approved loss costs of 6.8% on a year-over-year basis. Wage growth remains strong resulting in some offset to our top line pressures. The accident year loss ratio was 71% in the quarter in line with what was booked in the previous year. The net loss ratio for the quarter was 56.4%, which reflects $10.1 million in favorable loss development primarily from accident years 2016 through 2020. Our total underwriting and other expenses were $17 million in the quarter, resulting in an expense ratio of 24.5% compared with 22.4% in the first quarter of 2022. This quarter included a $3.3 million increase in profit sharing reinsurance commission, while the first quarter of 2022 included a $3.8 million return of assessments from the Minnesota Reinsurance Association. After netting out these two items, the balance of the increase is driven by commissions and professional fees. Turning to our investment portfolio. In the first quarter, net investment income increased 21.6% to $7.4 million from $6.1 million in the prior year quarter. The increase was driven by higher yields on cash as well as higher reinvestment rates on fixed maturity securities. Yield on new investments increased approximately 330 basis points, driving our tax equivalent book yield to 3.49% or 74 basis points higher than the previous year. The investment portfolio is a high quality carrying an average AA minus credit rating with a duration of four years. The composition of the portfolio is 58% in municipal bonds, which includes 15% in taxable munis, we have 27% in corporate bonds, 3% in US treasuries and agencies, 7% in equity securities and 5% in cash and other investments. Approximately, 60% of our bond portfolio is comprised of held-to-maturity securities. Our capital position is strong with a high quality balance sheet to highlight loss reserve position and conservative investment portfolio. At quarter end, AMERISAFE carried out roughly $1 billion in investments, cash and cash equivalents. Since year end, book value grew 4.9% to $17.38 and operating return on average equity was 19.1%. With that, I would like to open the call for the question-and-answer portion of the call. Operator?
Operator: Yes, sir, Thank you. [Operator Instructions] We will now take our first question from Matt Carletti with JMP.
Operator: [Operator Instructions] We will now take our next question from Mark Hughes with Truist.
Operator: We'll now take our next question from Bob Farnam with Janney.
Operator: And it appears there are no further telephone questions, I'd like to hand the conference back over to Ms. Frost for any additional or closing comments.
Janelle Frost: First quarter was a strong start for the year, and we're pleased with the quarter's results. Equally, we look forward to continued success in 2023 as the AMERISAFE team strive to enhance our service to our agents, our policyholders and injured workers. Thank you for joining us today.
Operator: And that does conclude today's conference. We thank you all for your participation. You may now disconnect.
