AMERISAFE(AMSF) - 2023 Q3 - Quarterly Report

Forward-Looking Statements This section contains forward-looking statements, cautioning that actual results may differ due to various identified risk factors - This report contains forward-looking statements regarding the company's financial performance and future events. It cautions readers not to place undue reliance on these statements as actual results could differ materially due to various risk factors[9] - Key risk factors identified include the cyclical nature of the workers' compensation industry, increased competition, changes in relationships with independent agencies, general economic conditions (including inflation and interest rates), capital market performance, technology breaches, and changes in regulations or accounting standards[9] PART I - FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for the period ended September 30, 2023, including balance sheets, income statements, and cash flows, with detailed accounting notes Consolidated Financial Statements Consolidated Statements of Income Highlights (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $72,640 | $71,380 | $226,737 | $214,976 | | Net Premiums Earned | $66,634 | $67,790 | $201,413 | $205,625 | | Net Investment Income | $8,105 | $6,983 | $23,262 | $19,581 | | Net Income | $9,961 | $11,361 | $42,927 | $34,824 | | Diluted EPS | $0.52 | $0.59 | $2.23 | $1.80 | Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Investments | $889,019 | $888,987 | | Total Assets | $1,296,636 | $1,269,279 | | Total Liabilities | $960,753 | $951,847 | | Total Shareholders' Equity | $335,883 | $317,432 | Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $25,875 | $36,066 | | Net cash provided by (used in) investing activities | ($7,390) | $14,391 | | Net cash used in financing activities | ($20,705) | ($30,227) | Notes to Unaudited Consolidated Financial Statements These notes detail accounting policies, investment specifics, loss reserves, fair value measurements, and subsequent events, with no new accounting guidance adopted in 2023 - The Company provides workers' compensation insurance for small to mid-sized employers in hazardous industries like construction, trucking, logging, and manufacturing[35] Investment Portfolio Summary (Sep 30, 2023, in thousands) | Category | Amortized Cost/Cost | Fair Value | | :--- | :--- | :--- | | Held-to-Maturity Securities | $487,166 | $452,019 | | Available-for-Sale Securities | $331,798 | $306,040 | | Equity Securities | $46,944 | $54,926 | - The company recorded favorable development on prior accident years' loss reserves, reducing loss and loss adjustment expenses by $31.2 million in the first nine months of 2023, compared to a $30.2 million reduction in the same period of 2022[74] - Subsequent to the quarter end, on October 24, 2023, the Board of Directors declared a special cash dividend of $3.50 per share and a regular quarterly cash dividend of $0.34 per share[100] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 and YTD 2023 financial performance, covering premium growth, investment income, expense management, loss reserves, liquidity, and capital resources Results of Operations Results show mixed performance with increased gross premiums, decreased net premiums due to higher reinsurance, significant investment income growth, and a higher net combined ratio Key Performance Metrics | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Gross Premiums Written | $70.8M | $68.2M | $225.0M | $220.5M | | Net Premiums Earned | $66.6M | $67.8M | $201.4M | $205.6M | | Net Investment Income | $8.1M | $7.0M | $23.3M | $19.6M | | Net Income | $10.0M | $11.4M | $42.9M | $34.8M | | Net Combined Ratio | 90.6% | 85.4% | 86.1% | 84.1% | - The increase in gross premiums written was mainly driven by a $2.3 million increase in payroll audits and related premium adjustments in Q3 2023 and a $7.6 million increase for the nine-month period[111][119] - Net premiums earned and written were impacted by higher reinsurance costs, as the company purchased higher levels of coverage at generally higher prices in 2023[112][120] - The expense ratio increased to 33.6% in Q3 2023 from 28.9% in Q3 2022, primarily due to a decrease in profit sharing reinsurance commission and an increase in commission expense[117] Liquidity and Capital Resources Primary funds from premiums and investment income, with operating cash flow decreasing to $25.9 million from $36.1 million due to lower collections and higher expenses Cash Flow Summary (Nine Months Ended Sep 30, in millions) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Operating Cash Flow | $25.9 | $36.1 | | Investing Cash Flow | ($7.4) | $14.4 | | Financing Cash Flow | ($20.7) | ($30.2) | - In the first nine months of 2023, the company paid $19.7 million in dividends to shareholders, an increase from $18.0 million in the same period of 2022[129] - No shares of common stock were repurchased in the first nine months of 2023, compared to $12.2 million in repurchases during the same period in 2022[129] Prior Year Development Favorable development on prior accident year loss reserves totaled $31.2 million in 9M 2023, slightly up from $30.2 million in 9M 2022, driven by case reserve development Favorable Prior Accident Year Development (in millions) | Period | 2023 | 2022 | | :--- | :--- | :--- | | Three Months Ended Sep 30 | $10.2 | $10.4 | | Nine Months Ended Sep 30 | $31.2 | $30.2 | - The number of open claims decreased to 4,222 at September 30, 2023, from 4,479 at September 30, 2022[135] Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk profile since year-end 2022, with primary risks being credit, interest rate, and equity price risk - There have been no material changes in the quantitative or qualitative aspects of the company's market risk profile since year-end 2022[139] - The major components of market risk are credit risk, interest rate risk, and equity price risk[139] Controls and Procedures Management, including CEO and CFO, deemed disclosure controls effective as of September 30, 2023, with no material changes to internal controls during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[140] - No changes in internal control over financial reporting occurred during the quarter that materially affected or are likely to materially affect the controls[142] PART II - OTHER INFORMATION Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased in 9M 2023, with $12.6 million remaining available for future purchases under the share repurchase program - No shares were repurchased during the nine months ended September 30, 2023[144] - As of September 30, 2023, the company had $12.6 million available for future purchases under its share repurchase program[144] Other Information No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q3 2023 - No directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q3 2023[145] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and Inline XBRL documents - The report includes certifications from CEO G. Janelle Frost and CFO Anastasios Omiridis pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[147][148][149] - Interactive data files (XBRL) are included as exhibits to the filing[150][151][152][153]