AMERISAFE(AMSF) - 2021 Q1 - Quarterly Report

Forward-Looking Statements This section outlines potential risks and uncertainties that could cause actual results to differ materially from anticipated results - Key factors include the impact of COVID-19, increased competition, changes in economic conditions, and greater than expected frequency or severity of claims[9] Part I - Financial Information This part presents the company's unaudited consolidated financial statements and management's discussion and analysis for the period Item 1. Financial Statements This section presents the unaudited consolidated financial statements for AMERISAFE, Inc. as of March 31, 2021, including balance sheets, income statements, cash flows, and notes Consolidated Balance Sheets This section provides the consolidated balance sheets, highlighting increases in total assets, liabilities, and shareholders' equity Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Investments | $1,125,134 | $1,088,744 | | Total Assets | $1,494,579 | $1,470,855 | | Total Liabilities | $1,046,953 | $1,032,039 | | Total Shareholders' Equity | $447,626 | $438,816 | Consolidated Statements of Income This section presents the consolidated statements of income, showing a significant increase in net income for Q1 2021 Q1 2021 vs Q1 2020 Income Statement (in thousands, except per share data) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Gross Premiums Written | $81,514 | $87,071 | | Net Premiums Earned | $70,746 | $78,990 | | Total Revenues | $83,351 | $79,169 | | Total Expenses | $59,726 | $65,928 | | Net Income | $19,312 | $10,800 | | Diluted EPS | $0.99 | $0.56 | | Cash Dividends per Share | $0.29 | $0.27 | - Net income increased significantly to $19.3 million in Q1 2021 from $10.8 million in Q1 2020, primarily driven by net unrealized gains on equity securities of $5.5 million compared to a loss of $8.8 million in the prior year period[16] Consolidated Statements of Cash Flows This section details the consolidated statements of cash flows, showing changes in operating, investing, and financing activities Q1 2021 vs Q1 2020 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $16,593 | $15,212 | | Net Cash (Used in) / Provided by Investing Activities | ($39,601) | $25,755 | | Net Cash Used in Financing Activities | ($5,675) | ($5,257) | | Change in Cash and Cash Equivalents | ($28,683) | $35,710 | Note 4. Investments This note provides details on the company's investment portfolio, primarily composed of fixed maturity securities Investment Portfolio Summary as of March 31, 2021 (in thousands) | Investment Category | Carrying Amount / Fair Value | | :--- | :--- | | Held-to-Maturity (Amortized Cost) | $575,108 | | Available-for-Sale (Fair Value) | $411,904 | | Equity Securities (Fair Value) | $50,843 | | Total Investments (excluding short-term) | $1,037,855 | - The investment portfolio is primarily composed of fixed maturity securities, with a significant allocation to states and political subdivisions. As of March 31, 2021, the company held 29 available-for-sale securities in an unrealized loss position, none for longer than 12 months[39][42][53] Note 6. Loss Reserves This note details the company's loss reserves and the impact of favorable prior accident year development - The company experienced favorable development of prior accident years' loss reserves, which reduced loss and loss adjustment expenses by $11.4 million in Q1 2021, compared to a $13.6 million reduction in Q1 2020[67] Reconciliation of Loss and Loss Adjustment Expenses (in thousands) | Description | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net Balance, Beginning of Period | $654,854 | $677,544 | | Incurred - Current Accident Year | $50,937 | $57,268 | | Incurred - Prior Accident Years | ($11,420) | ($13,621) | | Paid - Total | ($45,281) | ($46,874) | | Net Balance, End of Period | $649,090 | $674,317 | Note 8. Fair Value Measurements This note describes the fair value measurement hierarchy for financial instruments, totaling $462.7 million in recurring assets - The company's financial instruments are measured at fair value using a three-level hierarchy. As of March 31, 2021, assets measured at fair value on a recurring basis totaled $462.7 million[75][83] Fair Value of Recurring Measurement Assets as of March 31, 2021 (in thousands) | Input Level | Amount | | :--- | :--- | | Level 1 (Quoted Prices) | $86,849 | | Level 2 (Observable Inputs) | $375,898 | | Level 3 (Unobservable Inputs) | $0 | | Total | $462,747 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial condition and operating results for Q1 2021, highlighting premium trends and investment performance Business Overview This section outlines AMERISAFE's business model, focusing on workers' compensation insurance for hazardous industries - AMERISAFE specializes in providing workers' compensation insurance to small and mid-sized employers in hazardous industries such as construction, trucking, and manufacturing. The business strategy focuses on disciplined underwriting, proactive safety reviews, and intensive claims management[97] Results of Operations This section analyzes key operational metrics, including gross premiums written, net investment income, and performance ratios - Gross premiums written decreased by 6.4% to $81.5 million in Q1 2021, primarily due to a $3.3 million decrease in premiums from payroll audits and a $2.4 million decrease in new voluntary policy premiums[102] - Net investment income decreased 15.0% to $6.6 million, attributed to lower investment yields on fixed income securities and cash balances[104] Key Performance Ratios | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net Combined Ratio | 84.6% | 83.5% | | Return on Average Equity | 17.4% | 10.0% | | Book Value per Share | $23.16 | $22.64 | Liquidity and Capital Resources This section discusses the company's cash flow from operating and investing activities and overall capital management - Net cash from operating activities increased to $16.6 million in Q1 2021 from $15.2 million in Q1 2020, mainly due to lower underwriting expenses and losses paid[110] - The company experienced a significant shift in investing activities, with net cash used of $39.6 million in Q1 2021 compared to net cash provided of $25.8 million in Q1 2020, reflecting different patterns of investment purchases and sales/maturities[111] Investment Portfolio This section details the composition of the company's investment portfolio as of March 31, 2021 Investment Portfolio Composition as of March 31, 2021 | Asset Class | Carrying Amount (in thousands) | Percentage of Portfolio | | :--- | :--- | :--- | | Fixed Maturity - Held-to-Maturity | $575,108 | 49.7% | | Fixed Maturity - Available-for-Sale | $411,904 | 35.5% | | Equity Securities | $50,843 | 4.4% | | Short-term Investments | $87,279 | 7.5% | | Cash and Cash Equivalents | $33,074 | 2.9% | | Total | $1,158,208 | 100.0% | Prior Year Development This section explains the favorable development of prior accident year loss reserves and its impact on expenses - The company recorded favorable prior accident year development of $11.4 million in Q1 2021, compared to $13.6 million in Q1 2020, largely due to favorable case reserve development from closed claims and claims where workers reached maximum medical improvement[117][120] Favorable Prior Year Development by Accident Year (in millions) | Accident Year | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | 2018 | $4.5 | $0.0 | | 2017 | $2.5 | $2.9 | | 2016 | $1.5 | $3.1 | | Prior to 2016 | $2.9 | $7.6 | | Total Net Development | $11.4 | $13.6 | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section confirms no material changes in the company's market risk profile since the previous fiscal year-end - There have been no material changes in the quantitative or qualitative aspects of the company's market risk profile since December 31, 2020[123] Item 4. Controls and Procedures Management concluded that disclosure controls were effective and reported no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[125] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[127] Part II - Other Information This part includes information on unregistered sales of equity securities and a list of exhibits filed with the report Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase program, noting no repurchases in Q1 2021 and remaining authorization - The company did not repurchase any shares in the three months ended March 31, 2021[135] - As of March 31, 2021, $25.0 million remained available for future purchases under the company's share repurchase program[135] Item 6. Exhibits This section lists the exhibits accompanying the Form 10-Q, including required CEO and CFO certifications - Exhibits filed include certifications from the CEO (G. Janelle Frost) and CFO (Neal A. Fuller) pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[129][130][131]