AMERISAFE INC Q1 FY2025 earnings call

Key Points

• Pleased with Q1 results, both financially and operationally, with incremental growth and attractive underwriting margin within existing footprint and risk appetite.
• Operating in a competitive environment with declining workers' compensation rates and economic uncertainties including tariffs, inflation, recession, and interest rates.
• Strong new business production and improved premium retention driving top line growth; 93.1% retention in first quarter.
• $8.7 million favorable development on prior accident years, primarily from 2020 and 2021, attributed to proactive claims handling.
• Ongoing investments in the business to support top line growth, leading to an increase in underwriting and other expenses.
• Investment portfolio is high quality with an average AA- credit rating, 62% in municipal bonds, 22% in corporate bonds, etc., and strong capital position.

Gross written premiums grew 4.6% to $83.8 million in the first quarter of 2025 compared to $80.1 million in the first quarter of 2024. Net premiums earned increased to $68.9 million, a 60 basis point increase from $68.4 million in the prior year quarter. Total underwriting and other expenses were $20.6 million in the quarter, a $1.9 million increase from $18.7 million in the first quarter of 2024, resulting in an expense ratio of 29.9% compared to 27.3% prior year. Net income was $8.9 million or $0.47 per diluted share in Q1 2025, down from $16.9 million or $0.88 per diluted share in Q1 2024. Net investment income decreased 9.7% to $6.7 million due to a decrease in investable assets following the payment of a special dividend.

Forward-Looking Statements

• Evaluating economic risks impacting the business directly and to customers, but no specific numerical guidance provided.
• Expecting expense ratio to flatten out or moderate as investments for scale start to show premium recognition, aiming to be below 30% for the year.

Risks

• Strong competition driven by declining workers' compensation rates and turmoil in other property and casualty lines.
• Economic uncertainties including tariffs, inflation, recession, and interest rates that can impact payrolls and thus premium.
• Potential influence of economic conditions on premium such as unemployment, general economic slowdown, project delays, and wage inflation.

Q: Matt Carletti asked about audit premium impact on prior year quarters and recovery from hurricane events.

A: Janelle Frost provided audit premium figures for prior quarters and noted slight increases in rebuilding classifications in North Carolina and Georgia due to hurricanes.

Q: Matt Carletti inquired about potential tariff impacts on the business.

A: Janelle Frost speculated on possible impacts to pharmacy and durable medical equipment costs, noting it's uncertain and depends on cost-pass through.

Q: Mark Hughes asked about changes in the competitive dynamic.

A: Janelle Frost stated no significant shift in competitive level at that point.

Q: Mark Hughes asked about expense ratio persistence.

A: Anastasios Omiridis said the $1.9 million increase in expenses is related to investing for scale and expects costs to flatten or moderate, aiming for below 30% expense ratio for the year.

Q: Mark Hughes asked about state loss cost updates.

A: Janelle Frost mentioned still seeing declining rates, with an average 6%-8% decrease in case, and monitoring physician care cost increases.

Q: Mark Hughes asked about medical inflation and tariff impacts.

A: Janelle Frost noted physician care costs are escalating, tied to fee schedules and medical repricing, with tariffs not the current driver but to be monitored.

Q: Mark Hughes asked about industry loss costs and NCCI data.

A: Janelle Frost mentioned waiting for NCCI data to see industry redundancy, expecting overall redundancy to decline but degree of decline to be watched as rate decreases may have slowed.