AMERISAFE(AMSF) - 2025 Q2 - Quarterly Report

Forward-Looking Statements The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements that are not guarantees of future performance and are subject to risks and uncertainties, which could cause actual results to differ materially[8][9] - Key risk factors include the cyclical nature of the workers' compensation insurance industry, increased competition, general economic conditions, developments in capital markets, technology breaches, and changes in regulations or accounting standards[9][10] Part I - Financial Information Item 1. Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, income statements, and cash flows, with detailed notes Consolidated Balance Sheets | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Total assets | $1,155,114 | $1,157,791 | | Total liabilities | $889,544 | $900,450 | | Total shareholders' equity | $265,570 | $257,341 | | Reserves for loss and loss adjustment expenses | $624,095 | $651,309 | | Unearned premiums | $138,784 | $121,926 | Consolidated Statements of Income | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Gross premiums written | $79,704 | $76,428 | $163,488 | $156,502 | | Net premiums earned | $69,381 | $68,633 | $138,266 | $137,079 | | Net investment income | $6,691 | $7,447 | $13,343 | $14,813 | | Total revenues | $81,088 | $75,830 | $153,685 | $156,319 | | Net income | $13,955 | $10,993 | $22,904 | $27,918 | | Diluted EPS | $0.73 | $0.57 | $1.20 | $1.46 | | Cash dividends declared per common share | $0.39 | $0.37 | $0.78 | $0.74 | Consolidated Statements of Comprehensive Income | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net income | $13,955 | $10,993 | $22,904 | $27,918 | | Unrealized gain (loss) on debt securities, net of tax | $(292) | $(820) | $1,314 | $(2,366) | | Comprehensive income | $13,663 | $10,173 | $24,218 | $25,552 | Consolidated Statements of Changes in Shareholders' Equity - Total shareholders' equity increased from $257,341 thousand at December 31, 2024, to $265,570 thousand at June 30, 2025[22] - The company repurchased 62,757 shares of treasury stock for $2,796 thousand during the six months ended June 30, 2025[22] - Dividends to shareholders totaled $14,912 thousand for the six months ended June 30, 2025[22] Consolidated Statements of Cash Flows | Metric | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net cash provided by (used in) operating activities | $(10,235) | $4,914 | | Net cash provided by investing activities | $33,076 | $5,776 | | Net cash used in financing activities | $(18,421) | $(18,761) | | Change in cash and cash equivalents | $4,420 | $(8,071) | | Cash and cash equivalents at end of period | $48,465 | $30,611 | Notes to Unaudited Consolidated Financial Statements Note 1. Basis of Presentation - AMERISAFE provides workers' compensation insurance for small to mid-sized employers engaged in hazardous industries, such as construction, trucking, logging, agriculture, manufacturing, maritime, and telecommunications[28] - The unaudited consolidated financial statements are prepared in accordance with Form 10-Q instructions and GAAP, relying on management estimates and assumptions that may differ from actual future results[29][30] - The company has not adopted new accounting guidance in 2025 but is evaluating prospective guidance on income tax and expense disaggregation disclosures for future annual reports[31][32][33] Note 2. Restricted Stock, Restricted Stock Units, and Stock Options - The company operates under the Restricted Stock Plan and the 2022 Equity and Incentive Compensation Plan, with no further grants under the 2012 Incentive Plan[34][35] - During the six months ended June 30, 2025, 19,737 shares of common stock were issued for vested performance awards, and 11,452 shares of restricted common stock (market value $1.4 million) were awarded to non-employee directors[36] - Share-based compensation expense was $0.7 million for the quarter ended June 30, 2025, and $1.8 million for the six months ended June 30, 2025[37] Note 3. Earnings Per Share | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $0.73 | $0.58 | $1.20 | $1.46 | | Diluted EPS | $0.73 | $0.57 | $1.20 | $1.46 | | Basic weighted average common shares | 19,038,360 | 19,083,232 | 19,037,339 | 19,102,700 | | Diluted weighted average common shares | 19,119,600 | 19,146,294 | 19,120,530 | 19,171,206 | Note 4. Investments | Investment Type | June 30, 2025 (Fair Value, in thousands) | December 31, 2024 (Fair Value, in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Held-to-maturity fixed maturity | $371,355 | $399,721 | | Available-for-sale fixed maturity | $306,715 | $307,750 | | Equity securities | $52,451 | $58,629 | | Short-term investments | $14,900 | $9,338 | | Total investments | $758,888 | $788,778 | - Net realized gains on investments were $3.1 million for Q2 2025 (vs. $0.1 million net losses in Q2 2024) and $3.1 million for H1 2025 (vs. $0.3 million net losses in H1 2024), primarily from sales of equity and available-for-sale fixed maturity securities[55][56] - The company recognized $1.8 million of net unrealized gains on equity securities in Q2 2025, a significant improvement from $0.1 million net unrealized losses in Q2 2024. For H1 2025, there were $1.3 million net unrealized losses, compared to $4.7 million net unrealized gains in H1 2024[57] - As of June 30, 2025, the allowance for credit losses on held-to-maturity securities was $0.1 million, primarily for state and political subdivisions and corporate bonds. There was no allowance for credit losses on available-for-sale investments[49][50] Note 5. Income Taxes - The company had no valuation allowance against its deferred income tax assets and liabilities as of June 30, 2025 and 2024[60] - Income tax expense differs from the 21% U.S. federal statutory rate primarily due to tax-exempt investment income and state income tax accruals[61] Note 6. Loss Reserves - Reserves for loss and loss adjustment expenses (LAE) are estimated using individual case-basis valuations, statistical analyses, and experience for reported and unreported claims, subject to trends in loss severity and frequency[63] Loss Reserve Development | Metric | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net balance, beginning of period | $538,567 | $554,248 | | Total incurred | $80,819 | $80,615 | | Total paid | $106,110 | $87,610 | | Net balance, end of period | $513,276 | $547,253 | - Favorable development of net reserves reduced loss and LAE incurred by $17.4 million in H1 2025 (vs. $16.7 million in H1 2024), primarily due to lower than expected severity of injuries and favorable case reserve development[64] Note 7. Comprehensive Income and Accumulated Other Comprehensive Loss - Comprehensive income includes net income plus unrealized gains and losses on available-for-sale investment securities, net of a 21% tax rate[67] Accumulated Other Comprehensive Loss | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Balance, beginning of period | $(7,269) | $(8,740) | $(8,875) | $(7,194) | | Net current period other comprehensive income (loss) | $(292) | $(820) | $1,314 | $(2,366) | | Balance, end of period | $(7,561) | $(9,560) | $(7,561) | $(9,560) | Note 8. Fair Values of Financial Instruments - Fair value measurements are categorized into a three-level hierarchy (Level 1: quoted prices in active markets; Level 2: observable market data for similar assets; Level 3: unobservable inputs)[75][79] Fair Value Measurements at June 30, 2025 | Asset Type | Level 1 Inputs (in thousands) | Level 2 Inputs (in thousands) | Total Fair Value (in thousands) | | :-------------------------------- | :---------------------------- | :---------------------------- | :------------------------------ | | Fixed maturity securities—available-for-sale | $14,275 | $292,440 | $306,715 | | Equity securities | $52,451 | $— | $52,451 | | Total (June 30, 2025) | $66,726 | $292,440 | $359,166 | - Equity and treasury securities are classified as Level 1 assets, while other fixed maturity securities and short-term investments are classified as Level 2 assets[82][83] Note 9. Treasury Stock - The Board reauthorized a share repurchase program in July 2025 for up to $25.0 million with no expiration date, replacing the prior program[87][96] - During the three and six months ended June 30, 2025, the company repurchased 62,757 shares of common stock for $2.8 million, at an average price of $44.55 per share[86][144] Note 10. Segment Reporting - AMERISAFE operates as a single reportable segment, Insurance Operations, specializing in workers' compensation insurance for small to mid-sized employers in high-hazard industries[88][89] - Key financial measures used to evaluate performance include return on average equity and growth in book value per share[90] Note 11. Subsequent Events - The One Big Beautiful Bill Act (OBBBA) was enacted on July 4, 2025, but is not expected to have a material impact on the company's results of operations[94] - On July 22, 2025, the Board declared a regular cash dividend of $0.39 per share, payable on September 26, 2025[95] - On July 23, 2025, the Board reauthorized the share repurchase program for up to $25.0 million, replacing the prior program[96] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, operations, and cash flows, including business overview and critical accounting policies Business Overview - AMERISAFE specializes in workers' compensation insurance for small to mid-sized employers in hazardous industries, which typically involve higher premiums and less frequent but more severe claims[99] - The company's strategy emphasizes proactive safety reviews, intensive claims management, and audit services to manage costs and ensure appropriate premiums[99] - AMERISAFE actively markets its insurance in 27 states through independent agencies and its wholly-owned insurance agency subsidiary[100] Critical Accounting Policies - Critical accounting policies requiring significant estimates and assumptions include reserves for loss and loss adjustment expenses, amounts recoverable from reinsurers, premiums receivable, deferred policy acquisition costs, deferred income taxes, credit losses on investment securities, and share-based compensation[101][102] - No changes have been made to these critical accounting policies from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[102] Results of Operations Consolidated Results of Operations for Three Months Ended June 30, 2025 Compared to June 30, 2024 | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | Change (%) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :--------- | | Gross premiums written | $79,704 | $76,428 | +4.3% | | Net premiums earned | $69,381 | $68,633 | +1.1% | | Net investment income | $6,691 | $7,447 | -10.2% | | Net income | $13,955 | $10,993 | +27.0% | | Diluted EPS | $0.73 | $0.57 | +28.1% | | Net combined ratio | 91.7% | 90.5% | +1.2 pp | | Return on average equity | 21.2% | 14.6% | +6.6 pp | - Gross premiums written increased by $3.3 million, driven by an $8.5 million increase in voluntary premiums, partially offset by a $5.8 million decrease from payroll audits[105] - Loss and loss adjustment expenses incurred increased slightly by 0.1% to $40.7 million, with a net loss ratio of 58.6% (down from 59.2%). Favorable prior accident year development was $8.6 million[112] - Underwriting and certain other operating costs, commissions, and salaries and benefits increased to $21.7 million, leading to an expense ratio of 31.3% (up from 29.8%)[113] Consolidated Results of Operations for Six Months Ended June 30, 2025 Compared to June 30, 2024 | Metric | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | Change (%) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :--------- | | Gross premiums written | $163,488 | $156,502 | +4.5% | | Net premiums earned | $138,266 | $137,079 | +0.9% | | Net investment income | $13,343 | $14,813 | -9.9% | | Net income | $22,904 | $27,918 | -18.0% | | Diluted EPS | $1.20 | $1.46 | -17.8% | | Net combined ratio | 90.5% | 88.8% | +1.7 pp | | Return on average equity | 17.5% | 18.8% | -1.3 pp | - Gross premiums written increased by $7.0 million, driven by a $13.7 million increase in voluntary premiums, partially offset by a $7.1 million decrease from payroll audits[115] - Loss and loss adjustment expenses incurred increased slightly by 0.3% to $80.8 million, with a net loss ratio of 58.5% (down from 58.8%). Favorable prior accident year development was $17.4 million[122] - Underwriting and certain other operating costs, commissions, and salaries and benefits increased by 8.2% to $42.3 million, resulting in an expense ratio of 30.6% (up from 28.5%)[123] Liquidity and Capital Resources - Net cash used in operating activities was $10.2 million for H1 2025, a $15.1 million decrease from $4.9 million provided in H1 2024, primarily due to a $19.3 million increase in losses paid[126] - Net cash provided by investing activities was $33.1 million for H1 2025, up from $5.8 million in H1 2024, driven by lower investment purchases[127] - Net cash used in financing activities was $18.4 million for H1 2025, consistent with $18.8 million in H1 2024, including $14.9 million for dividends and $2.8 million for treasury stock repurchases[128] Investment Portfolio - The carrying value of the investment portfolio, including cash and cash equivalents, decreased by 3.1% from $832.8 million at December 31, 2024, to $807.4 million at June 30, 2025[129] Investment Portfolio Composition | Investment Type | Amount (in thousands) | Percentage of Portfolio | | :-------------------------------- | :-------------------- | :---------------------- | | Fixed maturity securities—held-to-maturity | $384,822 | 47.6% | | Fixed maturity securities—available-for-sale | $306,715 | 38.1% | | Equity securities | $52,451 | 6.5% | | Short-term investments | $14,900 | 1.8% | | Cash and cash equivalents | $48,465 | 6.0% | | Total (June 30, 2025) | $807,353 | 100.0% | Prior Year Development Total Net Development | Period | Total Net Development (in millions) | | :-------------------------------- | :-------------------------------- | | Three Months Ended June 30, 2025 | $8.6 | | Three Months Ended June 30, 2024 | $8.1 | | Six Months Ended June 30, 2025 | $17.4 | | Six Months Ended June 30, 2024 | $16.7 | - Favorable loss development was largely due to lower than expected severity of injuries and favorable case reserve development from closed claims and claims where the worker had reached maximum medical improvement[134] - The number of open claims at June 30, 2025, increased to 4,024 from 3,888 at June 30, 2024[134] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section identifies the company's primary market risks as credit, interest rate, and equity price risk, with no material changes since December 31, 2024 - The company's major market risks are credit risk, interest rate risk, and equity price risk, with no exposure to foreign currency risk[137] - There have been no material changes in the quantitative or qualitative aspects of the company's market risk profile since December 31, 2024[138] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025, providing reasonable assurance for timely and accurate reporting[139] - No material changes in internal control over financial reporting occurred during the period covered by this report[141] Part II - Other Information Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item details the company's share repurchase program, including total shares repurchased and activity during the three months ended June 30, 2025 - Since its inception in 2010, the share repurchase program has repurchased a total of 1,745,608 shares of common stock for $44.8 million[143] - During the three months ended June 30, 2025, the company repurchased 62,757 shares for $2.8 million, at an average price of $44.55 per share[144] - As of July 24, 2025, $25.0 million was available for future repurchases under the reauthorized program[145] Item 5. Other Information This section confirms no directors or officers adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter - No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended June 30, 2025[146] Item 6. Exhibits This item lists all exhibits filed with the Form 10-Q, including organizational documents, equity incentive plan amendments, and certifications - Exhibits include the Amended and Restated Certificate of Formation and Bylaws, the Non-Employee Director Restricted Stock Plan, Section 302 and 906 certifications, and XBRL interactive data files[148] Signatures This section contains the official signatures of the company's President, CEO, and CFO, certifying the report on July 25, 2025 - The report is signed by G. Janelle Frost (President, CEO, and Director) and Anastasios Omiridis (Executive Vice President and CFO) on July 25, 2025[152]